The IRS recently released IR-2020-57, which provides additional insights in regards to how Families First Coronavirus Response Act (“FFCRA”) tax credits will be made available to employers. Generally, employers are required to withhold from their employees’ paychecks federal income taxes and the employees’ share of Social Security and Medicare taxes. These withheld amounts are then required to be deposited with the IRS, along with the employer’s share of Social Security and Medicare taxes.
According to FFCRA (H.R. 6201), employers are entitled to receive a credit equal to 100% of the leave payments required under the FFCRA. This credit would be applied against and would reduce the employer’s share of the Social Security component (6.2%) of FICA (Federal Insurance Contributions Act) tax. Although H.R. 6201 indicates that any excess amount is to be refunded, the legislation did not provide any clear guidance regarding how and when employers could expect to receive the refund.
According to IR-2020-57, the IRS intends to make refunds available to employers on an immediate basis by allowing employers to utilize the employment taxes (both the employer’s share and the employees’ withheld amounts) otherwise required to be deposited with the IRS to fund the leave payments required under the FFCRA. Any employment taxes not utilized to fund leave payments required under the FFCRA would have to be deposited as ordinarily required.
Example 1: Employer paid $5,000 in qualified leave and is otherwise required to deposit $8,000 in employment taxes. In this case, the employer could use up to $5,000 of the employment taxes (from both the employer’s share and the employees’ withheld amounts) otherwise required to be deposited with the IRS to fund the qualified leave payments. The remaining $3,000 would have to be deposited.
Example 2: Employer paid $10,000 in qualified leave and is otherwise required to deposit $8,000 in employment taxes. In this case, the employer could use the entire $8,000 in employment taxes to fund the qualified leave payments. The employer could then file a request for an accelerated refund for the excess $2,000. According to IR-2020-57, the IRS intends to process excess credit refunds within two weeks.
Additional guidance from the IRS is anticipated in the next week or so, which should flesh out how the foregoing will be reported on Form 941, Employer’s Quarterly Federal Tax Return, and the process for making an accelerated refund request.
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