Finalized instructions for the revised Form 941, Employer’s Quarterly Federal Tax Return, and two other forms were released June 26 by the Internal Revenue Service.
Changes to the Form 941 instructions, as well instructions for Schedule B, Report of Tax Liability for Semiweekly Schedule Depositors, and Schedule R, Allocation Schedule for Aggregate Form 941 Filers, were made to accommodate reporting data on employment tax relief related to the new coronavirus.
A finalized version of the revised Form 941 was released June 19, with its new lines and modified components identical to those on the draft revised Form 941 released April 29. Eighteen lines were added to the form to accommodate additional reporting rules related to employment tax relief established by the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The additional lines expanded the form to three pages from two. The revised form must be used starting with the second quarter of 2020 for reporting information related to the three new refundable employment tax credits.
Form 941 Instructions
The instructions for Form 941 were mostly unchanged from the draft version dated June 3, aside from layout adjustments. For example, Worksheet 1, Credit for Qualified Sick and Family Leave Wages and the Employee Retention Credit, was moved to Page 14 in the finalized version from Page 13 in the draft version. The worksheet is used to determine amounts applicable to some of the new lines for the revised Form 941.
Following are changes to the instructions:
Worksheet 1: Minor changes were made to clarify Worksheet 1, which outlines three steps for calculating the tax credits for paid sick and family leave wages and the employee retention credit.
The worksheet’s line 2a(i) was revised to indicate that Line 5c is found on Form 941, Part 1. The purpose of Line 2a(i), unchanged in the finalized worksheet, is to take into account qualified sick leave wages reported on the form’s Line 5c but not Line 5a(i), column 1. Line 2e(i) of the worksheet, which takes into account certain qualified family leave wages, similarly was updated to include the location of Line 5c and was otherwise unchanged.
Page 12: The IRS added guidance regarding the employee retention credit. The credit for qualified wages paid from March 13, 2020, to March 31, 2020, is claimed on Form 941 for the second quarter of 2020, the agency said. Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, should not be filed for the first quarter of 2020 to claim the employee retention credit for this period, the agency said.
Page 13: For Line 13b, Deferred Amount of the Employer Share of Social Security Tax, the instructions were expanded to include references to deposits and payments: “Enter the amount of the employer share of Social Security tax that you’re deferring for the quarter. The CARES Act allows employers, including government employers, to defer the deposit and payment of the employer share of Social Security tax for deposits and payments due on or after March 27, 2020, and before January 1, 2021, as well as deposits and payments due after January 1, 2021, that are required for wages paid during the quarter ending on December 31, 2020.”
The IRS again warned that Form 941 filers should not use the April 2020 revision of the form to report employment taxes for the first quarter of 2020. Instead, filers should use the January 2020 revision of Form 941 to report employment taxes for the first quarter of 2020.
The IRS also said that Congress was considering changes to some of the recent legislation discussed in the instructions and that updates would be posted at IRS.gov/Form941 as needed.
Schedule B Instructions
Form 941’s Schedule B was not updated with regard to reporting data related to employment tax relief provisions of the FFCRA (Pub. L. 116-127), the CARES Act (Pub. L. 116-136), and associated regulations. Few changes were made to Schedule B instructions that were released as a draft May 20.
Guidance added to the latest instructions:
Page 2: The IRS said in a tax tip said that total liability for the quarter must equal Line 12 on Form 941 or 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.
“Therefore, don’t reduce your total liability reported on Schedule B by the deferred amount of the employer share of Social Security tax, the refundable portion of the credit for qualified sick and family leave wages, or the refundable portion of the employee retention credit,” the IRS said.
Schedule R Instructions
Schedule R is used to allocate the aggregate information reported on Form 941. The schedule was redesigned to allow the reporting of the new lines from the revision of Form 941. The finalized version of the revised Schedule R was released June 23 and is to be used by approved Section 3504 agents, certified professional employer organizations, and other approved third-party filers to report wages on behalf of their clients.
The finalized instructions for Schedule R were basically unchanged from the draft version, although the IRS updated the amount of time it would take for recordkeeping to prepare the document, 20 hours and 5 minutes, up from the 12 hours and 26 minutes listed on the draft instructions.
—With assistance from Jazlyn Williams.