IRS Issues Draft of Revised Instructions for Form 941-X

A draft of the instructions for an Internal Revenue Service form that is used to make adjustments to a previously filed Form 941, Employer’s Quarterly Federal Tax Return, was released Aug. 12 by the agency.

The draft instructions for the revised Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, were made necessary by the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which took effect in March. The draft instructions were expected because the agency recently revised Form 941 to accommodate reporting data on employment tax relief related to Covid-19.

The latest version of Form 941 must be used starting with the second quarter. The January 2020 version of Form 941 should be used to report employment taxes for the first quarter of 2020, the IRS said.

Form 941-X was expanded to five pages, with Part 3 comprising two pages instead of one. The changes in Part 3 include the renumbering and rewording of some existing lines and the addition of more than a dozen lines for tax relief related to Covid-19.

If claiming the credit for qualified sick and family leave wages, the employee retention credit, or both on the original Form 941 for the quarter and making corrections on Form 941-X for the quarter to amounts used to figure these credits, employers “will need to refigure the amount of these credits using Worksheet 1" within the revised instructions. Within the Form 941-X instructions, Worksheet 1, Adjusted Credit for Qualified Sick and Family Leave Wages and the Employee Retention Credit, also is used “to figure these credits if you’re claiming them for the first time on Form 941-X,” the IRS said.

Aspects identified by the instructions for using new lines of Form 941-X, which in some cases refer to the 2020 Forms 941 and 941-SS, the quarterly return for American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands, are as follows:

• Line 9, qualified sick leave wages. The corrected qualified sick wages reported on Form 941, Line 5a (i), are to be entered in Column 1. Wages previously reported or corrected should be entered in Column 2. The difference between Columns 1 and 2 should be entered in Column 3.

• Line 10, qualified family leave wages. The corrected qualified sick wages reported on Form 941, Line 5a (ii), should be entered in Column 1. In Column 2, enter the wages previously reported or corrected. In Column 3, enter the difference between Columns 1 and 2.

• Line 17, nonrefundable portion of credit for qualified sick and family leave wages. For the corrected nonrefundable portion of the credit for qualified sick and family leave wages that was reported on Form 941, Line 11b, enter the total corrected amount from Worksheet 1, Step 2, Line 2j, in Column 1. In Column 2, enter the wages previously reported or corrected. In Column 3, enter the difference between Columns 1 and 2.

• Line 18, nonrefundable portion of employee retention credit. Employers correcting the nonrefundable portion of the employee retention credit that was reported on Form 941, Line 11c, must enter the total corrected amount from Worksheet 1, Step 3, Line 3j, in Column 1. In Column 2, enter the amount previously reported or corrected. In Column 3, enter the difference between Columns 1 and 2.

• Line 24, deferred amount of the employer share of Social Security tax. Employers correcting the deferred amount of the employer share of the Social Security tax that was reported using Line 13b of Form 941 should enter the total corrected amount in Column 1. In Column 2, enter the amount originally reported or as previously corrected. In Column 3, enter the difference between Columns 1 and 2. The amount in Column 3 should then appear in Column 4.

• Line 25, refundable portion of credit for qualified sick and family leave wages. Employers correcting the refundable portion of the credit that was reported on Form 941, Line 13c, should enter the total corrected amount from Worksheet 1, Step 2, Line 2k, in Column 1. In Column 2, enter the amount originally reported or as previously corrected. In Column 3, enter the difference between Columns 1 and 2.

• Line 26, refundable portion of employee retention credit. Employers correcting the refundable portion of the credit that was reported on Form 941, Line 13d, should enter the total corrected amount from Worksheet 1, Step 3, Line 3k, in Column 1. In Column 2, enter the amount that originally was reported or as previously corrected. In Column 3, enter the difference between Columns 1 and 2.

• Line 28, qualified health plan expenses allocable to qualified sick leave wages. Employers correcting the amount of qualified health plan expenses allocable to qualified sick leave wages reported on Form 941, Line 19, should enter the total corrected amount for all employees in Column 1. In Column 2, enter the amount that originally was reported or as previously corrected. In Column 3, enter the difference between Columns 1 and 2. Enter the corrected amount from Column 1 on Worksheet 1, Step 2, Line 2b.

• Line 29, qualified health plan expenses allocable to qualified family leave wages. Employers correcting the amount of qualified health plan expenses allocable to qualified family leave wages reported on Form 941, Line 20, should enter the total corrected amount for all employees in Column 1. In Column 2, enter the amount that was originally reported or was previously corrected. In Column 3, enter the difference between Columns 1 and 2. Enter the corrected amount from Column 1 on Worksheet 1, Step 2, Line 2f.

• Line 30, qualified wages for the employee retention credit. Employers correcting the amount of qualified wages reported on Form 941, Line 20, upon which the employee retention credit was based, should enter the total corrected amount of qualified wages for all employees in Column 1. In Column 2, enter the amount that was originally reported or was previously corrected. In Column 3, enter the difference between Columns 1 and 2. Enter the corrected amount from Column 1 on Worksheet 1, Step 3, Line 3a.

• Line 31, qualified health plan wages reported on Form 941, Line 21. Employers correcting the amount of qualified health plan expenses allocable to qualified wages used for calculating the employee retention credit should enter the total corrected amount for all employees in Column 1. In Column 2, enter the amount that was originally reported or was previously corrected. In Column 3, enter the difference between Columns 1 and 2. Enter the corrected amount from Column 1 on Worksheet 1, Step 3, Line 3b.

• Line 32, credit from Form 5884-C, Line 11, for this quarter (Form 5844-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans). Employers correcting this amount should enter the total corrected amount in Column 1. In Column 2, enter the amount that was originally reported or was previously corrected. In Column 3, enter the difference between Columns 1 and 2. Enter the corrected amount from Column 1 on Worksheet 1, Step 1, Line 1j.

• Line 33, qualified wages paid March 13 to March 31, 2020, for the employee retention credit; Line 33 is used only to correct the second-quarter 2020 filing of Form 941. Employers correcting this amount should enter the total corrected amount for all employees in Column 1. In Column 2, enter the amount that was originally reported or was previously corrected. In Column 3, enter the difference between Columns 1 and 2. Enter the corrected amount from Column 1 on Worksheet 1, Step 3, Line 3c.

• Line 34, qualified health plan expenses allocable to wages reported of Form 941, Line 24 credit; Line 34 is used only to correct the second-quarter 2020 filing of Form 941. Employers correcting this amount should enter the total corrected amount for all employees in Column 1. In Column 2, enter the amount that was originally reported or was previously corrected. In Column 3, enter the difference between Columns 1 and 2. Enter the corrected amount from Column 1 on Worksheet 1, Step 3, Line 3d.

The reasons for the corrections made with the revised Form 941-X generally should be explained on Line 37 of the form, according to the draft revised instructions.

Employers are to leave blank any line on Form 941-X that does not apply to their business, the IRS said.

Comments on draft forms may be submitted to the IRS at IRS.gov/FormsComments.

Draft forms are not final and are not to be filed by taxpayers.