What Is Form 7200, Advance Payment of Employer Credits?
Explore the function of Form 7200, which gave employers advance payments on COVID-era tax credits and required reconciliation on payroll tax returns.
Form 7200, Advance Payment of Employer Credits Due to COVID-19, was introduced by the IRS in March 2020. It served a specific function during the pandemic by allowing certain employers to request advance payments of tax credits. These credits were established under legislation like the Families First Coronavirus Response Act (FFCRA), the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and the American Rescue Plan Act of 2021. The form provided a way for businesses to receive funds more quickly than the standard quarterly filing process. The period for filing Form 7200 to request new advance payments has concluded, with the final deadline for the last quarter of 2021 being January 31, 2022.
Purpose and Eligibility for Filing
The primary purpose of Form 7200 was to provide an advance on refundable employment tax credits. An advance was necessary when an employer’s anticipated credits for a quarter exceeded the federal employment taxes they were required to deposit, allowing them to receive the excess credit amount beforehand to improve cash flow. An employer could only file if, after reducing their required employment tax deposits by the amount of their anticipated credits, there was still a credit amount left over.
The specific credits available included the Employee Retention Credit, credits for qualified sick and family leave wages, and the COBRA premium assistance credit. If an employer’s tax deposits were sufficient to cover the credits, they would not file Form 7200 and would instead account for the credits on their regular employment tax return.
Information Required to Complete Form 7200
An employer needed to gather specific details for the form’s two main sections. The form itself is a single page, designed for straightforward data entry once the necessary calculations were performed. Part I: Employer Information, required basic identifying details, including the employer’s legal name, trade name if different, full address, and their Employer Identification Number (EIN). Filers also had to specify the calendar quarter for which they were requesting the advance payment.
Part II of the form, titled Advance Requested, required detailed financial calculations. Here, the employer would enter the total amount of credits anticipated for the quarter, broken down by the specific credit type. This included the total qualified sick leave wages, qualified family leave wages, the Employee Retention Credit, and the COBRA premium assistance credit being claimed. From this total, the employer had to subtract the amount of employment tax deposits they had already reduced or retained in anticipation of these credits. The final figure represented the total advance payment being requested from the IRS.
The Filing Process and Post-Submission Reconciliation
Once all information was accurately entered, the form had to be submitted to the IRS through a specific method. The only acceptable way to file Form 7200 was by faxing it to a designated IRS number. A final step in the process was reconciliation. Any advance payment an employer received by filing Form 7200 had to be accounted for on their corresponding quarterly payroll tax return, Form 941, Employer’s QUARTERLY Federal Tax Return.
On Form 941, the employer would report the total credits they were eligible for and then subtract the advance payment they had already received via Form 7200. This reconciliation determined whether the employer owed additional taxes or was due a further refund for the quarter.