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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.


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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. 

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