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Tax News: IRS Guidance on Recapture of Employment Tax Credits

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The Internal Revenue Service ("IRS") issued temporary and proposed regulations on the recapture of excess employment tax credits under the Families First Coronavirus Response Act ("FFCRA"), and the CARES Act. The regulations cover the reconciling of advance payments of the acts’ refundable employments tax credits and authorize assessments to recapture the credits, when necessary (T.D. 9904 and REG-111879-20).

Eligible employers are entitled to receive a refundable credit equal to the amount of the qualified sick leave wages and qualified family leave wages they are required to pay under the FFCRA, plus allocable qualified health plan expenses.

The CARES Act created an employee retention credit, which eligible employers can claim for paying qualified wages to employees. The employee retention credit is a refundable credit equal to 50% of qualified wages paid, with a maximum credit of $5,000 per employee. The credit is allowed against the employer’s Social Security taxes and Railroad Retirement Tax Act Tier 1 taxes but reduced by the amount of credits claimed under the FFCRA.

Employers can claim the FFCRA credits and the employee retention credit in advance on new Form 7200, Advance Payment of Employer Credits Due to COVID-19. Link: https://www.irs.gov/pub/irs-pdf/f7200.pdf (form); https://www.irs.gov/forms-pubs/about-form-7200 (instructions).

Under the temporary and proposed regulations, any erroneous refunds of the credits will be treated as underpayments of the taxpayer’s Social Security or Railroad Retirement taxes. The regulations authorize the IRS to assess any portion of the credits erroneously credited, paid, or refunded in excess of the amount allowed as if those amounts were tax liabilities under Secs. 3111(a) and 3221(a) subject to the IRS’s assessment and administrative collection procedures. These procedures will apply during the normal course of the IRS’s processing employment tax returns.

For any questions or assistance, please contact the Tax Attorneys at Fazzio Lawwe are in your corner!

Category: Tax

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