IRS releases draft coronavirus payroll tax credit forms

It’s no April Fools joke. Quick as jackrabbit, the IRS has released a new draft form and draft instructions for employers that elect to take any of the payroll tax credits contained in the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security Act.

Form 7200

Form 7200, Advance Payment of Employer Credits Due to COVID-19, should be filed by employers that can’t reduce their payroll tax deposits to fully account for any of the credits they expect to claim on their Form 941. It’s meant to implement the CARES Act’s advanceable payroll credit.

Example. MediumCo pays $10,000 in sick leave and is required to deposit $8,000 in taxes. It can use the entire $8,000 to make qualified leave payments to its employees and file Form 7200 for the $2,000 advanceable credit.

There are three caveats to heed about Form 7200:

  • Apparently, Form 941 for the second, third, and fourth quarters will need to be revised to account for the reduced payroll deposits
  • Don’t reduce your payroll tax deposits and request advanced credits for the same expected credits (i.e., there’s no double dipping)
  • You will need to reconcile your advanced credits and reduced deposits on your Form 941.

Requests for advances are reported in Part II. Part II makes clear that you must net out your total credits—the employee retention credit, emergency paid sick leave, and paid FMLA leave—against any reduction in your payroll deposits and against any previous advances requested during the same calendar quarter.

Instructions

The instructions provide a decent explanation of the payroll tax credits contained in the Families First Coronavirus Response Act or the Coronavirus Aid, Relief, and Economic Security Act. They also clarify that, if necessary, you can file Form 7200 several times during a quarter. If you made a mistake completing Form 7200, don’t worry, you’ll fix everything up on that quarter’s Form 941.

The instructions remind employers to keep the following records related to their advances:

  • Documentation to show how you figured the amount of qualified sick and family leave wages eligible for the credit
  • Documentation to show how you figured the amount of the employee retention credit
  • Documentation to show how you figured the amount of qualified health plan expenses that you allocated to wages
  • Documentation to show how you determined the employees who were qualified to receive sick and family leave wages, including any additional information set out in Frequently Asked Questions or other guidance on irs.gov
  • Documentation to show your eligibility for the employee retention credit based on suspension of operations or significant decline in gross receipts
  • Copies of completed Form(s) 7200 you filed with the IRS.

Example

The IRS generally frowns on you filing more than one form per quarter. So, if you plan on filing multiple Forms 7200, you’re going to need to keep track, since the amounts entered on lines 1, 2, 3, 5, and 6 in Part II are cumulative totals for the quarter.

Here’s how this works out.

SmallCo files its first Form 7200 on April 10, 2020. It reports $5,000 on Line 1 and reduced deposits of $3,500 on Line 5. SmallCo wants to file another Form 7200 on April 24, 2020, because it has a $7,000 employee retention credit to report on Line 1 and it reduced deposits of $4,000 to account for the credit on Line 5.

Part II of SmallCo’s April 24 Form 7200 is completed as follows: