The IRS Issues Guidance on Reconciling Advance
Payments of Employment Tax Credits Due to COVID-19

David Gibbs, CPA, CCIFP, MBA
Focused on You. Dedicated to Your Success.
July 29, 2020

As reported in Accounting Today yesterday, the IRS has posted temporary and proposed regulations to help employers reconcile any advance payments of refundable employment tax credits and recapture the benefit of these credits when necessary, in line with the CARES Act and the Families First Act.

According to the article, the regulations authorize the assessment of erroneous refunds of the credits paid under both pieces of legislation that were approved to provide tax relief in response to COVID-19.

The CARES Act offers an additional credit for employers who are suffering economic hardship due to COVID-19. Eligible employers who pay qualified wages to their employees are allowed to receive an Employee Retention Credit.

The Employee Retention Credit is a refundable tax credit against certain employment taxes equal to 50 percent of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021. Eligible employers can get immediate access to the credit by reducing employment tax deposits they are otherwise required to make. Also, if the employer's employment tax deposits are not sufficient to cover the credit, the employer may get an advance payment from the IRS.

Forms 941, 943, 944, and CT-1 have been or are in the process of being revised. Employers can use these returns to claim the paid sick and family leave, and employee retention credits.

Employers may receive advance payment of the credits up to the total allowable amounts. The IRS has created Form 7200, Advance Payment of Employer Credits Due to COVID-19, which employers can use to ask for an advance of the tax credits. Employers must reconcile any advance payments claimed on Form 7200 with the total amount of credits claimed and total taxes due on their employment tax returns. Any refund of the credits paid to a taxpayer that surpasses the amount permitted to the taxpayer is considered an erroneous refund, and the IRS must seek repayment of it.

For more information from the IRS on coronavirus relief for businesses and tax exempt organizations, click here. We will continue to update you on new developments. Please visit our  COVID-19 Resource Page  for more alerts.

Feel free to contact any member of our team at (610) 828-1900 (PA) or (732) 341-3893 (NJ) with questions. You can contact me at David.Gibbs@MCC-CPAs.com  and Marty at  Marty.McCarthy@MCC-CPAs.com . As always, we are happy to help.

Stay safe,

David Gibbs, CPA, CCIFP, MBA
Partner
McCarthy & Company

Source: IRS offers guidance on recapturing excess employment tax credits amid coronavirus. Michael Cohn. Accounting Today. July 27, 2020.

Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).