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.

Notice 2021-24 »