Updated Guidance and Resources from the IRS

Families First Coronavirus Response Act: Guidance on reporting qualified leave wages

Notice 2020-54 (click here) provides guidance to employers on the requirement to report the amount of qualified sick leave wages and qualified family leave wages paid to employees under the Families First Coronavirus Response. Employers are required to report these amounts either on Form W-2, Box 14, or on a separate statement. This required reporting provides employees who are also self-employed with information necessary for properly claiming qualified sick leave equivalent or qualified family leave equivalent credits under the Families First Act.


Updated FAQs: Deferral of employment tax deposits and payments through December 31

The Coronavirus, Aid, Relief and Economic Security Act (CARES Act) allows employers to defer the deposit and payment of the employer’s share of Social Security taxes and self-employed individuals to defer payment of certain self-employment taxes.

The IRS recently updated its FAQs on this topic to address specific issues related to the deferral of deposit and payment of these employment taxes. Click here.


IRS statement regarding failure to deposit penalties on some employers claiming new tax credits

The IRS is aware that a small population of employers that reduced their tax deposits in anticipation of claiming the sick and family leave credits, or employee retention credit, may have received a notice stating there was a failure to deposit penalty applicable to the Form 941 on which the credits were claimed. Under Notice 2020-22, employers claiming the new tax credits may reduce their deposits throughout the tax period up to the amount of the credit. However, in reporting the schedule of liabilities on Form 941, the reported liabilities did not match the reduction in deposits for every pay date. In these situations, they incurred a failure to deposit penalty on the difference in the reported liabilities and the reduced deposits (in situations where deposits were reduced by the amount of the anticipated credit(s) in excess of liability for the employer portion of social security for a given pay date).

Although the IRS has taken steps to implement rules that prevent the failure to deposit penalty from incurring on employers reducing their deposits in anticipation of these credits, we’ve become aware some employers may still have inadvertently received notice of the penalty. The IRS is taking actions to identify these employer accounts and correct them as soon as possible.

Employers that have recently received these notices do not need to take additional actions at this time. To avoid future receipts of these notices, please check IRS.gov/form941 (click here) for future guidance on reporting liabilities when reducing deposits.


Working virtually: Protecting tax data at home and at work

The IRS and Security Summit partners urge payroll professionals to review critical security steps to ensure they are fully protecting client data, whether working in the office or at a remote location.

Payroll professionals: The IRS, state tax agencies and the nation’s tax industry issued news releases and e-Posters (click here) as part of the summer awareness initiative called Working Virtually: Protecting Tax Data at Home and at Work. Please share this information.


Identity theft affidavit now available for businesses and other entities

The IRS and its partners continue their efforts against identity theft. The Form 14039-B (click here), an identity theft affidavit for businesses and other entities, will make it easier for businesses, estates, trusts and tax-exempt organizations to report identity theft to the IRS. Submitting this form will allow the IRS to more quickly assist entities who are victims of identity theft. The form is publicly available on Identity Theft Central (click here) at IRS.gov/IdentityTheft under the “Business” tab.

This form is for entities whose names or Employer Identification Numbers (EIN) have been used to facilitate refund theft by submitting fraudulent tax returns or fraudulent Forms W-2.

Here are some examples that should prompt the filing of Form 14039-B:

  • The taxpayer receives a rejection notice for an electronically filed return because the IRS already has a return on file for that same period.
  • The taxpayer receives a notice about a tax return that the taxpayer did not file.
  • The taxpayer receives a notice about W-2s filed with SSA that the taxpayer did not file.
  • The taxpayer receives a balance due notice and they do not owe the IRS.

Do not file Form 14039-B if:

  1. The taxpayer never applied for an EIN but began receiving notices for a business in their name. INSTEAD, they should file Form 14039, Identity Theft Affidavit, under their Social Security Number (SSN), Individual Taxpayer Identification Number (ITIN) or Adoption Taxpayer Identification Number (ATIN).
  2. The business, estate, trust or exempt organization experienced a data breach with no tax-related impact to the business entity. For example, a business reports a breach of their computer system and after thorough research of the account, there is no evidence of a fraudulent tax return or W2’s being filed.


Employers must choose carefully when selecting a payroll service provider

The IRS reminds employers to carefully choose their payroll service providers following continuing concerns that some disreputable organizations can fail to deposit employment taxes, leaving businesses vulnerable to unpaid bills.

Many employers outsource their payroll and related tax duties to third parties. Using a reputable firm or group can protect employers from fraud.

The IRS news release (click here) on this topic provides more information for sharing with employees, clients and partners. It also explains steps to protect employers from unscrupulous third parties.

And, the IRS’s new third-party payroll providers fact sheet (click here) provides details about the different types of third-party providers available to employers:

  • Payroll Service Provider
  • Reporting Agent
  • Section 3504 Agent
  • Professional Employer Organization
  • Certified Professional Employer Organization


Unemployment compensation is taxable – withhold now and avoid a tax-time surprise

With millions of Americans now receiving taxable unemployment compensation, many of them for the first time, the IRS issued a news release (click here) to remind taxpayers that unemployment compensation is taxable. Taxpayers receiving unemployment compensation have the option to have tax withheld from their benefits now to help avoid owing taxes on this income when they file their federal income tax return next year.

By law, unemployment compensation is taxable and must be reported on a 2020 federal income tax return. Taxable benefits include any of the special unemployment compensation authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted this spring.

See the news release for information about:

  • The form to use to have taxes withheld
  • When and how to make estimated tax payments if needed
  • Other types of payments taxpayers should check their withholding on
  • Returning to work before the end of the year and how to make sure to have enough tax taken out of pay
  • The form unemployment benefit recipients should receive in January 2021 from the agency paying the benefits