As a business that operates with the help of employees, you are familiar with Form 941. This quarterly tax return reports the amount of taxes that you withheld from your employees. Employers are also required to make deposits to the IRS based on the tax withholdings that they report.
It is important to be aware that the IRS is currently updating the Form 941. They released a draft of the updated Form 941 to give employers and third-party providers an idea of what to expect next quarter.
Why Update Form 941?
As you know COVID-19 has caused significant impacts on numerous small businesses throughout the country. In response, legislation was put in place to protect small businesses from closing their doors and laying off their employees. The Form 941 is being changed to accommodate the variety of different tax credits available to employers right now.
The CARES Act
The CARES Act was passed on the (insert date) and it laid the foundation for Coronavirus relief for businesses. There are 7 main areas of this bill that exist to help business owners stay afloat during a very difficult economic climate. These include…
The Paycheck Protection Program (PPP)
Economic Injury Disaster (EIDL)
Employee Retention Tax Credits
Deferral of Employer Payroll Tax Credits
Net Operating Loss/Excess Business Loss Changes
Business Interest Deduction
Families First Coronavirus Response Act (detailed below)
For more information on the CARES Act, check out this earlier blog post.
The Family First Coronavirus Response Act
The FFCRA mandates that all employers with 500 or less employees must offer 80 hours of paid time off to those employees if they contract COVID-19 of if they must care for a family member who does. Businesses can get reimbursement credits for these hours of paid time off.
Much like with employee Retention Credits, employers can either request an advance on tax credits using the Form 7200 or they can reduce their employment tax deposits and record this on Form 941. Therefore, Form 941 must be updated to allow for this documentation.
What Is Different on this New Form 941 Draft?
It is important to understand that this updated Form 941 is a draft, it is not the official form that your business will file from July 1, 2020. It is subject to change, however, it is significant to understand the changes that you may need to adjust to when filing.
The most notable changes to the Form 941 are all related to the Coronavirus tax relief. The following lines address these tax credits.
Line 5a (i)– Qualified sick leave wages
Line 5a (ii)– Qualified family leave wages
Line 11b– Non Refundable Portion of Credit for Qualified Sick and Family Leave Wages
Line 11c– Non Refundable Portion of Employee Retention Credit
Line 11d- Total Non Refundable Credits (the total of line 11a-11c)
Line 12– Total Taxes After Adjustments and Nonrefundable Credits
Line 13a– Total Deposits for this Quarter
Line 13b– Deferred Amount of the Employer Share of Social Security
Line 13c– Refundable Portion for Qualified Sick and Family Leave Wages
Line 13d– Refundable Portion of Employee Retention Credit
Line 13e– Total Deposits, Deferrals, and Refundable Credits
Line 13f– Total Advances Received From Filing Form(s) 7200 for the Quarter
Line 13g– Total Deposits, Deferrals, and Refundable Credits Less Advances
Line 19– Qualified health plan expenses allocable to sick leave wages
Line 20– Qualified health plan expenses allocable to family leave wages
Line 21– Qualified wages for the employee retention credits
Line 22– Qualified health plan expenses allocable to wages reported on line 21
Line 23– Credit from 5884-C, line 11, for this quarter
Line 24– Qualified wages paid March 13 through March 31, 2020, for the employee retention credit
Line 25– Qualified health plan expenses allocable to wages reported on line 24
When Should This Form Be Filed?
First, let’s establish that the draft released by the IRS is not a final tax form and should never be filed with the IRS. The finalized version of this form should be filed with the IRS beginning in the second quarter of 2020.
The deadline for filing Form 941 for the second quarter of 2020 is July 31, 2020. This quarter covers April, May, and June and officially ends on June 30, 2020.
The updated Form 941 will be used for the next two quarters as well unless there are further updates for the Form 941 in the meantime…
2020 third-quarter deadline- October 31, 2020
2020 fourth quarter deadline- January 31, 2020
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