n-21-24.pdf

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Relief from Penalty for Failure to Deposit Employment Taxes

Notice 2021-24

SECTION 1. PURPOSE
This notice amplifies the guidance in Notice 2020-22, 2020-17 I.R.B. 664, which
provides for penalty relief under section 6656 of the Internal Revenue Code (Code) for
an employer’s failure to timely deposit Employment Taxes
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with the Internal Revenue
Service (IRS). This notice extends the penalty relief provided in Notice 2020-22 to
apply to deposits of Employment Taxes reduced in anticipation of the following credits:
a. Paid sick and family leave credits under the Families First Coronavirus
Response Act (Families First Act), Pub. L. No. 116-127, 134 Stat. 179 _
(March 18, 2020), as amended by the COVID-related Tax Relief Act of 2020
(Tax Relief Act), enacted as Subtitle B of the Consolidated Appropriations
Act, 2021 (Appropriations Act), Pub. L. No. 116-260, 134 Stat. 1182
(December 27, 2020), with respect to qualified leave wages paid with respect
to the period beginning January 1, 2021, and ending March 31, 2021;
b. Paid sick and family leave credits under sections 3131, 3132, and 3133 of the
Code, added by section 9641 of the American Rescue Plan Act of 2021
(ARP), Pub. L. No. 117-2, 135 Stat. 4 (March 11, 2021), with respect to
qualified leave wages paid with respect to the period beginning April 1, 2021,
and ending September 30, 2021;

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“Employment Taxes” means withheld income taxes, taxes under the Federal Insurance Contributions
Act (FICA), and taxes under the Railroad Retirement Tax Act (RRTA).

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c. The employee retention credit under section 2301 of the Coronavirus Aid,
Relief, and Economic Security Act (CARES Act), Pub. L. No. 116-136, 134
Stat. 281 (March 27, 2020), as amended by the Taxpayer Certainty and
Disaster Tax Relief Act of 2020 (Relief Act), enacted as Division EE of the
Appropriations Act, with respect to qualified wages paid with respect to the
period beginning January 1, 2021, and ending June 30, 2021;
d. The employee retention credit under section 3134 of the Code, added by
section 9651 of the ARP, with respect to qualified wages paid with respect to
the period beginning July 1, 2021, and ending December 31, 2021; and
e. The credit for Continuation Coverage Premium Assistance under section
6432 of the Code, as added by section 9501(b) of the ARP, for COBRA
continuation coverage premiums not paid by assistance eligible individuals for
such coverage by reason of section 9501(a)(1) of the ARP during the period
beginning April 1, 2021, and ending September 30, 2021.
SECTION 2. BACKGROUND
Section 3111(a) of the Code (employer’s share of the Old Age, Survivors, and
Disability Insurance (social security) portion of FICA tax), section 3111(b) of the Code
(employer’s share of the Hospital Insurance (Medicare) portion of FICA tax), section
3221(a) of the Code (employer’s share of the social security and Medicare portions of
RRTA tax), and section 3402 of the Code related to Federal income tax withholding
impose Employment Tax liability on employers. For most employers, this liability is
reported on the quarterly Form 941, Employer’s QUARTERLY Federal Tax Return.

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Although Form 941 is due quarterly, section 6302 of the Code and regulations
under that section generally require 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. See § 31.6302-1(c) of the Employment
Taxes and Collection of Income Tax at Source Regulations.
Paid Sick and Family Leave Credits
The Families First Act generally required employers of fewer than 500 employees
to provide paid sick leave and expanded family and medical leave, up to specified limits,
to employees unable to work or telework due to certain circumstances related to
COVID-19, through December 31, 2020. Generally, employers that were required to
pay qualified sick leave wages and qualified family leave wages by the Families First
Act (collectively, Qualified Leave Wages), as well as qualified health plan expenses
allocable to Qualified Leave Wages (Qualified Health Plan Expenses) under the
Families First Act are entitled to refundable tax credits administered by the IRS.
The Tax Relief Act did not extend the requirement to provide the Qualified Leave
Wages and Qualified Health Plan Expenses, but did extend the refundable tax credits
for Qualified Leave Wages and Qualified Health Plan Expenses, with modifications, paid
for periods of leave after December 31, 2020, and before April 1, 2021, that would have
been required to have been paid if the requirement to provide such leave had been
extended.
Specifically, sections 7001 and 7003 of the Families First Act, as amended by the
Tax Relief Act, provide refundable tax credits against an employer’s share of the social

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security portion of FICA tax, and so much of the Railroad Retirement Tax Act Tier 1 rate
as is attributable to an employer’s share of the social security portion of FICA tax, for
each calendar quarter in an amount equal to the Qualified Leave Wages paid by the
employer plus Qualified Health Plan Expenses with respect to that calendar quarter,
with respect to periods of leave beginning on April 1, 2020, and ending on March 31,
2021. For purposes of this notice, an employer’s share of the social security portion of
FICA tax and so much of the Railroad Retirement Tax Act Tier 1 rate as is attributable
to an employer’s share of the social security portion of FICA tax, as applicable, are
referred to as Creditable Employer Social Security Taxes. The credits under section
7001 and 7003 are increased by the amount of the employer’s share of Medicare tax (or
the portion of the Railroad Retirement Tax Act Tier 1 rate as is attributable to the
employer’s share of Medicare tax) imposed on Qualified Leave Wages. See section
7005(b)(1) of the Families First Act. For purposes of this notice, the increase in the
credit under section 7005(b)(1) is treated as a credit under section 7001 or section
7003.
The ARP added sections 3131 and 3132 to the Code, under which eligible
employers can claim refundable tax credits for qualified sick leave wages and qualified
family leave wages, respectively, with respect to periods of leave beginning on April 1,
2021, and ending on September 30, 2021 (also referred to as Qualified Leave Wages
for the remainder of this notice). The refundable tax credits under sections 3131 and
3132 of the Code apply against an employer’s share of the Medicare portion of FICA
tax, and so much of the Railroad Retirement Tax Act Tier 1 rate as is attributable to the
employer’s share of Medicare tax, which for purposes of this notice, are referred to as

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Creditable Employer Medicare Taxes. The refundable tax credits are increased by the
health plan expenses (also referred to as Qualified Health Plan Expenses for the
remainder of this notice) and certain collectively bargained contributions paid by an
eligible employer that are properly allocable to the related Qualified Leave Wages
(Qualified Collectively Bargained Contributions), and both the employer’s share of the
social security and Medicare portions of FICA tax (and the employer’s share of the
Railroad Retirement Tax Act Tier 1 rate) imposed on the Qualified Leave Wages. See
I.R.C. §§ 3131(d), 3131(e), 3132(d), 3133(e), and 3133. For purposes of this notice, the
increase in the credit under section 3133 is treated as a credit under section 3131 or
3132 of the Code.
The refundable tax credits under section 7001 and 7003 of the Families First Act
and sections 3131 and 3132 of the Code are reported on the employer’s return for
reporting its liability for FICA tax or RRTA tax, as applicable, which for most employers
subject to FICA tax is the quarterly Form 941. An employer may claim an advance
payment of the refundable tax credits by filing Form 7200, Advance Payment of
Employer Credits Due to COVID-19, in accordance with the instructions to the form.
Employee Retention Credits
Section 2301 of the CARES Act, as originally enacted, provided for an employee
retention credit for eligible employers that pay qualified wages, including certain health
plan expenses, to some or all employees after March 12, 2020, and before January 1,
2021. Eligible employers were allowed to claim a refundable tax credit under the
CARES Act for fifty percent of qualified wages paid, limited to $10,000 per employee
over all calendar quarters combined in 2020 (Qualified Retention Wages).

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Section 206 of the Relief Act amended section 2301 of the CARES Act to modify
the employee retention credit for qualified wages paid after March 12, 2020, and before
January 1, 2021, primarily relating to who may claim the credit. Section 207 of the Relief
Act further amended section 2301 of the CARES Act to modify and extend the
application of the employee retention credit for qualified wages paid after December 31,
2020, and before July 1, 2021. Under section 2301 of the CARES Act, as amended by
section 207 of the Relief Act, eligible employers can claim a refundable tax credit for
seventy percent of qualified wages paid, limited to $10,000 per employee per calendar
quarter in 2021 for the first and second calendar quarters of 2021 (also referred to as
Qualified Retention Wages for the remainder of this notice).
Section 9651 of the ARP enacted section 3134 of the Code, which provides a
substantially similar employee retention credit for qualified wages paid after June 30,
2021, and before January 1, 2022. Under section 3134 of the Code, eligible employers
can claim a refundable tax credit for seventy percent of qualified wages paid, limited to
$10,000 per employee per calendar quarter in 2021 for the third and fourth calendar
quarters of 2021 (also referred to as Qualified Retention Wages for the remainder of this
notice).
The refundable tax credit under section 2301 of the CARES Act applies against
Creditable Employer Social Security Taxes for each calendar quarter. The refundable
tax credit under section 3134 of the Code applies against Creditable Employer Medicare
Taxes for each calendar quarter. The refundable tax credits under section 2301 of the
CARES Act, as amended, and section 3134 of the Code are reported on the employer’s
return for reporting its liability for FICA tax or RRTA tax, as applicable, which for most

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employers subject to FICA tax is the quarterly Form 941. For calendar quarters in 2021,
eligible small employers may claim an advance payment of the refundable tax credits
for Qualified Retention Wages under section 2301 of the CARES Act and section 3134
of the Code by filing Form 7200 in accordance with the instructions to the form.
COBRA Continuation Coverage Premium Assistance Credit
Section 9501(b) of the ARP added section 6432 of the Code
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which provides a
refundable tax credit for premiums payable for COBRA continuation coverage under
section 9501(a)(1). The credit is calculated with respect to premiums not paid by
assistance eligible individuals for such coverage by reason of section 9501(a)(1) during
the period beginning April 1, 2021, and ending September 30, 2021.
The refundable tax credit applies against Creditable Employer Medicare Taxes
for each calendar quarter. The refundable tax credit is reported on the employer’s
return for reporting its liability for FICA tax or RRTA tax, as applicable, which for most
employers subject to FICA tax is the quarterly Form 941. An employer may claim an
advance payment of the refundable tax credit by filing Form 7200 in accordance with
the instructions to the form.
Failure to Deposit Penalty Relief
Section 6656 of the Code imposes a penalty for any failure to deposit amounts
as required by the Code or regulations on the date prescribed therefor, unless such
failure is due to reasonable cause and not due to willful neglect. A failure to deposit

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A version of section 6432 was originally added to the Code in 2009 by section 3001 of the American
Recovery and Reinvestment Act of 2009 (ARRA), Pub. Law 111-5, 123 Stat. 115 (February 17, 2009)
(ARRA). Section 6432 was repealed by section 401(d)(7)(A) of Division U of Title IV of the Consolidated
Appropriations Act, 2018, Pub. Law 115-141, 132 Stat. 348 (March 23, 2018).

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taxes as required under section 6302 of the Code would generally subject an employer
to the section 6656 penalty.
Sections 7001(i) and 7003(i) of the Families First Act (as added by section
3606(a) and (c) of the CARES Act) and section 2301(k) of the CARES Act instruct the
Secretary of the Treasury or her delegate (Secretary) to waive the penalty under section
6656 of the Code for failure to deposit the Creditable Employer Social Security Taxes in
anticipation of the allowance of the refundable tax credits allowed under the Families
First Act and the CARES Act, respectively. Sections 3131(i), 3132(i), 3134(k) and
6432(c)(2)(C) of the Code instruct the Secretary to waive the penalty under section
6656 of the Code for failure to deposit Creditable Employer Medicare Taxes in
anticipation of the allowance of the refundable tax credits allowed under sections 3131,
3132, 3134 and 6432 of the Code, respectively. Furthermore, sections 7001(f) and
7003(f) of the Families First Act and sections 3131(g)(3) and 3132(g)(3) of the Code
specifically authorize guidance providing for penalty relief for failure to deposit amounts
in anticipation of the allowance of the credits provided by the Families First Act and
sections 3131 and 3132 of the Code, respectively. Section 3 of this notice provides
relief from the penalty under section 6656 pursuant to the Families First Act, the CARES
Act, and sections 3131(i), 3132(i), 3134(k), and 6432(c)(2)(C) of the Code.
SECTION 3. RELIEF FROM FAILURE TO MAKE A DEPOSIT OF TAXES
a. Reduced Deposits for Paid Sick and Family Leave Credit
An employer will not be subject to a penalty under section 6656 for failing to
deposit Employment Taxes in a calendar quarter if—

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(1) The employer paid Qualified Leave Wages, Qualified Health Plan Expenses,
or Qualified Collectively Bargained Contributions with respect to the period beginning on
April 1, 2021, and ending on September 30, 2021, to its employees in the calendar
quarter prior to the time of the required deposit,
(2) The amount of Employment Taxes that the employer does not timely deposit
is less than or equal to the amount of the employer’s anticipated credits under sections
7001 and 7003 of the Families First Act or sections 3131 and 3132 of the Code for the
calendar quarter as of the time of the required deposit, and
(3) The employer did not seek payment of an advance credit by filing Form 7200
with respect to the anticipated credits it relied upon to reduce its deposits.
Thus, an employer may reduce without a penalty under section 6656 of the Code
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, as long as
the employer does not also seek an advance credit with regard to the same amount.
For purposes of this section 3.a of this notice, the total amount of any reduction
in any required deposit may not exceed the total amount of the employer’s anticipated
credit under section 7001 or 7003 of the Families First Act or section 3131 or 3132 of
the Code as of the time of the required deposit, minus any amount of such anticipated
credits that had previously been used (1) to reduce a prior required deposit in the
calendar quarter and obtain the relief provided by this notice or (2) to seek payment of
an advance credit.
b. Reduced Deposits for the Employee Retention Credit

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An eligible employer will not be subject to a penalty under section 6656 for failing
to deposit Employment Taxes in a calendar quarter if—
(1) The employer paid Qualified Retention Wages with respect to the period
beginning January 1, 2021 and ending December 31, 2021, to its employees in the
calendar quarter prior to the time of the required deposit,
(2) The amount of Employment Taxes that the employer does not timely deposit,
reduced by the amount of Employment Taxes not deposited in anticipation of the credits
claimed under sections 7001 and 7003 of the Families First Act or sections 3131 and
3132 of the Code (as described in section 3.a of this notice), is less than or equal to the
amount of the employer’s anticipated credits under section 2301 of the CARES Act or
section 3134 of the Code for the calendar quarter as of the time of the required deposit,
and
(3) The employer did not seek payment of an advance credit by filing Form 7200,
with respect to the anticipated credits it relied upon to reduce its deposits.
Thus, after a reduction, if any, of a deposit of Employment Taxes by the amount
of the anticipated paid sick or family leave credits, an employer may further reduce,
without a penalty under section 6656 of the Code, the amount of the deposit of
Employment Taxes by the amount of the employer’s employee retention 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.
For purposes of this section 3.b of this notice, the total amount of any reduction
in any required deposit may not exceed the total amount of the employer’s anticipated
credit under section 2301 of the CARES Act or section 3134 of the Code as of the time

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of the required deposit, minus any amount of such anticipated credit that had previously
been used (1) to reduce a prior required deposit in the calendar quarter and obtain the
relief provided by this notice or (2) to seek payment of an advance credit.
c. Reduced Deposits for the COBRA Continuation Coverage Premium
Assistance Credit
An employer will not be subject to a penalty under section 6656 for failing to
deposit Employment Taxes in a calendar quarter if—
(1) The employer is a “person to whom premiums are payable” under section
6432(b) of the Code,
(2) The amount of Employment Taxes that the employer does not timely deposit,
reduced by the amount of Employment Taxes not deposited in anticipation of the credits
claimed under sections 7001 and 7003 of the Families First Act or sections 3131 and
3132 of the Code (as described in section 3.a of this notice), and the credits claimed
under section 2301 of the CARES Act or section 3134 of the Code (as described in
section 3.b of this notice), is less than or equal to the amount of the employer’s
anticipated credits under section 6432 of the Code for the calendar quarter as of the
time of the required deposit, and
(3) The employer did not seek payment of an advance credit by filing Form 7200
with respect to the anticipated credits it relied upon to reduce its deposits.
Thus, after a reduction, if any, of a deposit of Employment Taxes by the amount
of the anticipated paid sick or family leave credits and the anticipated employee
retention credit, an employer may further reduce without a penalty under section 6656
of the Code the amount of the deposit of Employment Taxes by the amount of the

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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.
For purposes of this section 3.c of this notice, the total amount of any reduction in
any required deposit may not exceed the total amount of the employer’s anticipated
credit under section 6432 of the Code in the calendar quarter as of the time of the
required deposit, minus any amount of such anticipated credit that had previously been
used (1) to reduce a prior required deposit in the calendar quarter and obtain the relief
provided by this notice or (2) to seek payment of an advance credit.
SECTION 4. EFFECT ON OTHER DOCUMENTS

Notice 2020-22 is amplified.

SECTION 5. CONTACT INFORMATION

The principal author of this notice is Michael A. Franklin of the Office of the
Associate Chief Counsel (Procedure and Administration). For further information,
please contact Mr. Franklin at (202) 317-5436 (not a toll-free number).