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IRS Extends Penalty Waivers for Employment Tax Deposits

Posted on Apr. 14, 2021

Some employers will receive expanded pandemic-related relief from employment tax deposit penalties stemming from wages, qualified health plan expenses, and COBRA continuation coverage premiums.

In Notice 2021-24, 2021-18 IRB 1, issued April 13, the IRS extends to various dates in 2021 relief in previous guidance (Notice 2020-22, 2020-17 IRB 664) for employers that, under the American Rescue Plan Act of 2021 (P.L. 117-2), are required to pay qualified sick and family leave wages and qualified health plan expenses associated with those wages.

The notice also extends penalty relief for some employers that saw their business decline because of COVID-19 closures, and employers with COBRA continuation coverage obligations stemming from other pandemic legislation, including the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Previous Guidance

Issued in March 2020, Notice 2020-22 waived penalties for employers that failed to make tax deposits for qualified sick and family leave wages. It also waived penalties tied to qualified health plan expenses that were allocable to those wages under the Families First Coronavirus Response Act.

Notice 2020-22 also waived penalties for employers that experienced full or partial closures of their businesses because of COVID-19 orders. Those waivers applied to employers that saw a decline in business because of the pandemic (as defined in the CARES Act) and therefore failed to make employment tax deposits.

As a result, employers could, without incurring penalties for failure to make deposits, pay qualified sick leave wages, qualified family leave wages, and qualified wages under the CARES Act using employment taxes that would normally have to be deposited.

In anticipation of credits under the Consolidated Appropriations Act, 2021 (P.L. 116-260), the American Rescue Plan, and the CARES Act, Notice 2021-24 extends the penalty relief in Notice 2020-22, which covered employment tax deposits through the end of 2020.

The penalty relief in Notice 2021-24 is available for paid family and sick leave credits under the Families First Act and Tax Relief Act for qualified leave wages paid beginning January 1, 2021, and ending March 31, 2021. It also applies under the American Rescue Plan for wages paid beginning April 1, 2021, and ending September 30, 2021.

For employee retention credits under the CARES Act, the relief in Notice 2021-24 applies to wages paid beginning January 1, 2021, and ending June 30, 2021. Under the American Rescue Plan, the relevant period begins July 1, 2021, and ends December 31, 2021.

Notice 2021-24 also extends relief for employment tax deposits related to continuation coverage premium assistance for COBRA under the American Rescue Plan. That period begins April 1, 2021, and ends September 30, 2021.

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