Form 941 is a form that is used by the majority of employers to report the tax amounts that they withheld from their employees’ wages each quarter of the tax year.
The new year has arrived and we are over halfway through the first quarter. This means that the first quarter deadline will be coming up. The IRS released a draft of Form 941 for the first quarter, and there are some changes to this form that employers need to be aware of.
Form 941 is an IRS tax form that is used to report Medicare, social security, and federal income taxes that employers are required to withhold from their employees’ wages.
These employers must continue to file Form 941 every quarter regardless of whether or not they pay wages every quarter. The exception to this rule is seasonal employers, they are only required to file Form 941 for the quarters when they are operating.
This form requires employers to provide specific information about their business, employment records, and tax liability with the IRS for the quarter.
From the beginning of the COVID-19 pandemic, this form also became the IRS method for employers to claim credits for qualified sick and family leave wages and the employee retention credit.
Changes to Form 941 for Q1, 2023
As far as Form 941 itself, there are a few minor changes. The first line of the form has been updated to include the pay period (March 12th) for the first quarter. There has also been a slight change to Line 5 for the 2023 tax year.
There have been updates to the wage base limit for social security, this amount is $160,200 for the 2023 tax year.
Updates to Form 8974 for Small Business Tax Credits
Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities. Employers that claim this tax credit must attach it to Form 941 and indicate that they are claiming this credit. This form has been updated due to the Inflation Reduction Act of 2022.
For tax years beginning after December 31, 2022, the Inflation Reduction Act of 2022 increases this amount from $250,000 to $500,000. Beginning in 2023, the credit will first reduce the employer’s share of social security up to $250,000 per quarter, and any remaining credit will be applied to the Medicare tax.
To reflect this, Line 12 of Form 8974 has been updated. In previous quarters it has been “Credit”, it is now ‘Credit against the employer share of social security tax’.
Additionally, Lines 13 -17 have been introduced to the form for the first quarter of 2023 and beyond.
Additional 941 Worksheets and Updates
The 941 Worksheets were added to help employers calculate the refundable and nonrefundable portions of COVID-19 tax credits. While these credits are no longer available to claim for the first quarter, employers can claim credits for past quarters.
There is a small update to Worksheet 1, the first step of the worksheet is now:
“Determine the employer share of social security tax this quarter after it is reduced by any credit claimed on Form 8974 and any credit to be claimed on Form 5884-C and/or Form 5884-D”
Plus, Line 1i has been updated:
Line 1i – Enter the amount from Form 8974, line 12, for this quarter. (Credit against the employer share of social security tax.
The IRS has reintroduced Worksheet 2 for the first quarter of 2023. There are two new lines:
Line 1g – Enter the amount from Form 8974, line 16 for this quarter (Credit against the employer share of Medicare tax)
Line 1h – Employer share of Medicare tax remaining. Subtract line 1g from line 1f.
In conclusion, there are two Worksheets available for the first quarter:
Worksheet 1. Credit for Qualified Sick and Family Leave Wages Paid This Quarter of 2023 for Leave Taken After March 31, 2020, and Before April 1, 2021
Worksheet 2. Credit for Qualified Sick and Family Leave Wages Paid This Quarter of 2023 for Leave Taken After March 31, 2021, and Before October 1, 2021