On its website, the IRS has reminded taxpayers filing a Form 941, Employer’s QUARTERLY Federal Tax Return, they may submit a Form 7200, Advance Payment of Employer Credits Due to COVID-19, up to the earlier of February 1, 2021, or the date they file the Form 941 for the fourth quarter of 2020. Taxpayers filing a Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees, or Form 944, Employer’s ANNUAL Federal Tax Return, may submit a Form 7200 up to the earlier of February 1, 2021, or the date they file the applicable employment tax return for 2020. Taxpayers filing a Form CT-1, Employer’s Annual Railroad Retirement Tax Return, may submit a Form 7200 up to the earlier of March 1, 2021, or the date they file their Form CT-1 for 2020.
Background—employee retention credit. The Coronavirus Aid, Relief, and Economic Security Act (PL 116-136; CARES Act) provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees before January 1, 2021. (the “employee retention credit”). (CARES Act Sec. 2301(c)(2))
Eligible employers report their total qualified wages for purposes of the employee retention credit for each calendar quarter on their federal employment tax return (e.g., Form 941, Employer’s Quarterly Federal Tax Return). In anticipation of receiving the employee retention credit, eligible employers can fund qualified wages by: (1) using their federal employment taxes, including withheld taxes that are required to be deposited with the IRS; and (2) requesting an advance of the credit from the IRS for the amount of the credit that is not funded by accessing the federal employment tax deposits, by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19. (IRS.gov/How to Claim the Employee Retention Credit FAQs)
Background—sick and family leave credits. Under the Families First Coronavirus Response Act (PL 116-127; FFCRA), small employers (500 or fewer employees) that provide their employees with paid sick or family leave before January 1, 2021, are entitled to certain tax credits (the “FFCRA credits”). (FFCRA Sec. 7001 and Sec. 7003) The credits for qualified leave wages apply to wages paid with respect to the period of April 1, 2020, through December 31, 2020. (IRS.gov/Periods of Time for Which Credits are Available)
Small employers also report any qualified sick leave and qualified family leave wages for which they are entitled to a credit under FFCRA on an employment tax return such as Form 941. A small employer whose employment tax liability doesn’t cover the cost of qualified sick and family leave wages (plus the qualified health expenses and the employer share of Medicare tax on the qualified leave wages) may obtain an advance payment of the FFRCA credits by filing Form 7200.
Background—Forms 941, 943, and 944, generally. Employers use Form 941, Form 943 or Form 944 to report income, Social Security and Medicare taxes (also known as employment or payroll taxes) withheld from employees and to pay the employer’s portion of Social Security and Medicare taxes. (Form 941, Instructions, Form 943, Instructions, Form 944, Instructions)
Background—Form CT-1, generally. Railroad employers use Form CT-1 to report taxes imposed by the Railroad Retirement Act (RRTA). (Form CT-1, Instructions)
Background—Form 7200, generally. Employers that file Forms 941, 943, 944, or CT-1 may use Form 7200 to request an advance payment of the employee retention or sick and family leave credits. Form 7200 can be filed at any time before the end of the month following the quarter in which the employer paid the qualified sick or family leave wages, or paid qualified wages eligible for the employee retention credit.
Last day for filing Form 7200. The IRS reminds employers that last day to file Form 7200 to obtain advance payment of the credits for the quarter ending December 31, 2020 is:
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For employers filing a Form 941, the last day to file a Form 7200 is the earlier of February 1, 2021, or the date they file their Form 941 for the fourth quarter of 2020.
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For employers filing a Form 943, the last day to file a Form 7200 is the earlier of February 1, 2021, or the date they file their Form 943 for 2020.
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For employers filing a Form 944, the last day to file a Form 7200 is the earlier of February 1, 2021, or the date they file their Form 944 for 2020.
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For employers filing a Form CT-1, the last day to file a Form 7200 is the earlier of March 1, 2021, or the date they file Form CT-1 for 2020.
CAA, 2021. The Consolidated Appropriations Act, 2021 (CCA, 2021, December 27, 2020), which contained the COVID-related Tax Relief Act of 2020 (COVIDTRA), and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTRA) extends and expands prior payroll provisions from the FFCRA and CARES Act, including the sick and family leave credit (until March 31, 2021) and the employee retention credit (until June 30, 2021).
On its January 7, 2021 payroll industry telephone conference call, the IRS said it will be issuing a revised version of Form 7200 by the end of January 2021 to take into consideration the COVID-19 tax credit extensions from the CCA, 2021.
Checkpoint Source:Federal Tax Updates
