In response to the COVID-19 pandemic, legislation has created a whole new list of compliance requirements for small to medium-size enterprises (SMEs). But staying current and compliant with these legislative measures has been very overwhelming for many businesses. As if dealing with labor shortages, supply chain issues, and hesitant customers wasn’t enough?
The government allows SMEs to request advance payment of specific employee credits to help businesses navigate some of these more complicated employee assistance measures. Form 7200 is an essential form a company should fill out to claim advance payments.
But as many business owners know, Form 7200 can be challenging to complete. We’ll walk you through a step-by-step guide to complete Form 7200 and help you get the assistance your business needs.
Table of Contents
How Can Form 7200 Help Your Business?
Form 7200 is an official IRS document that allows employers to request advance payment on employer credits for:
This credit was designed to free up cash flow for businesses that saw drops in revenue from COVID-19.
Related Link: Easily Calculate the R&D Tax Credit for Great Returns
Who Can File Form 7200?
Form 7200 can be submitted by employers who file:
- Form 941
- Form 943
- Form 944
- Form CT-1
When you file your employment tax return for 2021, you’ll need to reconcile any advance credit payments and reduced deposits. So it may not be to your advantage to file Form 7200. To be safe, you can wait for a credit refund when you file your tax return.
If you formed your business after December 31, 2020, you cannot file Form 7200.
Are Employers Required to Complete Form 7200?
No, this is not a required form. Businesses can claim the credits when they file their annual employment tax return, or they can submit Form 7200, allowing employers to request advances on credits that are more than their reduced deposits. The IRS recommends that businesses first reduce their employment tax deposits to help determine the credits.
When Do Employers Need to File Form 7200?
Employers can use Form 7200 multiple times per quarter for different tax credits because there are different filing deadlines for each type of credit:
- Qualified Sick Leave and Family Leave Wages: Tax credits apply to any wages paid for leave taken from April 1, 2021 to September 30, 2021.
- COBRA Premium Assistance: This credit applies to coverage between April 1, 2021 to September 30, 2021.
- Employee Retention Credit: This credit applies to qualifying wages paid between December 31, 2020 to January 1, 2022. The IRS stipulates that employers are eligible for the quarter when they suspended business operations based on the government order. Employers are also eligible for calendar quarters when the business experienced gross receipt declines of less than 80% of the gross receipts for the same quarter in 2019.
To request advance payments of these credits, the IRS states that you must file within these deadlines:
- Quarter 3: November 1, 2021
- Quarter 4: January 31, 2022
Step-Step Guide for Completing Form 7200
1. Enter your employment information.
Employers are responsible for accurately entering their:
- Organization’s Name
- EIN
- Address
- Quarter in 2021 that they are submitting
2. Complete Part 1 – Tell Us About Your Employment Tax Return
In this section, the employer must provide employment tax information:
- Line A: Tax Form Planning to File for 2021
- Line B: Total number of employees who received qualified wages
- Line F: Total number of employees who qualified and received sick leave and family leave wages
- Line G: Total number of employees who qualified and received COBRA premium assistance
3. Complete Part II – Enter Your Credits and Advance Requested
- Line 1: Enter the total employee retention credit amount for the quarter.
- Line 2: Enter the total amount of eligible sick leave wages for the quarter.
- Line 3: Enter the total amount of eligible family leave wages for the quarter.
- Line 4: Enter the total COBRA premium assistance amount provided during the quarter.
- Line 5: Add lines 1-4 to enter the total amount of credit.
- Line 6: Enter the total amount the business has reduced their federal employment tax deposits for credits in the quarter
- Line 7: Total amount of advance credits received from previous Form 7200 filings.
- Line 8: Add lines 6 and 7 together for a total.
- Line 9: Subtract line 8 from line 5 to determine the credit amount requested.
The IRS requires a requested advance credit minimum of $25. If the sum from line 9 is less than zero, your business doesn’t need to file the form.
Still not sure you’re filing Form 7200 correctly? Contact Parachor Consulting to learn more about their tax services and how they can help.
Related Link: How R&D Credits Help with Payroll Taxes [2021]
4. Provide a Few More Details and Sign the Document
This last section wants:
- Permission and details about your paid tax accountant or another specialist who can discuss your tax forms with the IRS.
- A signature of the form preparer.
- Form 7200 needs to be faxed to the number given.
Not too bad. Only mildly painful. And in just a few months, you get to do it again for the next quarter. But if getting this credit advance can float your company until revenue picks up, then filling out the form will be worth it.
When Can You Expect to Receive the Form 7200 Advance?
You can expect to receive your credit advance from Form 7200 within two weeks from filing. You will receive the payment directly from the IRS.
Filing Form 7200 May Benefit Your Business
Parachor Consulting specializes in tax consulting services for small to medium-size enterprises. With large firm experience, our tax experts will ensure your business receives the best in tax services so that no money is left on the table.
Want professional help filing your Form 7200 to ensure accuracy and avoid an audit? Contact Parachor Consulting to talk to one of our consultants.
Related Link: Qualified Research Expenses (QRE): A Complete Guide
