Revised Form 7200, Advance Payment of Employer Credits Due to COVID-19

Post Date: 6/7/21
Last Updated: 6/7/21

Summary

Cross References
- irs.gov
- Form 7200, Advance Payment of Employer Credits Due to COVID-19

The IRS has released the revised version of Form 7200 (revision date April, 2021) to take into account changes made to the employer credits available under the American Rescue Plan Act of 2021. Employers must use this revised version when claiming an advance payment of the tax credits for qualified sick and qualified family leave wages, the employee retention credit, and the COBRA premium assistance credit that is claimed on the employer’s payroll tax return (such as Form 941, Employer’s Quarterly Federal Tax Return). The revised Form 7200 takes into account the following tax law changes.

The COVID-19 related employee retention credit has been extended and amended. The American Rescue Plan Act of 2021 (ARP) adds new IRC section 3134 to provide an employee retention credit similar to the credit that was previously enacted under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and amended and extended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020. The employee retention credit is available for qualified wages paid before January 1, 2022. Generally, the rules for the employee retention credit for the second quarter of 2021 and third and fourth quarters of 2021 are substantially similar. However, the following changes under the ARP begin July 1, 2021, and are applicable for only the third and fourth quarters of 2021.
- The ARP creates a new category of an eligible employer called a recovery startup business.
- Qualified wages for the employee retention credit under IRC section 3134 do not include wages taken into account for credits under IRC sections 41, 45A, 45P, 45S, 51, 1396, 3131, and 3132. Additionally, qualified wages for the employee retention credit cannot include amounts used as payroll costs for a Small Business Interruption Loan under the Paycheck Protection Program (PPP) that is forgiven or amounts used as payroll costs for shuttered operator grants and restaurant revitalization grants.

The COVID-19 related credit for qualified sick and family leave wages has been extended and amended. The ARP adds new IRC sections 3131, 3132, and 3133 to provide credits for qualified sick and family leave wages similar to the credits that were previously enacted under the Families First Coronavirus Response Act (FFCRA) and amended and extended by the COVID-related Tax Relief Act of 2020. These credits are available for qualified wages paid for leave taken after March 31, 2021, and before October 1, 2021. Below are the major changes made under the ARP.
- The ARP keeps the daily wage thresholds that previously existed. The aggregate cap on qualified sick leave wages remains at 80 hours (10 days), but the limitation on the number of days resets on April 1, 2021. The aggregate cap on qualified family leave wages increases to $12,000 from the previous cap of $10,000, and the aggregate cap resets on April 1, 2021.
- The ARP also created a new category of leave under the Emergency Paid Sick Leave Act (EPSLA) and the Expanded Family and Medical Leave Act (Expanded FMLA) to include the time the employee is seeking or awaiting the results of a diagnostic test for, or a medical diagnosis of, COVID-19 (and the employee has been exposed to COVID-19 or the employee’s employer has requested such test or diagnosis), or the employee is obtaining immunizations related to COVID-19 or recovering from an injury, disability, illness, or condition related to such immunization. Additionally, employers may provide employees with paid family leave if the employee is unable to work due to any of the conditions for which eligible employers may provide paid sick leave under the EPSLA.
- The credits are still increased by the qualified health plan expenses allocable to the qualified sick and family leave wages, but the credits are now also increased, subject to the credit limitations, by certain amounts paid under collective bargaining agreements that are properly allocable to the qualified leave wages. The collectively bargained contributions paid by an eligible employer that are eligible for the credit are collectively bargained defined benefit pension plan contributions and collectively bargained apprenticeship program contributions that are properly allocable to qualified leave wages.
- Under IRC section 3133, the credits are increased by the amount of the employer share of Social Security tax and Medicare tax on the qualified sick and family leave wages.
- Governmental employers, except for the federal government [and its agencies and instrumentalities, except for those that are described in IRC section 501(c)(1)], may now claim the credits.
- Generally, the same wages can’t be used for both the credit for qualified sick leave wages and the credit for family leave wages. Additionally, none of the wages used for these leave credits can be used for the employee retention credit or certain other credits. The credit for qualified sick leave wages and qualified family leave wages does not apply to wages taken into account as payroll costs for a Small Business Interruption Loan under the PPP that is forgiven or in connection with shuttered operator grants and restaurant revitalization grants.
- The credit for qualified sick leave wages and qualified family leave wages is not allowed in a quarter in which the employer provides the leave in a manner that discriminates in favor of highly compensated employees, full-time employees, or employees on the basis of employment tenure.

New credit and advance for COBRA premium assistance payments. The ARP provides for COBRA premium assistance in the form of a full reduction in the premium otherwise payable by certain individuals and their families who elect COBRA continuation coverage due to a loss of coverage as the result of a reduction in hours or an involuntary termination of employment (assistance eligible individuals). This COBRA premium assistance is available for periods of coverage beginning on or after April 1, 2021, through periods of coverage beginning on or before September 30, 2021.

The ARP adds a new IRC section 6432 that allows a credit (COBRA premium assistance credit) against the employer share of Medicare tax for each calendar quarter in an amount equal to the premiums not paid by assistance eligible individuals for COBRA continuation coverage by reason of the ARP.
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