What's the procedure for eligible employers to obtain an advance of the refundable credits?
295 views | Last modified 4/25/2023 2:49:51 AM EST | Added by TaxBandits Team

An eligible employer has to file Form 7200, Advance Payment of Employer Credits Due to COVID-19, to claim advance payment of refundable credits.  Form 7200 can be filed several times during each quarter before the end of the month following the quarter in which the employer paid the qualified wages but not after the filing of Form 941- Employer’s Quarterly Federal Tax Return for Q4, Form 943- Employer’s Annual Federal Tax Return for Agricultural Employees, or Form 944- Employer’s Annual Federal Tax Return. 
  
Now, on whether eligible employers can claim an advance of the refundable credits depends on these factors:

•  Federal employment tax set aside for deposits for wages paid in the quarter.
•  Qualified leave wages paid to employees during the quarter. 

Only when the qualified leave wages paid to employees during the quarter is higher than the federal employment tax deposits set aside for deposits for wages paid, Form 7200 can be filed to claim advance payment. That's because the employer should first reduce its remaining federal employment tax deposits for wages paid in the same quarter to zero.   
 
Example:

An employer-paid $9,000 in qualified leave wages to employees during Q2 2020.  During the same quarter, say, the federal employment taxes, including taxes withheld from all of its employees, on wage payments made is $7,000. In this case, the employer can keep the entire $7,000 of taxes that the employer was otherwise required to deposit without penalties as a portion of the credits it is otherwise entitled to claim on Form 941. The employer may file a request for an advance credit for the remaining $2,000 by completing Form 7200.  
 
On the hand, if the employer had paid $6,000 in qualified leave wages to employees during the same quarter, and the federal employment tax set aside for deposits for wages paid is the same $7,000, the employer would not be eligible to submit Form 7200 and will need to deposit $1,000 in employment taxes on its required deposit date. The employer will later account for the $6,000 it retained when it files a federal tax return.