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IRS Issues Draft of Revised Tax Form for Reporting Covid-19 Credits (1)

April 30, 2020, 6:26 PM

A draft of the expanded employer’s quarterly tax return for 2020, 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 Internal Revenue Service.

Draft instructions also were released by the agency.

The revised Form 941, Employer’s Quarterly Federal Tax Return, is to be used starting with the second quarter of 2020 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, which was expanded to three pages from two, also is to be used for reporting advances claimed on Form 7200, Advance Payment of Employer Credits Due to COVID-19.

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 Families First Coronavirus Response Act, which was enacted March 18. 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 the Coronavirus Aid Relief and Economic Security (CARES) Act, which was enacted March 27. 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.

Revisions to Form 941

The draft form, which was announced April 16 by the IRS, includes 23 data fields that were added to the three parts of the quarterly form or previous positions were altered.

In Part 1, new fields were included for qualified sick-leave and family-leave wages; taxable Social Security tips; Medicare wages and tips; and the 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.

Part 1, which spans the first two pages of the form, added six data fields related to 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; total advances received from filing Forms 7200 for the quarter; and total deposits, deferrals, and refundable credits, less advances.

Part 3, which starts on page 3, starts by asking if the employer’s business has closed or has stopped paying wages. Eight data fields follow and require information about qualified health-plan expenses allocable to qualified sick-leave and family-leave wages; qualified wages for the employee retention credit; Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veteran; qualified wages paid March 13 to March 31, 2020, for the employee retention credit; and qualified health-plan expenses allocable to wages.

Comments about the revised Form 941 may be sent to IRS.gov/FormsComments.

More FAQs

The list of 94frequently asked questions and answers on a range of topics related to the employee retention credit under the CARES Act also was released by the IRS. The refundable tax credit is 50% of up to $10,000 in wages paid to an employee by an eligible employer whose business was financially affected by COVID-19, a respiratory disease caused by the novel coronavirus.

The topics covered in the FAQs include qualified wages and health-plan expenses, employment taxes, determining whether a business is fully or partially suspended, essential vs. nonessential businesses, governmental order to close a business, claiming the employee retention credit and how it reacts with other credits, defining a significant decline in gross receipts, and the use of third-party payroll providers.

The FAQs include a number of examples.

A list of 67 frequently asked questions and answers on the coronavirus-related tax credits for paid leave was released April 17 by the agency. The FAQs dealt with tax credits for small and midsize employers that provide required paid leave under the Families First Coronavirus Response Act (Pub. L. 116-127).

(Updated to include release of draft instructions for Form 941.)

To contact the reporter on this story: Michael Trimarchi in Washington at mtrimarchi@bloombergtax.com

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