Business Taxes

Employee Retention Credit Form 7200 (2023)

We are reader supported. When you make a purchase through our links, we may earn an affiliate commission.

In the wake of the unprecedented challenges posed by the COVID-19 pandemic, there have been various measures introduced by the government to alleviate the financial burdens faced by individuals and businesses alike.

One notable tool introduced by the IRS is Form 7200, a valuable resource that allows eligible employers to request advance payment of employer credits to alleviate financial strain and maintain their workforce. In this article, we will delve into the intricacies of Form 7200, discussing which employers can file it and providing a step-by-step guide to navigate this crucial process. By familiarizing ourselves with this form, employers can make the most of the available relief and ensure their businesses remain resilient in the face of ongoing economic challenges.

Form 7200 Explained

Form 7200 enables businesses to request advance payment for various credits related to employer obligations. These credits include sick leave credits, COBRA incentive support credits, eligible family leave credits, and eligible wage tax credits.

In order to support businesses impacted by the pandemic, the Federal Government implemented measures to provide relief. Two key legislations were introduced: the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) and the FFCRA (Families First Coronavirus Response Act, PL 116-127). These legislations aim to assist businesses by allowing them to claim advance employer credits on their tax returns, which can be done using the IRS Form 7200.

The primary objective of this form is to alleviate financial strain for businesses that experienced negative effects due to COVID-19 lockdowns and subsequent revenue declines. By utilizing this form, organizations can enhance their cash flow and navigate through these challenging circumstances.

It’s important to note that self-employed individuals are not eligible to apply for illness or advance payment for family time credits, and they cannot utilize Form 7200 for these specific credits.

Who Can File Form 7200?

According to the IRS,

Generally, employers that file Form(s) 941, 943, 944, or CT-1 may file Form 7200 to request an advance payment of the tax credit for qualified sick and family leave wages, the employee retention credit, and/or the COBRA premium assistance credit. You will need to reconcile any advance credit payments and reduced deposits on your employment tax return(s) that you will file for 2021. No employer is required to file Form 7200.

There are some limitations, though.

The credit for qualified sick and family leave wages is applicable only to private employers with a workforce of fewer than 500 full-time and part-time employees at the time the leave is taken. Organizations exceeding this employee threshold are not eligible to claim this credit.

In 2021, advance payments for the Employee Retention Credit are limited to employers who employ less than 500 full-time employees. Additionally, employers that were not established before 2019 can only qualify for this credit if they had an average of 500 or fewer full-time employees in 2020.

Form 7200 cannot be used by newly established businesses that were set up after December 31, 2020, to request advance payment of employee retained earnings.

Employers who meet the eligibility criteria can apply for prepaid credits only when the reduced 941 tax deposit is insufficient to cover the costs of eligible illness and family leave payments, as well as temporary sales tax deductions.

Self-employed individuals and government employers are not allowed to submit Form 7200.

An employer who submits Form 941 for a particular quarter is not eligible to request an advance payment of refundable tax credits within the same quarter.

When To File Form 7200?

Between April 1, 2021, and September 30, 2021, employers can claim tax credits for eligible illness allowances and eligible family leave allowances based on wages paid during that period.

For 2021, the employee retention tax credit applies to eligible compensation paid before December 31, 2020, and on or after January 1, 2022.

COBRA Premium Assistance Credits can be utilized for insurance periods starting on or after April 1, 2021, up to insurance periods commencing on or before September 30, 2021.

The deadline to file Form 7200 for the second quarter of the 2021 advance payment request is August 2, 2021. Similarly, for the third quarter, the final date for filing Form 7200 is November 1, 2021. For the fourth quarter, the deadline to submit Form 7200 for advance payment is January 31, 2022. It’s important to note that the same deadline applies to Quarterly Form 941 or Annual Form Submission 943, 944, or CT-1.

If Form 941 is already submitted for a particular quarter, Form 7200 cannot be submitted within the same quarter. If Form 7200 is submitted after the quarter ends, it may not be processed until after the Form 941 processing is completed.

Requests for advance payments on Form 7200 will not be processed after Form 941 for the corresponding quarter has been completed.

If necessary, you can submit Form 7200 multiple times within a quarter for subsequent eligible payments. However, please refer to the instructions or updates regarding Form 7200 for any necessary adjustments.

Form 7200 Instructions

Completing Form 7200 is relatively straightforward, but it can feel overwhelming if you are not familiar with it. Here is a step-by-step guide to assist you. Please note that the instructions provided here are for the 2021 calendar year.

  1. Begin by providing the name of your organization, its Employer Identification Number (EIN), address, and the relevant calendar quarter in 2021.
  2. In the first part of the form, furnish details about your employment tax form. This includes specifying the employment tax form you have already filed or plan to file. Additionally, state the total number of employees who received qualified wages eligible for the employee retention tax credit. In this section, you can also indicate the number of employees who received qualified sick leave and family leave wages, as well as COBRA premium assistance.
  3. Moving on to the second part, indicate the advance credits you have requested, the total amount of eligible wages for sick leave and family leave, and/or the amount of premium COBRA assistance provided during the applicable quarter.
  4. Next, provide the total amount by which you have reduced your federal employment tax deposits for credits in the relevant quarter, as well as the total advance credits requested in previous Form 7200 filings for the same quarter. These two totals should be added together.
  5. Line 9 requires subtracting Line 8 from Line 5. If the result is zero or a negative amount, there is no need to file the form. It’s important to note that the minimum payment the IRS will make is $25.
  6. Finally, the form allows you to designate whether you want the IRS to discuss the form with an employee, paid tax preparer, or another designated person (known as the third-party designee). The final sections of the form include a space for the signature of the person who prepared the form (or the paid preparer), as well as instructions for fax filing.

By following these steps, you can successfully complete Form 7200 for the designated quarter in 2021.

Summary

Form 7200 is a valuable tool for employers seeking to claim advance credits for various tax benefits related to the pandemic. It is important to note that self-employed individuals and government employers are not eligible to use this form. Employers must meet specific size limitations for certain credits, and new businesses established after December 31, 2020, cannot submit Form 7200 for advance payment of employee retained earnings.

The form should be filled out accurately, providing necessary information about the organization, employment tax forms, eligible wages, advance credits requested, and previous filings. Employers should carefully calculate the amounts and ensure the final result is not zero or negative before submitting the form. By following these guidelines and steps, employers can navigate Form 7200 effectively and access the support they need during these challenging times.