More Relief from Failure-to-Deposit Employment Tax Penalties

• Learn about several measures passed to help employers unable to pay employment taxes on time.
• Find out how you can take advantage of the latest failure-to-deposit tax relief.

Under the Internal Revenue Code, employers incur penalties when they fail to pay their federal employment tax by the deadline. Examples include deposits of withheld income taxes and FICA taxes.

However, the IRS recently provided additional penalty relief for employers who have failed to deposit their employment taxes on time. This reduction in deposits by employers happened in anticipation of many employment tax credits created by laws passed during the COVID-19 pandemic. Fiducial has the latest news below!

Various measures to relieve employment tax burdens

Employers paying qualified sick leave wages and qualified family leave wages, as well as qualified health plan expenses allocable to qualified sick and family leave wages, are eligible for refundable tax credits that can be claimed against their employment taxes.

Under the FFCRA, the sick and family leave credits should have expired at the end of 2020. However, subsequent legislation — namely the Consolidated Appropriations Act (CAA) and the American Rescue Plan Act (ARPA) — extended these credits for the first three quarters of 2021.

Additionally, certain employers experiencing a full or partial business suspension because of orders from a governmental authority during the COVID-19 pandemic, or experiencing a statutorily specified decline in business, are also allowed to claim the employee retention tax credit. It applies to up to 50% of qualified wages, including allocable qualified health care expenses. This credit offers up to $10,000 per employee per calendar quarter.

The employee retention credit was initially scheduled to expire at the end of 2020. However, subsequent legislation — the CARES Act and ARPA — extended this credit through December 31, 2021.

Finally, the ARPA provides a refundable tax credit for premiums payable for COBRA coverage. This credit is calculated with respect to premiums not paid by assistance eligible individuals for COBRA coverage during the period beginning April 1, 2021, and ending September 30, 2021.

Get the latest failure-to-deposit employment tax relief

The FFCRA, CARES Act, CAA and ARPA instruct the U.S. Secretary of the Treasury to waive the penalty for failure to deposit employment taxes in anticipation of the allowance of the refundable tax credits.

In Notice 2021-24, the IRS recently issued additional relief from failure to deposit penalties. The guidance describes penalty relief to employers who reduce their employment tax deposits in anticipation of receiving the following credits:

• Paid sick and family leave credits with respect to qualified leave wages paid from January 1, 2021, through September 30, 2021,
• The employee retention credit with respect to qualified wages paid beginning January 1, 2021, and ending December 31, 2021, and
• The COBRA credit for coverage from April 1, 2021, and ending September 30, 2021.

Welcome news

Relief from a tax penalty is always welcome news for employers. Need further information about Notice 2021-24 or updates on the latest COVID-related guidance and measures? Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations to discuss your situation.

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For more small business COVID-19 resources, visit Fiducial’s Coronavirus Update Center to find information on SBA loans, tax updates, the Paycheck Protection Program, paid sick and family leave, and more.