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How to Use IRS Form 7200 in QuickBooks Payroll

· 7 min read
Debits

Introduction​

IRS Form 7200, also known as the "Advance Payment of Employer Credits Due to COVID-19," allows eligible businesses to request an advance payment on tax credits for qualified sick and family leave wages, as well as for the Employee Retention Credit (ERC). This form is crucial for businesses impacted by COVID-19, helping them receive funds faster to support cash flow.

QuickBooks Payroll simplifies tracking and filing Form 7200, making it easier for business owners to manage employee tax credits. This guide will explain how to use IRS Form 7200 in QuickBooks Payroll, ensuring accurate reporting and faster access to credits.

What Is IRS Form 7200?​

Form 7200 is used by employers to request an advance payment on refundable tax credits due to COVID-19. The form covers credits related to:

  • Qualified Sick Leave Wages: Paid to employees affected by COVID-19.
  • Qualified Family Leave Wages: For employees who must care for family members.
  • Employee Retention Credit (ERC): For employers who retained employees despite a reduction in business due to COVID-19.

Businesses can file Form 7200 as often as needed within each quarter to claim advances on credits that exceed employment tax deposits.

Eligibility to File Form 7200​

  1. Employers with COVID-19 Sick and Family Leave Credits: Employers providing paid sick or family leave due to COVID-19.
  2. Businesses Claiming Employee Retention Credit: Employers affected by COVID-19 who continue to pay employees.
  3. Quarterly Filing: Employers may file Form 7200 multiple times each quarter until they reach the maximum allowable credits.

Step 1: Set Up Payroll Items for COVID-19 Credits in QuickBooks Payroll​

To ensure proper tracking of COVID-19-related payments, you need to set up specific payroll items for qualified sick leave, family leave, and employee retention credits in QuickBooks Payroll.

1.1: Go to Payroll Settings​

  1. Log in to QuickBooks: Sign into your QuickBooks account with administrative access.
  2. Access Payroll Settings: Go to Settings (the Gear icon), and select Payroll Settings.

1.2: Add Payroll Items for COVID-19 Leave​

  1. Go to Add/Edit Payroll Items: Navigate to the section where you can add new payroll items.
  2. Add Sick Leave and Family Leave: Set up payroll items for:
    • COVID-19 Sick Leave (for employees directly affected by COVID-19).
    • COVID-19 Family Leave (for employees caring for family members).
  3. Define Wages and Benefits: Define the pay rates and conditions based on government requirements for COVID-19 sick and family leave.

1.3: Set Up Employee Retention Credit (ERC) Item​

  1. Create ERC Item: Add an Employee Retention Credit (ERC) item to track retention credit payments in QuickBooks.
  2. Set Account: Choose the appropriate liability account for ERC to ensure it reflects correctly in your records.

Step 2: Process Payroll with COVID-19 Items​

Once payroll items are set up, apply them to affected employees during payroll processing.

2.1: Select Employees for COVID-19 Credits​

  1. Run Payroll: Start the payroll process as usual by selecting Run Payroll from the Payroll dashboard.
  2. Choose COVID-19 Payroll Items: For employees affected by COVID-19, use the specific payroll items you set up (sick leave, family leave, or ERC).

2.2: Enter Hours or Wages​

  1. Enter Hours or Payment Amounts: Based on employee eligibility, enter the number of hours or payment amounts for COVID-19-related leave.
  2. Review Payroll Summary: Ensure that the COVID-19 items are correctly applied and show up in the payroll summary.

Step 3: Calculate Eligible Credits for Form 7200​

After processing payroll with COVID-19-related items, calculate the total credits available, as these figures will be needed for filing Form 7200.

  1. Generate Payroll Reports: Run payroll reports to see the total amount paid for COVID-19 sick leave, family leave, and ERC.
  2. Identify Eligible Credits: Review reports to determine the total amount of credits you can claim on Form 7200.

Step 4: Complete IRS Form 7200​

Once you’ve calculated eligible credits, fill out Form 7200 based on these figures.

4.1: Download IRS Form 7200​

  1. Visit the IRS Website: Go to the IRS website and search for "Form 7200" to download the latest version.
  2. Open the PDF Form: Open the form and prepare to fill it out manually or electronically.

4.2: Fill Out the Form​

  1. Business Information: Enter your business name, EIN, address, and contact information.

  2. Indicate Type of Credits: Specify which credits you’re claiming (e.g., sick leave, family leave, and/or ERC).

  3. Calculate Refundable Credit: Input the amounts for each credit type based on your QuickBooks reports.

    Section Breakdown of Form 7200:

    • Line 1-5: Fill in the credits for sick leave, family leave, and ERC.
    • Line 6: Total the refundable amount for all credits claimed.

4.3: Double-Check for Accuracy​

  • Cross-Verify Figures: Ensure figures on Form 7200 match your QuickBooks payroll reports.
  • Attach Supporting Documentation: Keep your payroll records as backup in case of IRS verification.

4.4: Submit Form 7200 to the IRS​

  1. Fax the Form: Form 7200 cannot be submitted online. You must fax it to the IRS. Check the IRS website for the correct fax number for your region.
  2. Keep a Copy for Records: Save a copy of the submitted form for your business records.

Step 5: Record the Advance Payment in QuickBooks​

Once you receive the advance payment from the IRS, record it in QuickBooks to ensure your accounts are accurate.

5.1: Create a Journal Entry for the Payment​

  1. Go to + New > Journal Entry: In QuickBooks, go to + New, then select Journal Entry.
  2. Debit Bank Account: Debit the bank account where the IRS payment was deposited.
  3. Credit Payroll Liability Account: Credit the liability account associated with COVID-19 payroll credits.
  4. Add Memo: Include a memo, such as “Advance Payment of COVID-19 Credits,” for reference.

5.2: Save the Journal Entry​

Click Save and Close to record the journal entry, updating your financial records to reflect the IRS advance payment.

Step 6: Track and Reconcile IRS Credit Payments​

Regularly track your credit payments and reconcile them against payroll liabilities to maintain accurate records.

  1. Run Payroll Summary Reports: Regularly review payroll summary reports to ensure credit amounts are recorded accurately.
  2. Reconcile Bank Statements: Match the IRS credit payment with your bank statement to complete the reconciliation process.

Troubleshooting Common Issues​

Issue 1: Discrepancies in Credit Calculations​

  • Solution: Re-run payroll reports in QuickBooks to verify the amounts for COVID-19 credits. Double-check that the correct payroll items were applied.

Issue 2: Form Rejected by the IRS​

  • Solution: Verify all details on Form 7200, including business name, EIN, and claimed credit amounts. Correct any errors and resubmit the form via fax.

Issue 3: Payment Not Reflecting in QuickBooks​

  • Solution: Ensure you recorded the advance payment correctly with a journal entry in QuickBooks. Verify that the payment was credited to the correct liability account.

Conclusion​

Using IRS Form 7200 to request advance payments of COVID-19-related credits can improve cash flow for eligible businesses. QuickBooks Payroll simplifies this process by enabling easy tracking of qualified sick leave, family leave, and Employee Retention Credits. By following the steps outlined in this guide, you can set up the necessary payroll items, track relevant payments, complete Form 7200 accurately, and record IRS payments in QuickBooks.

For additional resources on managing payroll and IRS compliance in QuickBooks, explore QuickBooks’ help center or consult with a tax professional.