IRS Relief on Employment Tax Deposits Reduced for CAA and ARPA Credits

In IRS Notice 2021-24, the Treasury Department and IRS have announced relief for employers that reduce their payroll tax deposits in anticipation of claiming tax credits under recent COVID relief provisions.  This is an extension of the relief previously provided under Notice 2020-22, due to new provisions under the Consolidated Appropriations Act (CAA) and American Rescue Plan Act (ARPA).

Employers typically must deposit payroll taxes promptly following each payroll or each month (those accumulating $100,000 or more of such taxes on any day with a deposit period are required to deposit those tax liabilities with the IRS the next banking day), and employers then reconcile all such taxes on their quarterly form 941.  These taxes include:

• §3111(a) the employer’s share of Social Security tax under FICA
• §3111(b) the employer’s share of Medicare tax under FICA
• §3221(a) the employer’s share of both Social Security and Medicare taxes under the Railroad Retirement Tax
• §3402 federal income tax withholding

Employers claiming tax credits under the provisions addressed in this notice will want to discuss this relief with their tax advisor to ensure payroll tax deposits are only reduced as allowed and any credits still needed are properly claimed on the quarterly form 941 (with advance payment of refundable credits requested via form 7200).  The notice covers relief for the following:

• Tax credits for voluntarily extending FFCRA emergency paid leaves under the CAA through March 31, 2021
• Tax credits for voluntarily extending FFCRA emergency paid leaves under ARPA through September 30, 2021 (noting ARPA has extended the tax credit to certain governmental employers as of April 1, 2021, that were previously unable to claim the credit)
• Tax credits for employee retention credits (ERC) claimed under the CAA through June 30, 2021, and under ARPA through December 31, 2021
• Tax credits for ARPA COBRA subsidies provided April 1, 2021, through September 30, 2021

IMA will continue to monitor regulator guidance and offer meaningful, practical, timely information.

This material should not be considered as a substitute for legal, tax and/or actuarial advice. Contact the appropriate professional counsel for such matters. These materials are not exhaustive and are subject to possible changes in applicable laws, rules, and regulations and their interpretations.