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Notice 2020-22: Penalty relief, reduced federal employment tax deposits in anticipation of tax credits (COVID-19)

Penalty relief, reduced federal employment tax deposits

The IRS today released an advance version of Notice 2020-22 to provide penalty relief with regard to employers’ deposits of federal employment taxes—including deposits of withheld income taxes and employment taxes—that are reduced in anticipation of tax credits under legislation recently enacted to address the coronavirus (COVID-19) pandemic.

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Notice 2020-22 [PDF 31 KB] provides:

  • A waiver of additions to tax (penalties) for a failure to make a deposit of taxes for employers required to pay qualified sick leave wages and qualified family leave wages as mandated by the Families First Coronavirus Response Act (Pub. L. 116-127) and qualified health plan expenses allocable to these wages
  • A waiver of additions to tax for a failure to make a deposit of taxes for certain employers subject to a full or partial closure order due to COVID-19 or experiencing a statutorily specified decline in business pursuant to provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (Pub. L. No. 116-136)

The relief provided by Notice 2020-22 means that employers may pay qualified sick leave wages and qualified family leave wages (as required by the Families First Act) or qualified wages (pursuant to the CARES Act) using employment taxes that otherwise would be required to be deposited, but without incurring a failure to deposit penalty.

  • The penalty relief is available with regard to deposits of “employment taxes”—including withheld income taxes, taxes under the Federal Insurance Contributions Act, and taxes under the Railroad Retirement Act—that are reduced in anticipation of the credits that are available with respect to qualified sick leave wages and qualified family leave wages paid with respect to the period beginning April 1, 2020, and ending December 31, 2020. 
  • The penalty relief is also available with regard to deposits of employment taxes reduced in anticipation of the credits with respect to qualified wages paid with respect to the period beginning on March 13, 2020, and ending December 31, 2020.  

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