IRS offers penalty relief on employment tax payments amid COVID-19

The Internal Revenue Service is providing penalty relief for an employer’s failure to deposit employment taxes with the IRS on a timely basis.

In Notice 2021-24, the IRS amplified prior guidance from 2020. The new notice provides relief for employers who are required to pay qualified sick leave wages and qualified family leave wages, along with qualified health plan expenses that can be allocated to those wages, as mandated by the Families First Coronavirus Response Act, which was amended by the COVID-related Tax Relief Act of 2020, along with the American Rescue Plan Act of 2021.

The IRS guidance aims to help businesses who were hurt by the COVID-19 pandemic in light of the coronavirus relief packages passed by Congress since last year, including the CARES Act, the Consolidated Appropriations Act, and most recently the American Rescue Plan Act. The guidance helps employers benefit from some of the tax credits available to them under those laws — such as for paid sick leave, family leave and the Employee Retention Credit — while they continue to pay employees during the pandemic with some of the payroll taxes they otherwise would have needed to deposit with the IRS.

The notice also offers relief for some employers for whom COBRA continuation coverage premiums weren’t paid by former employees who were eligible for assistance with coverage under the American Rescue Plan Act. “This relief ensures that such employers may pay qualified sick leave wages and qualified family leave wages, qualified wages, and COBRA continuation coverage premiums using Employment Taxes that would otherwise be required to be deposited without incurring a failure to deposit penalty,” said the IRS in a statement.

The guidance also provides some relief for employers who suffered a full or partial closure order due to COVID-19 or who experienced a decline in business.

Natalia Bratslavsky/Adobe