IRS Releases Regs Aiming to Recapture Erroneous COVID-19 Credit Payments

Chris Gaetano
Published Date:
Jul 28, 2020
The IRS has released temporary regulations, as well as proposed regulations, on preventing taxpayers from claiming more than allowed on COVID-19-related employment tax credits. The text of the temporary regulations serves as the text of the proposed regulations.

The IRS regulations specifically concern employment tax credits outlined in the Families First Act and the CARES Act. Under the Families First Act, eligible employers are entitled to fully refundable tax credits to cover the cost of required sick leave. The credit is limited to the amount of the qualified sick leave wages and qualified family leave wages, plus allocable qualified health plan expenses. The CARES Act, meanwhile, allows employers to claim an additional credit if they experience economic hardship due to COVID-19. This credit is limited to $5,000 per employee.

The IRS noted that "[t[he same wages or compensation cannot be counted for both the Families First Act leave credits and the CARES Act employee retention credit," which would result in excess payments being given out by the government. The regulation is meant to prevent this from happening. 

The IRS regulations say, "Any credits claimed that exceed the amount to which the employer is entitled and that are actually credited or paid by the IRS are considered to be erroneous refunds of the credits. These temporary regulations provide that erroneous refunds of these credits are treated as underpayments of the taxes imposed under sections 3111(a) or 3221(a) of the Code and authorize the IRS to assess any portion of the credits erroneously credited, paid, or refunded in excess of the amount allowed as if those amounts were tax liabilities under sections 3111(a) and 3221(a) subject to assessment and administrative collection procedures."

The rules apply to all credit refunds under section 7001 and 7003 of the Families First Act advanced or paid on or after April 1, 2020 and all credit refunds under Section 2301 of the CARES Act advanced or paid on or after March 13, 2020.

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