The Internal Revenue Service issued an official notice back in May, which allowed employers anticipating a refundable credit for qualified sick and family leave or for employee retention to reduce their employment tax deposits throughout the tax period up to the amount of the credit. Some employers, however, have recently received IRS notices stating they would be subject to penalties for underpayment of taxes with their quarterly filings of Form 941.
The Internal Revenue Service released a statement on Friday, August 21st to assure these notice recipients that these penalties were levied by mistake, and they have a plan of action in place to correct the issue.
According to the IRS statement, “In reporting the schedule of liabilities on Form 941, the reported liabilities did not match the reduction in deposits for every pay date. In these situations, they incurred a failure to deposit penalty on the difference in the reported liabilities and the reduced deposits (in situations where deposits were reduced by the amount of the anticipated credit(s) in excess of liability for the employer portion of social security for a given pay date).”
For these notice recipients, the IRS says no additional action is currently required. They do suggest checking IRS.gov/form941 for future guidance on reporting liabilities when reducing deposits to avoid receiving notices following future deposits.
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by Dan Doiron, CPA, CVA