IRS statement on failure-to-deposit penalties, employers claiming new tax credits (COVID-19)

IRS statement on failure-to-deposit penalties

The IRS today posted a statement indicating that it was aware that a “small population of employers” that reduced their tax deposits in anticipation of claiming the sick and family leave credits or employee retention credit may have received a notice stating that there was a failure-to-deposit penalty applicable to the Form 941 on which the credits were claimed.


The credits were made available by U.S. legislation enacted earlier in 2020 in response to the coronavirus (COVID-19) pandemic.

According to the IRS statement (August 21, 2020):

  • Under IRS Notice 2020-22, employers claiming the new tax credits may reduce their deposits throughout the tax period up to the amount of the credit.
  • However, 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, the employers may have incurred a failure-to-deposit penalty on the difference in the reported liabilities and the reduced deposits (in situations when 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).

Today’s IRS statement explains that while the IRS has taken steps to implement rules that prevent the failure to deposit penalty from incurring on employers reducing their deposits in anticipation of these credits, the IRS has become aware some employers may still have inadvertently received notice of the penalty. The IRS stated that it is taking actions to identify these employer accounts and correct them as soon as possible.

The IRS release concludes that employers that have recently received these notices do not need to take additional actions at this time. 

© 2022 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

For more detail about the structure of the KPMG global organization please visit

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us