Since the onset of the COVID-19 pandemic, Form 941, the Employer’s Quarterly Federal Tax Return has been updated almost every quarter. This is due to the ongoing tax relief efforts that the U.S government is making. First came the CARES Act and the FFCRA, and more recently, under the Biden administration, the American Rescue Plan.
While the Form 941 has seen only subtle changes and updates in some quarters of 2020 and 2021, the same can not be said for the second quarter of 2021. The IRS recently released a draft of Form 941 for the second quarter and it is basically a complete overhaul of the form.
Why, you may ask? These changes are made largely to accommodate the American Rescue Plan and the way that the existing tax credits for businesses are extended and amended. It also introduces a new tax credit for employers.
Let’s take a closer look.
What’s new with COVID-19 tax credits?
The original tax credits that were introduced for the second quarter of 2020, the sick and family leave wages, and the employee retention credit are still available for employers. However, the American Rescue Plan has expanded and extended the guidelines for these tax credits.
While employers are no longer required to offer paid sick and family leave to their employees. However, if they are offering paid leave, getting the vaccine, recovering from the vaccine, and time spent waiting for COVID-19 test results can be included.
The employee retention credit is also still available for employers. For the second quarter of 2021, employers can claim 70% of qualified wages paid to an employee throughout the quarter with a maximum of $7,000
The American Rescue Plan has introduced the COBRA Premium Assistance Credit. For a bit of background information, COBRA is an option for employees to stay on their health insurance if they have their hours reduced or no longer work for their employers for a variety of reasons. This is a good option for maintaining health insurance temporarily, but it is a costly option. Individuals who are using COBRA are responsible for the entire monthly premium and administration fees, without any contributions from the employer.
The COBRA premium assistance subsidy provides COBRA coverage to employees who have been involuntarily terminated or have had their hours reduced and no longer qualify for their employee-sponsored benefits at no cost. The employer shoulders this cost for these individuals and in turn they can claim the COBRA premium assistance credit on Form 941 to offset these costs.
What about Worksheet 1?
According to the Form 941 draft released by the IRS, there is still a Worksheet 1…and it has some new friends. There are now 5 worksheets total to help employers calculate their refundable and nonrefundable tax credits for the quarter. Here is a list and brief explanation of the worksheets included in the drafted IRS 941 instructions:
Worksheet 1– This no longer has three steps that should be completed depending on the type of credits an employer is claiming. The worksheet 1 now has only two steps and should only be used to determine the nonrefundable and refundable portion of credits for sick and family wages taken before April 1, 2021.
Worksheet 2– Worksheet 2 has been introduced to help employers calculate the nonrefundable and refundable portions of employee retention credit on wages paid after March 31, 2021 but before July 1, 2021. There are two steps, both should be completed.It is important to note that this worksheet will only be applicable to the second quarter of 2021.
Worksheet 3– Worksheet 3 has been introduced to help employers determine the nonrefundable and refundable portion of credits for sick and family wages taken after April 1, 2021. This worksheet has two parts and both should be completed.
Worksheet 4– Worksheet 4 was introduced to be used specifically for the third and fourth quarters of 2021. It helps employers calculate the employee retention credit for the third and fourth quarter of 2021. It only has two steps, both should be completed.
Worksheet 5- This worksheet was introduced to help employers calculate the nonrefundable and refundable portion of COBRA premium assistance credit. Worksheet 5 will be used for the second, third, and fourth quarters of 2021. There are two steps, both should be completed.
Where can I find the 941 draft for Q2 of 2021?
To see the full draft and all the new and edited lines, you can check out the IRS draft here.You should also take a look at the newly drafted IRS 941 Instructions, for a better understanding of why these lines have been added or changed.
You can also stay updated by continuing to check the TaxBandits blog, we’ll be releasing more helpful blogs covering the 941, leading up to the second quarter deadline. The deadline to file the Form 941 for the second quarter is August 2, 2021.
Looking for an IRS authorized e-file provider to help you e-file the Form 941 or other IRS tax forms. TaxBandits is here to help you maintain your IRS compliance!