IRS Provides Penalty Relief for Failure to Deposit Employment Taxes Due to Credits

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April 14, 2021 – On April 13, 2021, the IRS published Notice 2021-24 to extend penalty relief for taxpayers who under deposit employment taxes in anticipation of receiving certain tax credits. Businesses eligible for Employee Retention Tax Credits (ERC), paid sick and family leave credits (FFCRA), or the credit for continuation of COBRA coverage may reduce their employment tax payments in anticipation of these credits. Normally, failure to deposit required amounts will result in the assessment of a penalty under Section 6656.

For employers eligible to receive the ERTC, the Notice explains:

“An eligible employer will not be subject to a penalty under section 6656 for failing to deposit Employment Taxes in a calendar quarter if— (1) The employer paid Qualified Retention Wages with respect to the period beginning January 1, 2021 and ending December 31, 2021, to its employees in the calendar quarter prior to the time of the required deposit, (2) The amount of Employment Taxes that the employer does not timely deposit, reduced by the amount of Employment Taxes not deposited in anticipation of the credits claimed under sections 7001 and 7003 of the Families First Act or sections 3131 and 3132 of the Code (as described in section 3.a of this notice), is less than or equal to the amount of the employer’s anticipated credits under section 2301 of the CARES Act or section 3134 of the Code for the calendar quarter as of the time of the required deposit, and (3) The employer did not seek payment of an advance credit by filing Form 7200, with respect to the anticipated credits it relied upon to reduce its deposits.”

The complete Notice 2021-24 can be found here.

Learn more about the Employee Retention Credit (ERC).

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