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IRS FAQs Provide Welcome Guidance on Employee Retention Credit and PPP Loans in M&A Transactions

On November 16, the IRS added two new FAQs to its website that address an issue that has been concerning employers since the CARES Act was adopted.  For purposes of the employee retention credit (“ERC”), Section 2301(d) of the CARES Act includes an aggregation rule that treats all employers required to be aggregated under section … Continue Reading

Preamble to Final Regulations on the Mechanics of Income Tax Withholding Provide Transition Method for Pre-2020 Forms W-4

On October 6, the IRS published final regulations addressing changes made by the Tax Cuts and Jobs Act of 2017 (the “TCJA”) to how an employee instructs an employer to withhold income taxes based on the employee’s Form W-4 (Employee’s Withholding Certificate).  These final regulations were issued only 8 months after the proposed regulations were … Continue Reading

IRS Provides Guidance on Preparation of Forms W-2 for Employees with Deferred Social Security Tax Withholding

On Friday, October 30, the IRS provided guidance regarding the proper reporting on Form W-2 for employers who deferred the withholding of the employee share of Social Security tax under Notice 2020-65. (See earlier coverage.)  Based on the IRS guidance, employers should report FICA wages up to the OASDI (Social Security) wage base in Box … Continue Reading

IRS Updates Guidance on Qualified Plan Distributions to State Unclaimed Property Funds

The IRS recently published new guidance on the tax withholding and reporting consequences associated with qualified retirement plan distributions to state unclaimed property funds.  In Revenue Ruling 2020-24, the IRS clarified that distributions from qualified retirement plans to state unclaimed property funds are subject to both federal income tax withholding and 1099-R reporting requirements.  In … Continue Reading

Final Regulations Address TCJA Disallowance for Meal and Entertainment Expenses

On October 9, the IRS published final Treasury Regulations addressing the deduction disallowance of expenses associated with providing entertainment, business meals, and other food and beverages in the Federal Register.  The final regulations, which track the proposed regulations published on February 26, 2020, preserve, with certain limitations, taxpayers’ ability to deduct 50 percent of the … Continue Reading

IRS Posts Tax Tip on Backup Withholding

On October 14, 2020, the IRS posted Tax Tip 2020-136 entitled, “Helpful information for taxpayers on backup withholding.”  This particular Tax Tip serves as a great reminder for payers making payments for which backup withholding is required, especially if they are unaware of the troubling consequences of noncompliance.… Continue Reading

Regulations Addressing Section 958(b)(4) Repeal Provide Relief for U.S. Payors but Hold the Line on the Portfolio Interest Exception

On October 2, 2019, Treasury and the IRS issued proposed regulations relating to the repeal of section 958(b)(4) by the Tax Cuts and Jobs Act (“TCJA”).  On September 22, 2020, Treasury and the IRS issued final regulations largely following the proposed regulations, along with additional proposed regulations.… Continue Reading

IRS Final Regulations on Default Withholding Rates for Periodic Deferred Income Distributions: No Changes for 2021, but Future Rates Not Clarified

The Treasury and IRS have published final regulations governing federal income tax withholding from periodic payments of deferred income made after December 31, 2020. The new regulations follow changes made by the Tax Cuts and Jobs Act of 2017 (TCJA) to the default withholding rate rules. Payors and plan administrators who hoped that the IRS … Continue Reading

IRS Issues Notice 2020-65 Providing Guidance on Employee Social Security Tax Deferral

Late Friday, the IRS released Notice 2020-65 providing guidance to employers regarding the implementation of President Trump’s presidential memorandum issued on August 8, 2020.  The memorandum directed the Secretary of the Treasury to defer the withholding, deposit, and payment of employee Social Security taxes for the period from September 1 to December 31, 2020 (see … Continue Reading

IRS Warns Employers Claiming New Tax Credits of Erroneous Penalty Notices

The IRS recently announced that it erroneously sent failure-to-deposit (“FTD”) penalty notices to certain employers that reduced their employment tax deposits on Form 941 (Employer’s Quarterly Federal Tax Return) in anticipation of claiming sick and family leave credits under the Families First Coronavirus Response Act (“FFCRA”) or the employee retention credit (“ERC”) under the Coronavirus, … Continue Reading

IRS Releases Additional FAQs on Deferral of Employment Tax Deposits Under Section 2302 of the CARES Act

On July 30, 2020, the IRS released guidance in the form of new frequently asked questions (“FAQs”)  addressing the deferral of the employer portion of Social Security taxes under section 2302 of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.  These FAQs are broad in nature, providing guidance on various considerations relevant to section … Continue Reading

Trump Executive Action to Defer Employee Share of Social Security Taxes Raises Significant Legal Questions for Employers

On Saturday, August 8, President Trump signed a Presidential Memorandum directing the Secretary of the Treasury to “use his authority pursuant to [Code section] 7508A to defer the withholding, deposit, and payment of the tax imposed by [Code section] 3101(a) . . . on wages . . . paid during the period of September 1, 2020, through December 31, 2020,” subject … Continue Reading

Recapture of Excess COVID-19 Payroll Tax Credits Addressed in New Regs

On July 27, 2020, the IRS published Information Release 2020-169 announcing the issuance of new temporary and proposed regulations to implement procedures to assess, reconcile, and recapture any portion of the credits under the Families First Coronavirus Response Act (“FFCRA”) and the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) erroneously credited, paid, or … Continue Reading

Senate Republican Proposal Would Expand WOTC to Spur Hiring

On July 27, Senate Republicans introduced a series of bills intended as their opening salvo in what appears likely to be contentious negotiations among Senate Republicans, the White House, and House and Senate Democrats over the next legislative response to the COVID-19 pandemic.  Along with another round of direct stimulus payments to individual taxpayers, extended … Continue Reading

IRS Provides Guidance on Leave Donation Programs in Response to COVID-19 Pandemic

The IRS recently released Notice 2020-46, providing favorable tax relief for “leave-based donation programs” designed to aid victims of COVID-19 pandemic.  Under these programs, employees may elect to forgo vacation, sick, or personal leave in exchange for payments that the employer makes to charitable organizations described under section 170(c).  Under this notice, payments employees elect … Continue Reading

IRS Updates FAQs on Employee Retention Credit Enacted as Part of CARES Act

On Friday, June 19, the IRS updated several FAQs on its website related to the Employee Retention Credit adopted as part of the Coronavirus Relief, Aid, and Economic Security (“CARES”) Act.  The updated FAQs provide additional insight into the IRS’s current thinking regarding employer eligibility for and determination of the credit.  Unfortunately, the updated FAQs … Continue Reading

Some Employers Must Act Immediately to Take Advantage of CARES Act Social Security Tax Deferral for Deposits Made Early in the Second Quarter

The IRS recently released a second set of draft instructions for Form 941, Employer’s Quarterly Federal Tax Return.  The IRS also released the final Form 941, which was revised significantly from the prior form to accommodate the employer social security tax deferral and employer social security tax credits enacted as part of the Coronavirus Aid, … Continue Reading

IRS Revises Administrative Waiver for Late Deposit Penalties Arising from Employment Taxes on Stock Options, SARs, and RSUs

The IRS has shortened the time in which employers must deposit payroll taxes related to certain stock-settled awards issued to employees, in order to be eligible for an administrative waiver of late-deposit penalties.  Through a non-publicized change to its Internal Revenue Manual, the IRS has shortened the applicable deadline for depositing owed and accumulated employment … Continue Reading

Much Ado About Nothing Much New: IRS Releases GLAM Addressing Payroll Taxation of Equity Compensation

On May 22, 2020, the IRS released a Generic Legal Advice Memorandum, GLAM 2020-004, which addresses the timing of the taxation and withholding of payroll taxes on certain stock-settled awards issued to employees.  Specifically, the GLAM focuses on the treatment of stock options, stock-settled stock appreciation rights (SARs), and stock-settled restricted stock units (RSUs). Employers … Continue Reading

IRS Adds Employment Tax Corrections to Expanding List of Postponed Time-Sensitive Actions Due to COVID-19

On May 28, 2020, the IRS issued Notice 2020-35, postponing deadlines for more time-sensitive actions until July 15, 2020.  Notice 2020-35 is the latest in a series of IRS notices issued since mid-March providing for delays under the authority of section 7508A due to the COVID-19 emergency declaration.  Specifically, the relief relates to employment tax … Continue Reading

IRS Provides COVID-19 Emergency Relief for Individuals Planning to Claim the Foreign Earned Income Exclusion

Prompted by the COVID-19 global health emergency (the “COVID-19 Emergency”), Treasury and the IRS recently issued Rev. Proc. 2020-27 to provide relief for U.S. citizens and residents planning to take advantage of the foreign earned income exclusion under section 911 of the Internal Revenue Code whose expatriate assignments were interrupted due to the pandemic.  The … Continue Reading

IRS Provides Relief for Nonresidents Unable to Depart U.S. Due to Pandemic

On March 13, 2020, the President issued a proclamation declaring a national emergency regarding the global outbreak of the COVID-19 virus (the “COVID-19 Emergency”).  Subsequently, FEMA approved all states and the District of Columbia for major disaster declarations to provide federal emergency assistance.  The Federal Government and state governments have also taken unprecedented preventative and … Continue Reading
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