IRS offers guidance on recapturing excess employment tax credits amid coronavirus

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The Internal Revenue Service has posted temporary and proposed regulations to help employers reconcile any advance payments of refundable employment tax credits and recapture the benefit of these credits when necessary, in line with the CARES Act and the Families First Act.

The regulations authorize the assessment of erroneous refunds of the credits paid under both pieces of legislation that were approved to provide tax relief in response to the novel coronavirus pandemic.

The Families First Act generally requires employers with less than 500 employees to provide paid sick leave for up to 80 hours and paid family leave for up to 10 weeks if the employee is unable to work or telework due to COVID-19 related reasons. Eligible employers are entitled to fully refundable tax credits to cover the cost of the leave required to be paid.

The CARES Act offers an additional credit for employers who are suffering economic hardship due to COVID-19. Eligible employers who pay qualified wages to their employees are allowed to receive an employee retention credit.

The IRS has already revised or is in the process of changing the Form 941, Form 943, Form 944 and Form CT-1, so employers can use these returns to claim the paid sick and family leave and employee retention credits.

Employers may also receive advance payment of the credits up to the total allowable amounts. The IRS has created Form 7200, Advance Payment of Employer Credits Due to COVID-19, which employers can use to ask for an advance of the tax credits. Employers have to reconcile any advance payments claimed on Form 7200 with the total amount of credits claimed and total taxes due on their employment tax returns. Any refund of the credits paid to a taxpayer that surpasses the amount permitted to the taxpayer is considered an erroneous refund, and the IRS has to seek repayment of it.

For more information from the IRS on employer tax relief for coronavirus, click here.

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Employment tax credits Tax credits IRS Coronavirus Tax relief CARES Act