The employee retention credit is a fully refundable tax credit for employers, equivalent to 50 percent of qualifying wages (including the attributable qualifying health plan expenses) that eligible employers pay to their employees. This credit is designed to help employers affected by the COVID-19 pandemic keep their employees on the payroll and without receiving unemployment compensation. Because quarterly employment tax returns aren't filed until after qualifying wages have been paid, some eligible employers may not have enough federal payroll taxes set aside to deposit with the IRS to fund their qualifying wages by reducing the amount to be deposited, especially after factoring in the allowable deferral of the employer's participation in the social security tax under section 2302 of the CARES Act. To address this issue, the IRS has a procedure for obtaining an advance on refundable credits.
Each eligible employer will declare their employee retention credit on their payroll tax return (or on the payroll tax return of their third payer) regardless of their accrual with other entities such as a single employer in order to determine their eligibility for the credit. The credit for each eligible employer will be the amount of the credit distributed among the members of the aggregate group based on each member's proportional share of the qualifying salaries that give rise to the credit.If Employer F does not pay the required amounts at that time, Employer F's deferred deposits will lose their deferred status and may be subject to penalties for not depositing compared to the original due dates. To help speed up and ensure the proper processing of Form 7200 and to reconcile the prepayment of credits with the payroll tax return for the calendar quarter, only third payers who file a payroll tax return on behalf of an employer using the name and EIN of the third party payer should appear on Form 7200.An eligible employer can obtain Form 7200, Prepayment of Employer Credits Due to COVID-19, online and can fax their completed form to 855-248-0552.Employers who file Form 7200, Prepayment of Employer Credits Due to COVID-19, to request an early payment of the credits must include in the form the name and EIN of the third payer that they use to file their payroll tax returns (such as Form 94, if the third party payer uses their own). The EIN on employment tax returns will ensure that the prepayment of the credits received by the common law employer is properly reconciled with the employment tax return filed by the third payer for the calendar quarter in which the advance payment of the credits is received.If an eligible employer completely reduces the required federal payroll tax deposits that would otherwise be due to wages paid in same calendar quarter to its employees in anticipation of receiving credits, and has not paid qualifying wages that exceed this amount, it should not file Form 7200.
The instructions in Form 7200, Prepayment of Employer Credits Due to COVID-19, provide information on who can correctly sign a Form 7200 for each type of entity.Employer F can file a Form 7200 to request a credit or refund of this amount before end of quarter (but not for any amount of employee retention credit that has already been used to reduce deposit obligation). In these circumstances, third payer files payroll tax return (such as Form 94) for wages he paid to employees with his name and EIN, and common-law employer files payroll tax return for wages he paid directly to employees under his own name and EIN. Eligible employers will declare their total qualified wages for purpose of employee retention credit for each calendar quarter on their federal employment tax returns, usually Form 941, employer's quarterly federal tax return. If you file a Form 7200, you will need to reconcile this advance credit and its deposits with qualifying wages listed on Form 941, employer's quarterly federal tax return (or other applicable federal employment tax return, such as Form 944 or Form CT-), starting with Form 941 for second quarter, and you may have an underpayment of federal payroll taxes for quarter.