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IRS Waives Failure to Deposit Penalties

The IRS has announced relief from failure to make employment tax deposits to employers entitled to the refundable tax credits provided under the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Eligible employers who pay qualifying wages are able to retain an amount of the payroll taxes equal to the amount of qualifying wages that they paid, rather than deposit them with the IRS, which should positively impact cash flow.

The waiver will apply so long as the amounts not deposited are equal to or less than the amount of refundable tax credits to which the employer is entitled under the acts mentioned above. (Remember, the Families First Act grants credits for qualified sick leave wages, qualified family leave wages, and qualified health plan expenses allocable to qualified leave wages, while the CARES Act provides credits for qualified employee retention wages.)

The waiver will also apply to deposits of employment taxes reduced in anticipation of the credits for qualified sick leave wages, qualified family leave wages, and qualified health plan expenses paid beginning April 1, 2020, and ending Dec. 31, 2020, and deposits of employment taxes reduced in anticipation of the credits for qualified retention wages paid for the period beginning on March 13, 2020, and ending Dec. 31, 2020. 

This relief ensures that employers may pay qualified sick leave wages and qualified family leave wages required by the Families First Act or wages that qualify under the CARES Act as employee retention credit wages using employment taxes that would otherwise be required to be deposited without incurring a failure-to-deposit penalty.

For help navigating this announcement, please reach out.