On April 30, 2020, the Internal Revenue Service issued a draft version of the revised Form 941. The new form provides for approximately 20 additional data entry fields whereby the credits under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and Families First Coronavirus Response Act (FFCRA) can be reported. The draft form instructions were also issued by the agency.
The CARES Act provides relief to employers that continue to retain employees despite economic setbacks experienced due to COVID-19 through the employee retention credit. The employee retention credit is a refundable credit equal to 50% of qualified wages. This credit applies to qualified wages paid from March 13, 2020 through Dec. 31, 2020. The maximum amount of qualified wages considered for each employee for all calendar quarters is $10,000, resulting in a maximum credit of $5,000 per employee.
Simultaneously, the FFCRA, provides a means for employers to support employees who have been affected by the COVID-19 crisis through dollar-for-dollar reimbursement for paid sick leave and family leave wages to their employees for leave related to COVID-19. These credits range from $200 per-employee per-day to a maximum of $5,110 per-employee in the aggregate depending on various qualifying criteria.
Both the employee retention credit and the FFCRA credits can be applied against certain employment taxes, the amounts for which are to be reflected on the revised Form 941 beginning with the second quarter of 2020. This includes any credit calculated for the period from March 13 through April 30 and any employer social security tax deferred for this period.
Highlights of revised Form 941
Part 1: Part 1 includes data fields for reporting qualified sick-leave wages and family leave wages. Additional fields are provided for inserting the output of a worksheet which is included in the instructions for calculating the credits for paid sick leave and family leave credits and the employee retention credit. In general, Part 1 is used to report refundable and nonrefundable portions of the qualified sick leave and employee retention credit, any deferred amount of the employer portion of social security tax and advances received from Form 7200 for the quarter.
Part 2: Part 2 requires the reporting of the deposit schedule of the taxpayer and remains unchanged.
Part 3: Qualified health plan expenses allocable to paid sick leave and family leave wages are reported in Part 3. In addition total qualified wages for the employee retention credit and qualified health plan expenses allocable to qualified wages under the employee retention credit and any amounts under the Work Opportunity Tax Credit as reflected on Form 5884-C for the quarter are reported in this section. A check-box for a response as to whether a business has closed or stopped paying wages is also included.
Aggregate Form 941 filers
If an employer is eligible for the credit for qualified sick and family leave wages or the employee retention credit and the employer uses a non-certified professional employer organization (PEO) to report and pay its federal employment taxes, the PEO will need to report the credits on an aggregate Form 941 and separately report the credits allocable to the employers on Schedule R of Form 941. The requirement to separately report information on Schedule R also applies if an employer is deferring the employer share of social security tax.
Takeaways
Employers should be cognizant of changes to the Form 941 per the new draft and instructions related to the various employment tax credits provided by the CARES Act and the FFCRA. Taxpayers using prior forms may not be able to properly record the application of the credits.
The draft Form 941 and instructions are available through the IRS. The IRS is currently accepting comments about the draft revised Form 941.
For more information on the coronavirus and other tax-related issues, please see RSM’s Coronavirus Resource Center which includes related and frequently updated developments.
