The Form 7200 is a tax form that has been around for over a year, it is updated often, and can be confusing for employers who are claiming advances on their COVID-19 related tax credits. Based on what we hear from our clients, employers are often unsure of when to file this form, why to file this form, and how to file this form.
As the pandemic continues and the COVID-19 tax credits are updated and expanded, the Form 7200 will be available through the fourth quarter of 2021.
This IRS has updated this form to reflect the policies set in place under the latest COVID-19 relief packages, the American Rescue Plan Act (ARPA).
Background on the American Rescue Plan Act
The American Rescue Plan is one of the largest economic relief plans in US history. In addition to offering billions of dollars dedicated to easing the pandemic, it also extends and expands the scope of tax credits that employers can claim.
The ARPA extends the existing COVID-19 tax credits.This includes credits for qualified sick and family leave wages and the employee retention credit. Offering paid sick and family leave due to COVID-19 is no longer required of employers, however it is certainly still an option. In addition to COVID-19, sick leave wages related to getting vaccinated and recovering from the vaccine also qualify.
The ARPA introduced a new tax credit, in response to the new COBRA premium assistance subsidy. This allows employees that have been involuntarily terminated or had their hours reduced below full-time to maintain their health insurance through COBRA without having to pay the COBRA premium.
COBRA premiums are pricey, as the employee is paying for the entire monthly amount, with the COBRA subsidy, the employer takes on this cost instead, and they can claim a credit on their Form 941 to cover the expense.
How has this affected Form 7200?
The Form 7200 has been updated to accommodate the American Rescue Plan and the changes to the COVID-19 tax credits. Employers are now able to include the COBRA premium assistance credit, they will also need to indicate if they are eligible for the employee retention credit only because the business is a recovery start-up. Employers will need to indicate the number of employees that they provided COBRA premium assistance to as well as the total amount they provided for premiums.
When should employers file the Form 7200?
This form can be filed by employers who file any of the following employment tax forms:
Employers can reduce their deposits by the total tax credits they claim. If the total in tax credits exceeds the deposit for the quarter, the employer can file the Form 7200 to request an advance on these credits.
Form 7200 can be filed any time before the end of the month following the quarter in which qualified wages were paid, however it must be filed before employers file their Form 941 for the quarter. The 7200 can be filed multiple times within a given quarter.
Need to file the Form 7200? This is easy with TaxBandits! The IRS only accepts the Form 7200 by fax. Skip the paper form and leave your fax machine packed away in the basement where it belongs! TaxBandits will handle filing this form for you, all you need to do is complete your Form 7200.