IRS Announces Penalty Relief for Failure to Deposit Employment Taxes

Business Tax


In Anticipation of Refundable Tax Credits

On March 31, 2020, the IRS released Notice 2020-22 to provide penalty relief with regard to an employer’s deposits of federal employment taxes and income taxes (collectively Employment Taxes) that are expected to be reduced by the amount of refundable tax credits granted in recently-enacted legislation, namely the Families First Coronavirus Response Act (Families First Act) and the CARES Act.

The Notice includes a waiver of penalties under section 6656 for a failure to make a deposit of Employment Taxes relating to qualified sick leave and qualified family leave (including qualified health plan expenses) under sections 7001 and 7003 of the Families First Act, and a waiver of penalties for a failure to make a deposit of Employment Taxes relating to qualified retention wages under section 2301 of the CARES Act. For most employers, the liability for these deposits is reported on the quarterly Form 941 – Employer’s Quarterly Federal Tax Return.

If you have questions regarding the Notice, please reach out to your Withum advisor or
contact a member of Withum’s
Business Tax Services Group.

In the absence of the Notice, penalties could apply to the extent an employer failed to deposit the correct amount of Employment Taxes after taking into account its anticipated amount of tax credits. For example, penalties could apply if an employer was required to deposit $10,000 of Employment Taxes, but only deposited $6,000 (or less) even though it anticipated $4,000 of refundable tax credits. The Notice ensures that employers may pay qualified leave wages and qualified retention wages using Employment Taxes that otherwise would be required to be deposited without incurring a failure to deposit penalty.

The Notice applies to deposits of Employment Taxes reduced in anticipation of credits with respect to:

  • Qualified sick leave and qualified family leave paid with respect to the period beginning April 1, 2020 and ending December 31, 2020.
  • Qualified retention wages paid with respect to the period beginning on March 13, 2020 and ending December 31, 2020.


COVID-19 Resource Center

Previous Post

Next Post