IRS Issues Form 941 Clarification on Employee Retention Credit

The 2020 quarterly federal tax return for employers was rereleased by the Internal Revenue Service to include guidance about the employee retention credit that may be applied during the coronavirus crisis.

Form 941, Employer’s Quarterly Federal Tax Return, now includes a clarification note about the credit that was established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed March 27 by President Donald Trump. Instructions for the 2020 form also were rereleased with the same clarification note.

Employers that paid qualified wages from March 13, 2020, to March 31, 2020, are to include 50% of those wages and 50% of any qualified wages paid during the second three-month quarter of 2020 on the second-quarter Form 941 to claim the credit, the IRS said. Qualified amounts also should be included on the quarterly Form 941-SS and Form 941-PR, if applicable. The credit should not be included on the first-quarter Form 941, 941-SS, or 941-PR, the agency said.

Form 941-PR applies to Puerto Rico and Form 941-SS applies to American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands.

Under the CARES Act (Pub. L. 116-36), eligible businesses may receive a refundable tax credit based on qualified wages paid to workers. The credit amount is equal to half the qualified wages that the employer paid to employees for that quarter. However, only up to $10,000 in wages paid to an employee for 2020 can be taken into account for determining the amount of the credit that may be received for 2020 based on compensation paid to that employee.