The IRS has issued a statement that it 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.

Some employers may have received a notice warning them they would be subject to penalties for not depositing the proper amount of taxes with their quarterly Form 941 filings. However, the IRS admitted that some employers may have intentionally reduced their tax deposits in anticipation of claiming the sick and family leave credits, or employee retention credit under the recent coronavirus relief packages, which Congress passed to provide more money to businesses and individuals dealing with the economic fallout of the COVID-19 crisis.

“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,” said the IRS. “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).”

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 for future guidance on reporting liabilities when reducing deposits.