Understanding the 2021 Form 7200
In February, the IRS released the final version of the 2021 Form 7200 and its instructions, allowing eligible employers to request advance payments of tax credits for qualified sick and family leave wages as well as the Employee Retention Credit (ERC) in 2021. Employers have been awaiting the new version of the form, as the IRS had advised not to use the 2020 version for 2021 credit requests.
Qualified sick and family leave tax credits under the FFCRA and the ERC under the CARES Act were originally set to expire on December 31, 2020. The Consolidated Appropriations Act extended both tax credits into 2021, and the new Form 7200 allows employers to claim the credit for the appropriate quarter in 2021. Qualified sick and family leave advance credits can be claimed for wages paid through March 31, 2021, and ERC advance credits can be claimed for wages paid through June 30, 2021. Form 7200 includes checkboxes for all four quarters of 2021 in case future legislation results in further extension of either credit.
Part I of the new Form 7200 requires employers to complete more detailed information about an organization’s number of employees, as the 2021 Form 7200 can only be filed by smaller employers. An advance credit for qualified family or sick leave wages may only be requested by employers that employ fewer than 500 full-time and part-time employees at the time the leave is taken. An advance credit for the ERC may only be requested by small employers that averaged 500 or fewer full-time employees in 2019. For employers that were not in existence in 2019, advance payments are limited to small employers that averaged 500 or fewer full-time employees in 2020. This does not mean large employers will not receive their credits. It just means they will have to wait to claim excess credits on their Form 941.
Employers claiming advance payment of qualified leave credits for first quarter 2021 wages must file the 2021 Form 7200 by April 30, 2021, or before the employer files its Form 941 for the first quarter of 2021. Employers claiming advance payment of the ERC must file the 2021 Form 7200 by April 30, 2021, for first quarter 2021 credits and August 2, 2021, for second quarter credits. As with the credits for qualified leave wages, if the employer already filed Form 941 for a given quarter, they can no longer file Form 7200 to claim advance credits for the ERC.
Viventium’s COVID-19 Product Suite helps with completing Form 7200 and is available for free in 2021 to clients using our payroll product. To learn more, visit viventium.com/covid-19-solutions.