IRS Provides Guidance on Relief from Penalty for Failure to Deposit Employment Taxes
On May 10, 2021, the IRS published Notice 2021-24, Relief from Penalty for Failure to Deposit Employment Taxes. The IRC imposes penalties upon employers who fail to timely deposit employment taxes with the IRS. Previous guidance provided relief from those penalties when it came to tax credits allowed under the FFCRA, among other credits. The new guidance extends that relief and includes relief to tax credits allowed under the American Rescue Plan Act (ARPA).
The IRC generally requires deposits of employment taxes to be made on a monthly or semiweekly basis. Employers that accumulate $100,000 or more of employment taxes on any day within a deposit period are required to deposit those liabilities with the IRS the next banking day. However, this guidance stated that an employer may reduce without a penalty under the IRC the amount of a deposit of employment taxes by the amount of the paid sick or family leave credit anticipated for the calendar quarter prior to the required deposit if the employer does not also seek an advance credit with regard to the same amount. This relief applies to the FFCRA extension granted under the CAA, as well as that granted under the ARPA.
Similarly, an employer may reduce without a penalty the amount of the deposit of employment taxes by the amount of the employer’s COBRA continuation coverage premium assistance credit anticipated for the calendar quarter prior to the required deposit, as long as the employer does not also seek an advance credit with regard to the same amount. The reductions due to the premium subsidy can be added to any reductions due to the paid sick or family leave.
Employers should be aware of this penalty relief and should consult with their payroll or tax advisors if they have further questions regarding the application of this relief.
CMS Issues Guidance Regarding Responsible Reporting Entities and Reporting Primary Prescription Drug Information
IRS Provides Guidance on the Taxation of Dependent Care Benefits Available Pursuant to an Extended Claims Period or Carryover
Reminder: 2020 HSA Contributions and Corrections Deadline May 17
Individuals who were HSA-eligible in 2020 have until the tax filing deadline to make or receive contributions. The IRS recently extended the 2020 tax-filing deadline, so 2020 HSA contributions must generally be made by May 17, 2021. This includes employer contributions. The 2020 contribution limit is $3,550 for self-only coverage and $7,100 for any tier of coverage other than self-only. Those aged 55 and older are permitted an additional catch-up contribution of $1,000. An individual’s maximum annual contribution is limited by the number of months they were eligible for the HSA.
There is an exception to this rule. An individual that was HSA eligible on December 1 is permitted to contribute the full statutory maximum for the year. However, if eligible employees do not remain HSA eligible through December of the following year, they may experience tax consequences.
Individuals who contributed more than the allowable amount for 2020 should be refunded the excess contributions and associated interest by May 17, 2021. The excess would be subject to income tax. If the excess is not refunded from the account, it will not only be subject to income tax, but also a 6% excise tax penalty. If an employer is aware of an employee who was not eligible for a contribution or who has contributed more than the allowable amount for 2020, they should work with the HSA bank/trustee to process the excess contribution.
FAQ: Do individuals covered only under state healthcare continuation qualify for the ARPA premium assistance or a special election period?
This material was created by PPI Benefit Solutions to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The service of an appropriate professional should be sought regarding your individual situation. PPI does not offer tax or legal advice. "PPI®" is a service mark of Professional Pensions, Inc., a subsidiary of NFP Corp. (NFP). All rights reserved.