SECTION 2. BACKGROUND

Section 3111(a) of the Code (employ­ er’s share of the Old Age, Survivors, and Disability Insurance (social security) por­ tion of FICA tax) and section 3221(a) of the Code (employer’s share of the social security and Hospital Insurance (Medi­ care) portions of RRTA tax), along with section 3402 related to Federal income tax withholding, impose Employment Tax lia­ bility 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 pro­ vides that the payment and deposit of the employer’s share of the social security portion of FICA tax and the employ­ er’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 Janu­ ary 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 liabili­ ty). Under this provision, an employer is treated as having timely made these re­ quired deposits of FICA and RRTA tax­ es if all such deposits are made not later than the applicable due dates. This defer­ ral of payment does not apply to employ­ ers 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 sec­ tion 2302 of the CARES Act, section 6302 of the Code and regulations under that section generally require deposits of Em­ ployment Taxes to be made on a monthly or bi-weekly basis. Employers that accu­ mulate $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).

The Families First Act generally re­ quires employers of fewer than 500 em­ ployees 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 circum­ stances related to COVID-19. Generally, employers that are required to pay Quali­ fied Leave Wages under the Families First Act are entitled to refundable tax credits administered by the IRS. (The govern­ ment of the United States, the government of any State or political subdivision there­ of, or any agency or instrumentality of the foregoing is not entitled to these refund­ able 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 em­ ployer’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

April 20, 2020 664 Bulletin No. 2020–17

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 report­ ed 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 credits by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.

Section 2301 of the CARES Act pro­ vides a refundable tax credit against an employer’s Creditable Employment Taxes for each calendar quarter for Qualified Re­ tention 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 re­ fundable 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 employ­ er 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, in­ struct 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 se­

curity tax in anticipation of the allowance of the refundable tax credits allowed un­ der the Families First Act and the CARES Act. Furthermore, sections 7001(f) and 7003(f) of the Families First Act specif­ ically authorize guidance providing for waiver of penalties for failure to deposit amounts in anticipation of the allowance of the credits provided by the Families 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.