The IRS has issued temporary and proposed regulations that authorize the assessment of any erroneous refund of the COVID-19 employment tax credits which were added by the American Rescue Plan Act of 2021. These credits for certain wages paid by employers are:
- the Credit for Paid Sick Leave,
- the Credit for Paid Family Leave, and
- the Employee Retention Credit.
In general, eligible employers can claim a refundable employee retention credit against the employer share of Social Security tax equal to 70 percent of the qualified wages they pay to employees after December 31, 2020, through December 31, 2021. Qualified wages are limited to $10,000 per employee per calendar quarter in 2021. The maximum employee retention credit available is $7,000 per employee per calendar quarter in 2021.
Eligible employers can claim a refundable credit against the employer’s portion of Medicare tax for required sick leave or family leave paid to an employee who cannot work due to coronavirus (COVID-19). Sick leave is paid to an employee who is quarantined, has been advised to self-quarantine, has COVID-19 symptoms and is seeking a medical diagnosis, is waiting for the results of a COVID-19 diagnostic test or medical diagnosis, is obtaining or recovering from COVID-19 immunization, or is caring for someone with COVID-19 or for a child whose school or care facility is closed or whose care provider is unavailable. The credit covers qualified sick leave and family leave wages paid beginning on April 1, 2021, and ending on September 30, 2021.
Assessment of Erroneous Refund
If the amount of the credits exceeds these taxes for any calendar quarter, then the excess must be treated as an overpayment to be refunded or credited. Any credits claimed that exceed the amount to which the employer is entitled, and that is actually credited or refunded by the IRS, are considered to be erroneous refunds of these credits. If a small eligible employer receives excess advance payments of the credit, then the tax imposed for the calendar quarter is increased by the excess amount.
Any amount of the credits that are erroneously refunded or credited to an employer must be treated as underpayments of the employer’s share of the applicable Medicare tax by the employer and maybe administratively assessed and collected in the same manner as the taxes. The temporary regulations provide that the determination of any amount of credits erroneously refunded must consider any credit amounts advanced to an employer under the process established by the IRS.
Please call our office we can assist you with calculating the employment tax credits you may be able to take advantage of for employee retention and qualified sick and family leave wages paid in 2021.
Venkat Iyer. CPA(USA). CPA(Canada). MBA
Venkat holds a CPA credential both in the USA and Canada, and he is very proficient in tax and compliance requirements in both countries. He is a Seasoned Business Adviser with 18+ years of extensive experience in diversified industries and accounting firms.He is also very prominent in implementing Lean Principles and Strong Financial Foundations for Hotels and Restaurants. He believes the key to any business success is knowing their indicators and their impact. He has been helping businesses with predictive analytics, transforming data from their enterprise's system for delivering meaningful insights.He is also a Business Automation Expert helping streamline the workflows from marketing to management to ensure optimal business performance.