IRS Guidance and Forms for Advance Payment of Employer Credits Due to COVID-19

Posted on 04/01/2020 12:00 am  /   Legislative Updates

All: please see below for new forms and guidance issued by the IRS on claiming credits for emergency sick and FMLA paid leave benefits paid to employees under the Families First Coronavirus Act.  If you have any questions, please let me know.

Draft Form 7200, Advance Payment of Employer Credits Due to COVID-19

Draft instructions for Form 7200

IRS has issued draft Form 7200, Advance Payment of Employer Credits Due to COVID-19, and draft instructions for that form. The form can be used to request an advance of the tax credits for qualified sick and family leave wages and the employee retention credit, found in recently-enacted coronavirus relief legislation.

Sick leave and family leave credits. The Families First Coronavirus Response Act (the FFCRA) provides paid sick leave and expanded family and medical leave for COVID-19 related reasons and creates the refundable paid sick leave credit and the paid child care leave credit for eligible employers. Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave and emergency paid family and medical leave under the FFCRA. (FFCRA Sec. 7001 and Sec. 7003) 

Employee retention credit. The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis. (CARES Act Sec. 2301(a)) The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings. The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis. (CARES Act Sec. 2301(c)(2))

Advance payment of the credits.  The FFCRA and CARES Act (the Acts) provide that eligible employers who pay qualified sick and family leave wages or qualified wages eligible for the employee retention credit should retain an amount of the employment taxes equal to the amount of qualified sick and family leave wages (plus certain related health plan expenses and the employer’s share of the Medicare taxes on the qualified leave wages) and their employee retention credit, rather than depositing these amounts with IRS. The Acts also provide that if there aren’t sufficient employment taxes to cover the cost of qualified sick and family leave wages (plus the qualified health expenses and the employer share of Medicare tax on the qualified leave wages) and the employee retention credit, employers can obtain an advance payment of the credits. 

IRS issues form for advance payment. IRS has now issued a draft version of new Form 7200, the form that employers can use to obtain advance payment of the credits.

Who may file Form 7200? Employers that file Forms 941, 943, 944, or CT-1 may file Form 7200 to request an advance payment. They will need to reconcile any advanced credits and reduced deposits on their employment tax returns that they will file for 2020. No employer is required to file Form 7200. 

As described earlier under Background, instead of filing Form 7200, employers should first reduce their employment tax deposits to account for the credits. They can request the amount of the credit that exceeds their reduced deposits by filing Form 7200 or waiting to get a refund when they claim the credits on their employment tax return.

The Form 7200 instructions provide that one can’t request an advance payment of the credits for sick and family leave for self-employed individuals. Form 7200 can’t be used for those credits.

Filing rules.  Employers can file the form for advance credits anticipated for a quarter at any time before the end of the month following the quarter in which they paid the qualified wages. If necessary, an employer can file Form 7200 several times during each quarter. However, employers should not file Form 7200 after they file Form 941 for the fourth quarter of 2020, or file Form 943, 944, or CT-1 for 2020. And employers should not file the form to request advance credits for any anticipated credit for which they already reduced their deposits.

Employers can’t file a corrected Form 7200. If they make an error on Form 7200, the error will be corrected when they file Form 941, 943, 944, or CT-1 for 2020.

Employment tax return filed by a third-party payer. A common-law employer of the individuals that are paid qualified sick or family leave, or wages qualifying for the employee retention credit, is entitled to the credit for the sick and family leave wages or the employee retention credit, regardless of whether he uses a third-party payer (such as a payroll service provider, professional employer organization (PEO), certified professional employer organization (CPEO), or Section 3504 Agent) to report and pay his federal employment taxes. The third-party payer isn’t entitled to the credits with respect to the wages it remits on the employer’s behalf (regardless of whether the third party is considered an “employer” for other purposes). 

The Form 7200 instructions provide additional procedures that employers must comply with in these cases.

Questions? Contact:

Jennifer L. Curry, Shareholder
Baker, Donelson, Bearman, Caldwell & Berkowitz, PC
Phone 410.862.1183 / [email protected]

Baker, Donelson, Bearman, Caldwell & Berkowitz, PC represents clients across the U.S. and abroad from offices in Alabama, Florida, Georgia, Louisiana, Maryland, Mississippi, South Carolina, Tennessee, Texas, Virginia and Washington, D.C.