Penalty Relief For Payroll Tax Deposits Allows Immediate Use Of Pandemic Credits

The IRS permitted employers to take immediate advantage of various payroll tax credits enacted in response to the COVID-19 pandemic by retaining an amount of the payroll taxes equal to the amount of qualifying wages that they paid, rather than deposit them with the IRS. Notice 2021-24, issued in April, amplifies guidance issued last year (Notice 2020-22) and provides for penalty relief under Section 6656 for an employer's failure to timely deposit certain employment taxes with the IRS.

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The relief applies to employers who are required to pay qualified sick leave wages and qualified family leave wages, and qualified health plan expenses allocable to these wages, under the Families First Coronavirus Response Act (FFCRA), P.L. 116-127, as amended by the Consolidated Appropriations Act, 2021 (CAA), P.L. 116-260, and the American Rescue Plan Act (ARPA), P.L. 117-2.

This notice also provides relief from Section 6656 for certain employers subject to a full or partial closure order due to COVID-19 or experiencing a statutorily specified decline in business under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, as amended by the CAA and ARPA.

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In addition, the notice provides relief from Section 6656 for certain employers for which COBRA continuation coverage premiums were not paid by assistance-eligible individuals for such coverage by reason of Section 9501(a)(1) of ARPA.

The penalty relief applies to deposits of employment taxes that an employer reduces in anticipation of any of these credits:

• Paid sick and family leave credits under the FFCRA, as amended by the CAA, with respect to qualified leave wages paid with respect to the period beginning Jan. 1, 2021, and ending March 31, 2021;
• Paid sick and family leave credits under Sections 3131, 3132, and 3133 with respect to qualified leave wages paid with respect to the period beginning April 1, 2021, and ending September 30, 2021;
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• The employee retention credit under Section 2301 of the CARES Act, as amended by the CAA, with respect to qualified wages paid with respect to the period beginning January 1, 2021, and ending June 30, 2021;
• The employee retention credit under Section 3134 with respect to qualified wages paid with respect to the period beginning July 1, 2021, and ending December 31, 2021; and
• The credit for continuation coverage premium assistance under Section 6432, for COBRA continuation coverage premiums not paid by assistance-eligible individuals for such coverage by reason of Section 9501(a)(1) of ARPA during the period beginning April 1, 2021, and ending September 30, 2021.

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The amount of employment taxes that the employer does not timely deposit must be less than or equal to the amount of the employer's anticipated credits for the calendar quarter as of the time of the required deposit, and the employer must not have sought payment of an advance credit by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19, with respect to the anticipated credits it relied upon to reduce its deposits.

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