The much anticipated final version of the second quarter (Q2) Form 941-X Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund has been released by the Internal Revenue Service (IRS). The Form 941-X generally follows the changes to the Form 941 released in June.
The revised Form 941 and Form 941-X include significant changes needed to report the payroll tax credits offered under the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which became effective in March. These include the employee retention credit, paid family leave and sick leave credits and the Employer FICA deferral.
The availability of the revised Form 941-X will provide relief to employers who were unable to take the employee retention credit by retaining the applicable employment taxes during pay cycles in the second quarter or by asking for a refund under the Form 941 or Form 7200 (which was not available for payroll tax credit refunds from Q1 or Q2 after August). Such employers can now request the credits from late March and all of the second quarter as a refund on the Form 941-X. The IRS FAQs indicate that a Q2 Form 941 X will be needed to obtain the payroll tax credits arising in Q1 and Q2 (that is, an employer cannot simply report the credits arising from Q1 and Q2 on a Q3 Form 941). It is not clear how long it will take to get the Form 941 refunds. In the past, Form 941 refunds could be fairly slow, but the IRS has suggested that they are trying to expedite the CARES and FFCRA refunds.
The IRS notes that employers with employee retention credits or FFCRA paid leave credits arising in Q1 should amend the Q1 941-X to make changes. All credits related to the FFCRA and CARES Act payroll tax credits for the end of Q1 and for Q2 should be claimed on the Q2 Form 941. Any changes to the credits should be made on the revised 941-X Form.
There are numerous changes to the Q2 941-X. The form now spans five pages as opposed to the previous three pages. Some of the specific changes are as follows:
- Line 9 - qualified sick leave wages
- Line 10 - qualified family leave wages
- Line 17 - nonrefundable portion of credit for qualified sick- and family-leave wages.
- Line 18 - nonrefundable portion of employee retention credit.
- Line 24 - deferred amount of the employer share of social security tax.
- Line 25 - refundable portion of credit for qualified sick- and family-leave wages.
- Line 26 - refundable portion of employee retention credit
- Line 28 - qualified health plan expenses allocable to qualified sick-leave wages
- Line 29 - qualified health plan expenses allocable to qualified family-leave wages.
- Line 30 - qualified wages for the employee retention credit
- Line 31 - qualified health plan wages reported on Form 941, Line 21.
- Line 32 - credit from Form 5884-C, Line 11, for Q2 (Form 5844-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans).
- Line 33 - qualified wages paid March 13 to March 31, 2020, for the employee retention credit; (only to be used to correct the second-quarter 2020 filing of Form 941)
- Line 34 - qualified health plan expenses allocable to wages reported of Form 941, ; (only to be used to correct the second-quarter 2020 filing of Form 941)
The instructions include a Worksheet which can be used to help report the Q1 and Q2 employee retention credits or FFCRA credits. The revised Form should not be used to claim credits related to the CARES Act or FFCRA for the third quarter 2020. Such refunds arising out of qualified wages paid in Q3 can be filed on the Form 941 Q3 or on the Form 7200 (for up to one month after the end of the quarter, according to the Form instructions). The IRS is working on revising third quarter 941-X to allow for changes to the third quarter 941 filings.
