In news for tax professionals and small businesses, the IRS has advised those who are beginning to deal with Form 7200, Advance Payment of Employer Credits Due to COVID-19 to do so carefully to avoid making error when completing the new form. Mistakes in completing the form can lead to processing delays, which in turn delays the IRS approving the credits.
Background: The Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief and Economic Security or CARES Act both provide refundable tax credits for the employer. FFCRA requires employers (of a certain size) to provide paid sick leave or paid family leave. To offset the cost of this leave, the employer is permitted to take refundable tax credits against employment taxes. The CARES Act permits the employer to take a “employee retention credit” equal to 50% of “qualified wages”. This is also offset against employment taxes. However, it is possible for these credits to exceed the employer’s actual tax deposits. In this case, the employer is permitted to receive the excess paid leave credits or the employee retention credit in advance by using Form 7200.
However, the IRS has noted some common errors or mistakes in filling out the form, slowing the process. The errors to avoid include:
- Missing or inaccurate Employer Identification Number (EIN). Each EIN on a tax return should be exact.
- Checking more than one box for applicable calendar quarter. Only one box should be checked for the correct quarter.
- Check more than one box for Part 1, Line A. Likewise, only one box should be checked in Part 1, Line A.
- Skipping Part 1, Line B. Complete Part 1, Line B. In Part 1, Line B check either “Yes” or “No”.
- Not fully completing Part II. Complete all the lines in Part II. This identifies which credits are being claimed.
- Not completing Part II, Lines 1-8. Part II should be completed using dollar amounts, not the number of eligible employees. All lines in Part II should be completed with an actual dollar amount.
- Inputting the number of eligible employees on lines in Part 2, instead of dollar amounts.
- Not checking the math on lines 4, 7 and 8 (i.e., subtracting instead of adding or vice versa)
- Not signing the form (automatic rejection)
- Wrong individual signing the form
- Sole proprietorship—The individual who owns the business.
- Corporation (including a limited liability company (LLC) treated as a corporation)—The president, vice president, or other principal officer duly authorized to sign.
- Partnership (including an LLC treated as a partnership) or unincorporated organization—A responsible and duly authorized partner, member, or officer having knowledge of its affairs.
- Single-member LLC treated as a disregarded entity for federal income tax purposes—The owner of the LLC or a principal officer duly authorized to sign.
- Trust or estate—The fiduciary.
Also, Form 7200 may be signed by a duly authorized agent of the Eligible Employer if a valid Form 2848 (Power of Attorney and Declaration of Representative) has been filed.
For more information about Form 7200 and its use can be found on IRS.gov: About Form 7200, Advance Payment of Employer Credits Due to COVID-19.