n-20-22.pdf

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Part III – Administrative, Procedural, and Miscellaneous

Relief from Penalty for Failure to Deposit Employment Taxes

Notice 2020-22

SECTION 1. PURPOSE
The purpose of this notice is to provide penalty relief with respect to certain
employers’ deposits of Federal employment taxes with the Internal Revenue Service
(IRS) under §§ 31.6302-1 or 31.6302-2 of the Employment Taxes and Collection of
Income Tax at Source Regulations, including deposits of withheld income taxes, taxes
under the Federal Insurance Contributions Act (FICA), and taxes under the Railroad
Retirement Tax Act (RRTA) (collectively, Employment Taxes). Specifically, this notice
provides relief to employers entitled to the new refundable tax credits provided under
the Families First Coronavirus Response Act (Families First Act), Public Law No. 116-
127 (March 18, 2020), and the Coronavirus Aid, Relief, and Economic Security Act
(CARES Act), Public Law No. 116-136 (March 27, 2020).
Employers paying qualified sick leave wages and qualified family leave wages
required 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) are eligible for refundable tax credits under the Families First Act.

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Additionally, certain employers experiencing a full or partial business suspension due to
orders from a governmental authority due to the coronavirus disease 2019 (COVID-19)
or experiencing a statutorily specified decline in business are also allowed a refundable
tax credit under the CARES Act of up to fifty percent of the qualified wages, including
allocable qualified health expenses and limited to $10,000 per employee over all
calendar quarters combined (Qualified Retention Wages). Under the Families First Act
and the CARES Act, an employer paying Qualified Leave Wages or Qualified Retention
Wages may take refundable tax credits against a specified portion of the employer’s
share of certain Employment Taxes.
Section 3 of this notice provides employers relief from the failure to deposit
penalty imposed by section 6656 of the Internal Revenue Code (Code) 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 credits to which the
employer is entitled under the Families First Act and the CARES Act. This relief
ensures that such employers may pay Qualified Leave Wages required by the Families
First Act or Qualified Retention Wages under the CARES Act using Employment Taxes
that would otherwise be required to be deposited without incurring a failure to deposit
penalty. This notice applies to deposits of Employment Taxes reduced in anticipation of
the credits with respect to Qualified Leave Wages paid with respect to the period
beginning April 1, 2020, and ending December 31, 2020, and in anticipation of the
credits with respect to Qualified Retention Wages paid with respect to the period
beginning on March 13, 2020, and ending December 31, 2020.
SECTION 2. BACKGROUND

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Section 3111(a) of the Code (employer’s share of the Old Age, Survivors, and
Disability Insurance (social security) portion of FICA tax) and section 3221(a) of the
Code (employer’s share of the social security and Hospital Insurance (Medicare)
portions of RRTA tax), along with section 3402 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.
Section 2302 of the CARES Act provides that the payment and deposit of the
employer’s share of the social security portion of FICA tax and the employer’s share of
the social security portion of RRTA tax for deposits that are due to be made during the
period beginning on March 27, 2020, and ending before January 1, 2021, is not due
before December 31, 2021 (for the first 50 percent of the liability), and December 31,
2022 (for the remaining 50 percent of the liability). Under this provision, an employer is
treated as having timely made these required deposits of FICA and RRTA taxes if all
such deposits are made not later than the applicable due dates. This deferral of
payment does not apply to employers that have had indebtedness forgiven under either
section 1106 or 1109 of the CARES Act.
Although Form 941 is due quarterly and payment and deposit of certain FICA
(and RRTA) taxes is deferred under section 2302 of the CARES Act, section 6302 of
the Code and regulations under that section generally require deposits of Employment
Taxes to be made on a monthly or bi-weekly 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).

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The Families First Act generally requires 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. Generally, employers that are required to pay Qualified Leave Wages under
the Families First Act are entitled to refundable tax credits administered by the IRS.
(The government of the United States, the government of any State or political
subdivision thereof, or any agency or instrumentality of the foregoing is not entitled to
these refundable tax credits.)
Sections 7001 and 7003 of the Families First Act provide a refundable tax credit
against an employer’s share of the social security portion of FICA tax and an employer’s
share of the social security and Medicare portions of RRTA tax for each calendar
quarter in an amount equal to 100 percent of Qualified Leave Wages paid by the
employer plus Qualified Health Plan Expenses with respect to that calendar quarter.
(For purposes of this notice, an employer’s share of the social security portion of FICA
tax and an employer’s share of the social security and Medicare portions of RRTA tax,
as applicable, are referred to as, Creditable Employment Taxes.) For employers
subject to FICA tax, the credits under section 7001 and 7003 are increased by the
amount of 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 credit under section 7005(b)(1) is treated as a credit under section 7001 or
section 7003.) 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

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payment of the refundable tax credits by filing Form 7200, Advance Payment of
Employer Credits Due to COVID-19.
Section 2301 of the CARES Act provides a refundable tax credit against an
employer’s Creditable Employment Taxes for each calendar quarter for Qualified
Retention Wages paid by the employer. 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 for Qualified Retention Wages
under section 2301 of the CARES Act by filing Form 7200, Advance Payment of
Employer Credits Due to COVID-19.
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
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 the Secretary’s delegate) to waive the penalty under
section 6656 of the Code for failure to deposit the employer share of social security tax
in anticipation of the allowance of the refundable tax credits allowed under the Families
First Act and the CARES Act. Furthermore, sections 7001(f) and 7003(f) of the Families
First Act specifically authorize guidance providing for waiver of penalties for failure to
deposit amounts in anticipation of the allowance of the credits provided by the Families

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First Act. Section 3 of this notice provides relief from the penalty under section 6656
pursuant to the Families First Act and the CARES Act.
SECTION 3. RELIEF FROM FAILURE TO MAKE A DEPOSIT OF TAXES
a. Employment Taxes Related to Qualified Leave Wages
An employer will not be subject to a penalty under section 6656 for failing to
deposit Employment Taxes relating to Qualified Leave Wages in a calendar quarter if—
(1) The employer paid Qualified Leave Wages 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 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, Advance Payment of Employer Credits Due to COVID-19, 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 Qualified Leave
Wages and Qualified Health Plan Expenses paid by the employer in the calendar
quarter prior to the required deposit, plus the amount of the employer’s share of
Medicare tax on such Qualified Leave Wages, 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 Qualified Leave Wages and

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Qualified Health Plan Expenses and the employer’s share of Medicare tax on the
Qualified Leave Wages in the calendar quarter, minus any amount of Qualified Leave
Wages, Qualified Health Plan Expenses, and employer’s share of Medicare tax that had
been previously 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. Employment Taxes Related to Qualified Retention Wages
An eligible employer will not be subject to a penalty under section 6656 for failing
to deposit Employment Taxes relating to Qualified Retention Wages in a calendar
quarter if—
(1) The employer paid Qualified Retention Wages 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 for Qualified Leave Wages, Qualified Health Plan Expenses, and the
employer’s share of Medicare tax on the Qualified Leave Wages under sections 7001
and 7003 (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 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,
Advance Payment of Employer Credits Due to COVID-19, 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 credits anticipated for Qualified Leave Wages under sections 7001 and 7003 (as

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described in section 3.a of this notice), 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 Qualified Retention Wages paid by the employer in 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 Qualified Retention Wages
in the calendar quarter, minus any amount of Qualified Retention Wages that had been
previously 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. 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).