The pandemic has created hardships for many businesses, and that has led to some companies failing to pay their required employment taxes in a timely fashion. The IRS would like those companies to know that the Families First Coronavirus Response Act, the Tax Relief Act of 2020, the CARES Act, the Consolidated Appropriations Act and the American Rescue Plan Act of 2021 offer some tax credits and relief from some penalties.
Notice 2021-24 applies in large part to employers who were required by the various coronavirus-related packages to continue paying qualified sick and family leave wages and related healthcare expenses. Your company may have tax credits available for paying sick leave and family leave. There is also an employee retention tax credit.
For those employers who paid for COBRA continuation coverage for employees who were eligible for assistance under the American Rescue Plan Act may also qualify for a tax credit.
“This relief ensures that such employers may pay qualified sick leave wages and qualified family leave wages, qualified wages, and COBRA continuation coverage premiums using Employment Taxes that would otherwise be required to be deposited without incurring a failure to deposit penalty,” says the IRS.
For example, under the CARES Act, an employee retention credit is available for those companies who paid qualified wages, including health plan expenses, to some or all of their employees between March 12, 2020 and Jan. 1, 2021. That is a refundable tax credit amounting to 50% of the qualified wages paid up to $10,000 per employee per calendar quarter.
The Relief Act modified and extended this tax credit for the period between Dec. 31, 2020 and July 1, 2021. For that period, employers can claim a credit amounting to 75% of qualified wages paid, up to $10,000 per employee per calendar quarter.
Penalty relief for failure to deposit taxes
When a company fails to deposit their required employment taxes, it is generally assessed a “failure to deposit” penalty. The Families First Act and the CARES Act waive this penalty in relation to creditable employer Social Security taxes and creditable employer Medicare taxes in anticipation of the tax credits offered by the pandemic relief laws, when:
- The company pays their employment taxes between April 1, 2021 and Sept. 30, 2021
- The amount of unpaid employment taxes is less than or equal to the anticipated tax credits
- The company has not sought advance payment of the tax credits
Notice 2021-24 is quite detailed and we cannot discuss your particular tax issues in a blog post. If you have questions about applying for these tax credits and penalty abatements, talk to your tax attorney.