Form 941 to Be Further Revised for 3rd, 4th Quarters

Another revised 2020 Form 941, Employer’s Quarterly Federal Tax Return, is to be used starting with the third quarter of 2020 to report deferrals of the employee portion of Social Security tax.

The ability to defer the employee portion of Social Security tax with respect to qualifying compensation paid from Sept. 1 to Dec. 31, 2020, was established Aug. 8 by a presidential memorandum. Aspects of implementing this new type of coronavirus-related employment tax relief were elaborated upon by the Internal Revenue Service in Notice 2020-65, released Aug. 28.

4 Modified Lines

A draft of what is to be the third version of Form 941 for 2020, which was watermarked to indicate that it is current as of Aug. 28, shows that the IRS is planning to change Lines 1, 13b, 24, and 25 of the form. The two lines on the draft of the third version of Form 941 for 2020 that are to be changed to accommodate reporting of deferrals of the employee portion of Social Security tax are Lines 13b and 24.

Line 13b was not on the original version of Form 941 for 2020 because it is with regard to coronavirus-related employment tax relief and the original version was released before the coronavirus outbreak in the U.S. started. When the second version of Form 941 for 2020 was released June 19, Line 13b was added to accommodate reporting of data pertaining to deferrals of the employer portion of Social Security tax, a relief provision established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and applicable to the period from March 27 to Dec. 31, 2020.

As deferrals of the employee and employer portions of Social Security tax are available during the third and fourth quarters of 2020, Line 13b is to be modified for the third version of Form 941 for 2020 so that the form’s description of data to report in Line 13b is stated as “Deferred amount of social security tax,” compared with the second version’s Line 13b description of “Deferred amount of the employer share of social security tax.”

Lines 24 and 25 likewise were not on the original version of Form 941 for 2020, and they were added to the second version of Form 941 for 2020 to report data on the second-quarter 2020 Form 941 regarding first-quarter amounts pertaining to the employee retention credit. As these amounts were to be reported only with the second-quarter 2020 Form 941, Line 24 is to be repurposed for the third version of Form 941 for 2020 so that it is used for reporting the “Deferred amount of the employee share of social security tax included on line 13b,” which will enable the IRS to readily discern deferred amounts of the employer share of Social Security tax by subtracting the amount reported with Line 24 from the amount reported with Line 13b. No amount is to be reported with Line 25, which the third version of Form 941 for 2020 is to indicate as “Reserved for future use.”

Line 1, which is with regard to the number of employees who received wages, tips, or other compensation as of the 12th day of the last month of the reported quarter, is to have the minor adjustment of indicating that it may be used for reporting data for the third and fourth quarters, as the third version of Form 941 for 2020 is to be used only for these quarters. The reported-quarter indicator box on the top right of the first page of the form concomitantly is to be modified for the upcoming third 2020 version to preclude the first and second quarters from being selected.

These changes are to make the second version of Form 941 for 2020, i.e., the version released June 19, applicable only to the second quarter of 2020, whereas the IRS originally had intended it to be the version that would be filed for the second, third, and fourth quarters of 2020.

Changes to Associated Documents

The changes to be made to the standard Form 941 also are to be made for the versions of Form 941 applicable to U.S. territories.

A newly released draft of Form 941-SS, Employer’s Quarterly Federal Tax Return—American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands, incorporates the changes to the four lines that are to occur for the standard Form 941. The original and second versions of Form 941-SS for 2020 generally reflected the data on the corresponding versions of the standard 2020 Form 941, and the draft Form 941-SS watermarked Aug. 28 would upon finalization be the third version of this form for 2020.

Form 941 (PR), Employer’s Quarterly Federal Tax Return (Puerto Rico Version), also is to be adjusted to accommodate reporting of deferrals of the employee portion of Social Security tax, but a new draft version for this form has not been released.

Amended instructions for the standard Form 941, Form 941 (PR), and Form 941-SS are to be released to elaborate upon the process of reporting data regarding the deferrals of the employee share of Social Security tax.

While Form 941’s Schedule R, Allocation Schedule for Aggregate Form 941 Filers, like Form 941 itself, was significantly expanded to accommodate coronavirus-related employment tax relief reporting, Schedule R will not need to be further adjusted to accommodate reporting of data regarding deferrals of the employee portion of Social Security tax because its aggregation columns indicate the lines for which amounts are to be aggregated but do not specify what each line of Form 941 is designed to report.

However, the instructions for Schedule R are to be adjusted to reflect the changes to the standard Form 941 that is to be used starting with the third quarter of 2020. A draft of the additionally adjusted instructions for Form 941’s Schedule R was released with an Aug. 28 watermark.

The instructions for Form 941’s Schedule B, Report of Tax Liability for Semiweekly Schedule Depositors, but not Schedule B itself, were adjusted earlier this year to clarify how to complete Schedule B in light of the coronavirus-related employment tax relief. No further adjustments to the instructions for Schedule B are to be needed because the lines of Form 941 that are to be changed for its third version for 2020 do not directly affect the procedure for completing Schedule B.

Draft forms and instructions are not final. The finalized versions of forms and instructions may contain changes not included in draft versions.