IRS Issues Draft Form to Accompany Employer Quarterly Tax Return

A draft version of a supplemental form that is to be used by employers filing 2020 quarterly federal income tax returns was released May 5 by the Internal Revenue Service.

Schedule R, Allocation Schedule for Aggregate Form 941 Filers, was adjusted to accommodate data reporting for payroll-related relief measures established by the Families First Coronavirus Response Act (FFCRA), enacted March 18, and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted March 27.

The schedule is to be filed with Form 941, Employers Quarterly Federal Income Tax Return, starting with the second quarter of 2020. A draft of the 2020 Form 941, expanded to three pages from two and with 23 new data-entry fields to accommodate additional reporting for three payroll credits related to the coronavirus outbreak, was released April 29 by the IRS. Draft instructions also were released by the agency.

The revised Form 941 is to be used to report amounts of employment taxes that were retained by employers instead of being deposited in anticipation of refundable payroll tax credits. The draft form also is to be used for reporting advances claimed on Form 7200, Advance Payment of Employer Credits Due to Covid-19. The novel coronavirus causes the respiratory disease Covid-19.

Schedule R Revisions

Schedule R was revised to include information about the employer’s credit for qualified sick and family leave wages, the employee retention credit, and the deferral of employer Social Security tax, the draft instructions for Form 941said.

Revisions to the two-page Schedule R, which is dated May 4, included a new check box for other third-party filers. The form has 24 columns, up from nine, for information reporting from Form 941.

Previous versions of Schedule R included instructions attached to the form. The revised version has no instructions, so employers should refer to the draft instructions for Form 941.

New data fields on the revised Form 941 were included for qualified sick-leave and family-leave wages; taxable Social Security tips; Medicare wages and tips; nonrefundable portions of credits, as calculated on a worksheet in the instructions, for qualified sick-leave and family-leave wages and the employee retention credit; deposits, deferrals, and refundable credits; deferred amount of the employer’s share of Social Security tax; refundable portion of credits for qualified sick- and family-leave wages, and employee retention credit; and total deposits, deferrals, and refundable credits, less advances.

If an employer that is eligible for the qualified-sick and family-leave credits or the employee retention credit contracts with a noncertified professional employer organization to report and pay its federal employment taxes, the PEO would need to report the credits on an aggregate Form 941 and separately report the credits allocated to the employer on Schedule R, the Form 941 draft instructions said.

The requirement to separately report information on Schedule R also applies if an employer is deferring its share of Social Security tax on Line 13b of Form 941 or if an employer is eligible for the qualified small-business payroll tax credit for increasing research activities, the draft instruction said.

Refundable Payroll Tax Credits

Employers in the private sector with fewer than 500 employees may be eligible for refundable payroll tax credits for paying qualified sick leave wages and qualified family leave wages under the FFCRA (Pub. L. 116-127). The two paid-leave credits are available for qualified leave wages paid from April 1 to Dec. 31, 2020.

A third refundable credit, the employee retention credit, was established by CARES Act (Pub. L. 116-136). The amount of the credit for 2020 equals half of the qualified wages paid for each employee from March 13 to Dec. 31, 2020, with the amount of wages per employee limited to $10,000 when counted toward the credit. Based on the calculation, the retention credit for each eligible employee is limited to $5,000.

Draft forms and publications are not final and may be updated.