News & Resources


Failure to Deposit Penalty Notices for COVID-19 Credits

BY: Jyme Mariani, Esq. | 08/28/20

On August 21, the IRS said a small number of employers that reduced their tax deposits in anticipation of claiming COVID-19-related credits may have inadvertently received an IRS notice stating there was a failure to deposit penalty applicable to the Form 941 on which the employer claimed the credits [IRS, Failure to Deposit Penalties on Some Employers Claiming New Tax Credits, 8-21-20].

In April, the IRS issued a notice providing penalty relief to employers for failure to deposit employment taxes (Notice 2020-22, 2020-17 IRB 664). The notice provides employers relief from the failure to deposit penalty imposed for an employer’s failure to timely deposit employment taxes to the extent that the amounts not deposited are equal to or less than the amount of refundable tax credit.

No Employer Action Is Needed

The IRS said the penalty notices were mailed in situations where, in reporting the schedule of liabilities on Form 941, the reported liabilities did not match the reduction in deposits for every pay date. In these situations, employers were sent a failure to deposit penalty on the difference in the reported liabilities and the reduced deposits (in situations where deposits were reduced by the amount of the anticipated credits in excess of liability for the employer portion of social security tax for a given pay date).

The IRS said it is taking actions to identify these employer accounts and to correct them as soon as possible. The IRS said employers that recently received these notices do not need to take additional action at this time.

To learn more about federal and state laws, regulations, and information to keep your company's payroll operations in compliance, check out Payroll Source Plus!

Jyme Mariani, Esq., is Managing Editor of Payroll Currently and Payroll Information Resources for the APA.