The past year has been filled with changes and adaptations to the way that business owners and tax professionals alike file their IRS tax returns. With a wave of legislation throughout the year to help businesses adjust to COVID-19, there have been countless edits and updates to employment tax returns like the Form 941.
The CARES Act was the largest movement to help businesses fight the negative effects of COVID-19 on the economy. With the CARES Act and the FFCRA came the Form 7200.
As the COVID-19 tax credits approached their expiration date at the end of 2020, many have wondered what the fate of the Form 7200 would be.
This act was signed into law on December 27, 2020 and extended the necessary COVID-19 tax credits, including the employee retention credit and paid sick and family leave credits. In addition to extending these credits, the employee retention credit has been expanded and clarified in this Act.
With the extension of these credits, comes the update of Form 7200 for the 2021 tax year.
Paid Sick and Family Leave Wages for 2021
While employers are not required to provide two weeks of paid sick and family leave under the expansion of these credits, they are still able to claim credits on family and sick leave wages taken through April 1. 2021.
Employers are still able to reduce their deposits to cover these wages or they can submit Form 7200, requesting an advance on these credits.
The Employee Retention Credit for 2021
The employee retention credit has not only been extended but expanded for the 2021 tax year. According to the IRS, the employee retention credit is equal to 70% of the wages that the employee earns between December 31, 2020 and July 1, 2021. The maximum amount that an employer can claim for each employee is $7,000 per calendar quarter.
When deciding eligibility for the employee retention credit, employers can use the following criteria.
If there was any full or partial quarter where the business had to suspend operations due to COVID-19, but kept employees on the payroll.
If the business’ gross receipts for a quarter totaled 80% or less of their gross receipts from the same quarter of tax year 2019.
Requesting an Advance of Credits on Form 7200
Much like in tax year 2020, employers can request an advance on their credits using the Form 7200. This form can be filed by employers who file any of the following employment tax forms:
This form can be used to request an advance on tax credits when the amount in credit exceeds an employer’s deposits. For example, if an employer makes deposits of $5,000, but they are eligible for $7,000 in COVID-19 tax credits, they can file Form 7200 for an advance on the additional $2,000.
Please note that only small employers, with 500 employees or less are eligible for filing Form 7200.
According to the IRS, the last date that an employer can file Form 7200 for paid sick and family leave wages or the employee retention credit is for the first quarter is April 30, 2021. The deadline to file this form for the second quarter of 2021 is August 2, 2021.
TaxBandits is here to help your business maintain it’s IRS compliance, by providing the tax forms you need and an easy process for filing them. Remember, before filing Form 7200 for the first quarter of 2021, you must be sure that you have reconciled any past tax credits on your Form 941, Form 941-PR, Form 941-SS,Form 943, or Form 944 for the fourth quarter of 2020.