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IRS Finalizes Form 941 Revision for Covid-19 Tax Relief Reporting

June 20, 2020, 6:31 PM

The finalized version of the revised Form 941, Employer’s Quarterly Federal Tax Return, that employers must file starting with the second quarter of 2020 was released the evening of June 19 and includes many new lines for reporting data on coronavirus-related employment tax relief.

The 18 new lines on the finalized version of the revised Form 941 are identical to those that were on the draft version of the revised Form 941 released April 29. All of the modifications to the preexisting lines of Form 941 likewise are identical between the revised form’s finalized version and its draft.

Instructions for the revised Form 941 have not been finalized, and the most recent version of the draft instructions was released June 3. Updates to accommodate data reporting pertaining to coronavirus-related employment tax relief also are to occur for Form 941’s Schedule R, Allocation Schedule for Aggregate Form 941 Filers, the instructions for Form 941’s Schedule R, and the instructions for Form 941’s Schedule B, although the revised versions of these documents have not been finalized and still are in draft status.

The following sections of this article briefly describe the new lines of Form 941 and the modifications to the form’s preexisting lines that were implemented for the finalized revision. Additional details on these changes are available in Bloomberg Tax & Accounting’s Payroll – Coronavirus Roadmap on Federal Provisions.

New Lines

The 11 new lines in Part 1 of the revised Form 941 are as follows:

  • Line 5a(i), Qualified Sick Leave Wages: This line is used for reporting the applicable amount of qualified sick leave wages that an employer paid to its employees during the reported quarter because the employer was required to provide these payments under the Families First Coronavirus Response Act (FFCRA).
  • Line 5a(ii), Qualified Family Leave Wages: This line is used for reporting the applicable amount of qualified family leave wages that an employer paid to its employees during the reported quarter because the employer was required to provide these payments under the FFCRA.
  • Line 11b, Nonrefundable Portion of Credit for Qualified Sick and Family Leave Wages From Worksheet 1: An employer would use the new Worksheet 1 within the instructions for the revised Form 941 to calculate the amount of the combined credit for qualified sick leave wages and qualified family leave wages for which it is eligible with respect to the reported quarter. The employer would further use the worksheet to determine the portion of the combined credit that is nonrefundable, and this amount, identified in Line 2j of the worksheet, would be reported in Line 11b of Form 941.
  • Line 11c, Nonrefundable Portion of Employee Retention Credit From Worksheet 1: An employer would use Worksheet 1 to calculate the amount of the employee retention credit for which it is eligible with respect to the reported quarter. The employer would further use the worksheet to determine the portion of the credit that is nonrefundable, and this amount, identified in Line 3j of the worksheet, would be reported in Line 11c of Form 941.
  • Line 11d, Total Nonrefundable Credits: The amount entered into this line is the total of the amounts entered into Lines 11a, 11b, and 11c.
  • Line 13b, Deferred Amount of the Employer Share of Social Security Tax: This line is used for reporting the amount of the employer share of Social Security tax that the employer chose to defer instead of depositing for the normal deposit deadlines in the reported quarter, with the deferred amounts due in 2021 and 2022.
  • Line 13c, Refundable Portion of Credit for Qualified Sick and Family Leave Wages From Worksheet 1: After the employer determines through using Worksheet 1 how much of its combined credit for qualified sick leave wages and qualified family leave wages is nonrefundable, the employer would subtract the amount of the nonrefundable portion from the total amount of the combined credit to determine the amount of the refundable portion. The refundable portion of the combined credit, identified in Line 2k of the worksheet, would be reported in Line 13c of Form 941.
  • Line 13d, Refundable Portion of Employee Retention Credit From Worksheet 1: After the employer determines through using Worksheet 1 how much of its employee retention credit is nonrefundable, the employer would subtract the amount of the nonrefundable portion from the total amount of the credit to determine the amount of the refundable portion. The refundable portion of the credit, identified in Line 3k of the worksheet, would be reported in Line 13d of Form 941.
  • Line 13e, Total Deposits, Deferrals, and Refundable Credits: The amount reported for this line is the sum of the amounts reported in Lines 13a, 13b, 13c, and 13d.
  • Line 13f, Total Advances Received From Filing Form(s) 7200 for the Quarter: The amount reportable on this line is the total of the credit advances that the employer received through filing each Form 7200 that it filed for the quarter, with each form able to be filed only when the employer’s anticipated total amount of its three new refundable employment tax credits as of when it filed the form exceeded its accumulated employment tax liability for the quarter.
  • Line 13g, Total Deposits, Deferrals, and Refundable Credits Less Advances: The amount reportable on this line is the result of subtracting Line 13f from Line 13e.

No new lines were added to Part 2 of Form 941.

The seven new lines in Part 3 of the revised Form 941 are as follows:

  • Line 19, Qualified Health Plan Expenses Allocable to Qualified Sick Leave Wages: The amount of qualified health plan expenses incurred for maintaining group health plan coverage for employees receiving qualified sick leave wages is reported on this line. This amount also is entered into Worksheet 1’s Line 2b.
  • Line 20, Qualified Health Plan Expenses Allocable to Qualified Family Leave Wages: The amount of qualified health plan expenses incurred for maintaining group health plan coverage for employees receiving qualified family leave wages is reported on this line. This amount also is entered into Worksheet 1’s Line 2f.
  • Line 21, Qualified Wages for the Employee Retention Credit: The amount of qualified wages factored into determining the amount of the employee retention credit for which the employer is eligible is reported on this line. This amount also is entered into Worksheet 1’s Line 3a.
  • Line 22, Qualified Health Plan Expenses Allocable to Wages Reported on Line 21: The amount of qualified health plan expenses incurred for maintaining group health plan coverage for employees who were paid qualified wages that were factored into calculating the employee retention credit is reported with this line, and this amount also is entered into Worksheet 1’s Line 3b.
  • Line 23, Credit From Form 5884-C, Line 11, for This Quarter: The Section 3111(e) credit for employment of qualified veterans, which is reportable on Line 11 of Form 5884-C, also is now reportable on Line 23 of Form 941.
  • Line 24, Qualified Wages Paid March 13 Through March 31, 2020, for the Employee Retention Credit (Use This Line Only for the Second Quarter Filing of Form 941): As the employee retention credit is available for qualified wages paid from March 13 to Dec. 31, 2020, but the period from March 13 to 31 was in the first quarter and the revisions to Form 941 were not ready for that quarter, employers are to report data regarding qualified wages paid from March 13 to 31 for the employee retention credit using the second-quarter Form 941.
  • Line 25, Qualified Health Plan Expenses Allocable to Wages Reported on Line 24 (Use This Line Only for the Second Quarter Filing of Form 941): The amount of qualified health plan expenses incurred for maintaining group health plan coverage for employees who were paid qualified wages that were factored into calculating the employee retention credit for the first quarter is reported with this line, and this amount also is entered into Worksheet 1’s Line 3d.

No new lines were added to Parts 4 and 5 of Form 941.

Modifications to Text or Procedures for Preexisting Lines

Part 1 is the primary part of Form 941 for which the text of preexisting lines was adjusted for the finalized version of the revised Form 941. Additionally, a few key procedural adjustments to preexisting lines in Part 1 are to be made based on the draft instructions. The modifications are as follows:

  • Line 1, Number of Employees: The option to indicate the number of employees who in the first quarter received compensation during the pay period including March 12 was removed, as the revised 2020 Form 941 is used starting with the second quarter of 2020.
  • Line 5a, Taxable Social Security Wages: The revised instructions specify that the amount reportable on Line 5a includes the total qualified wages upon which the employer claimed the employee retention credit, but does not include amounts of qualified sick leave wages or qualified family leave wages, as these amounts are respectively reported on Lines 5a(i) and 5a(ii).
  • Line 5e (Total of Amounts Reported in Line 5 series Column 2): This total now also includes Column 2 amounts for the new Lines 5a(i) and 5a(ii).
  • The former Line 11 has been renumbered as Line 11a and still is used for reporting the Qualified Small Business Payroll Tax Credit for Increasing Research Activities. If an amount is entered for this line, Form 8974 still must be attached.
  • Line 12 has been renamed to Total Taxes After Adjustments and Nonrefundable Credits and reports the result of subtracting Line 11d from Line 10, whereas this line previously was known as Total Taxes After Adjustments and Credits and involved subtracting Line 11 from Line 10.
  • The former Line 13 has been renumbered as Line 13a and still is used for reporting the Total Deposits for This Quarter, Including Overpayment Applied From a Prior Quarter and Overpayments Applied From Form 941-X, 941-X (PR), 944-X, or 944-X (SP) Filed in the Current Quarter. An employer would not include in Line 13a the amount of employment taxes that the employer chose to retain instead of depositing because the amount retained was equal to or less than the total of the three new refundable employment tax credits for which the employer anticipated that it would be eligible. An employer also would not include in Line 13a any amount of the employer share of Social Security tax for which it chose to defer depositing of that amount to 2021 and 2022.
  • Line 14, Balance Due and Line 15, Overpayment now refer to Line 13g instead of Line 13.

While there were no changes to the text of Part 2 of Form 941, the form’s instructions were updated with regard to Part 2 by identifying that employers must ensure that when reporting tax liabilities on Line 16 of Form 941 or the form’s Schedule B, they account for the nonrefundable portion of the combined credit for qualified leave wages and the nonrefundable portion of the employee retention credit in addition to accounting for the Section 3111(f) credit for research expenditures of qualified small businesses.

Within Part 3 of Form 941, Line 17 now has additional text specifying that if a filer checks the associated box indicating that the filer’s business has closed or stopped paying wages, the filer must attach an accompanying statement to the return, with details about this process available in the form’s instructions. This procedure already was required for filers that check this box, but the additional text emphasizes the requirement. The draft instructions for the revised Form 941 are unchanged from those previously in effect with regard to specifying that the statement needs to identify the name of the person who will retain payroll records and the address where they will be retained.

Also within Part 3, the only change to Line 18 was the replacement of “you are” with “you’re.”

Additionally, slight modifications were made to preexisting components of Parts 4 and 5 of Form 941.

The rendering of the term Personal Identification Number in Part 4 was changed so that all letters are lowercase, with the term now rendered as personal identification number.

As per the expansion of Form 941 to three pages from two because of the incorporation of the 18 new lines, Part 5 now identifies that the filer needs to “complete all three pages” of the form, compared with the reference to “both pages” in the previous wording. Also, the text that accompanies the self-employed checkbox within the paid preparer section of Part 5 now, as with Line 18, uses the contraction “you’re” instead of “you are.”

To contact the reporter on this story: Howard Perlman in Washington at hperlman@bloombergindustry.com

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