New IRS Guidance on Employer Tax Credits

Posted by BAS - 17 June, 2021

header-picture

Employers may be requesting quarterly tax credits under recent COVID-19 and other regulatory guidance. Tax credits may be available for the Employee Retention Credit, along with the American Rescue Plan Act COBRA premium subsidy.

The IRS released guidance suggesting employers read the instructions for Form 941 and addressing common errors employers should avoid when claiming credits. The following is excerpted directly from an IRS outreach:

  • Ensure line 1 on Form 941 returns is accurate.
    • Refer to the line 1 instructions for details on entering the number of employees.
  • Report advanced credits received, not the requested payment of credits.
    • If an employer hasn't received the advance payment of credit they requested, the employer should not report it on Form 941. 
  • Use Form 7200 to request the advance payment of a credit only, not for reporting the credit.
    • Employers use this form to request the advance payment of employer credit. It is not used to claim the credit. An employer must claim the credit on the applicable employment tax return, typically Form 941.
    • If an employer has received the advance payment requested, they must reconcile it on Form 941 by reporting the advance payments received and claiming the credits for which they’re eligible.
    • If an employer receives an advance payment of a credit but doesn't claim a corresponding credit on their employment tax return, they may receive a balance due notice.
    • If an employer filed an employment tax return and did not report a credit they were otherwise entitled to, they will need to file an amended return using Form 941-X to claim those eligible credits. 
  • Inform third-party payers or reporting agents 
    • Employers using third-party payers or reporting agents must tell their third-party payer or agent they requested and received an advance payment of credit.
    • Third-party payers, including reporting agents, should also ask employers if they requested and received an advance payment of credit using Form 7200 Advance Payment of Employer Credits Due to COVID-19 before filing Form 941.
  • Use fractions of cents line correctly
    • The fractions of cents line should be used for fractions of cents, due to rounding, relating to the employee share of Social Security and Medicare taxes.
  • Only claim credits they are entitled to and they shouldn’t exceed limitations
    • Before employers claim any credits on their employment tax return, they should review IRS guidance and the FAQs at IRS.gov to make sure: they are eligible to claim the credit; they are completing the forms and claiming the credits correctly; and they don’t claim a credit that exceeds the limits.
  • Complete amended tax returns
    • If an employer is amending an employment tax return to claim a credit, they must complete all the lines associated with that credit. For example, if they are amending a return to claim additional employee retention credit, they must complete the lines that relate to qualified wages for the that credit and qualified health plan expenses allocable to those wages, if applicable.

Topics: COBRA, Health Care Reform (ACA), Affordable Care Act, HR & Benefits News


Recent Posts

Question of the Week - Allergy Medicine

read more

New Guidance on Tracking Technologies and HIPAA

read more

Enhancing Benefits Administration Efficiency: MyEnroll360's New Hire Waiting Period Management

read more