Navigating Erroneous Employment Tax Credits in 2020

On July 27, 2020, IR-2020-169 was issued by the IRS,  granting a temporary regulation and a proposed regulation to employers under the Families First Coronavirus Response Act (“Families First Act”) and the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”).  IR-2020-169 issued a proposed regulation to reconcile advance payments of refundable employment tax credits and recapture the benefit of these credits, when necessary, to employers who had paid sick leave and paid family leave.

Employers with fewer than 500 employees are generally required 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 related COVID-19 reasons. Qualified employers are entitled to fully refundable tax credits to cover the cost of leaves that are required under these acts.

An additional credit available under The CARES Act provides credit for employers experiencing economic hardship due to COVID-19. Certain employers who pay qualified wages to their employees are entitled to the employee retention credit.

The IRS is in the process of revising the following forms: Form 941, Form 943, Form 944, and Form CT-1.  Employers will use these returns to claim paid sick and family leave and employee retention credits.

Advance payment of the credits, up to the total allowable amounts, may also be received by employers.  Form 7200, Advance Payment of Employer Credits Due To COVID-19 has been created for employers to request the advance.  On employment tax returns, employers will be required to reconcile any advance payments claimed on Form 7200 with total credits claimed and total taxes due. 

Any credit amount that exceeds the allowable taxpayer amount is considered to be an erroneous refund.  Regulations released on July 27, 2020 allow the IRS to efficiently recover any refund while preserving taxpayer administrative protections. 

SPS/GZ is a full-service Affordable Care Act (“ACA”) reporting firm that provides personalized service and exceptional support, utilizing state-of-the-art technology to create and e-file ACA forms.  Reach out today at or call at (888)375-3049.  SPS/GZ welcomes the opportunity to be your trusted ACA tax form reporting provider. 

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