On June 19th, 2020 the IRS published the final revised Form 941 that will be used for the remainder of 2020. The purpose of filing this quarterly form is to report to the IRS the wages subject to social security, Medicare and federal income tax withholding. This new revised form takes into account changes made by the Families First Act and the CARES Act that provided various types of payroll tax relief for employers.
The new Form 941 specifically added lines to account for the:
- Credit for Qualified Sick and Family Leave Wages
- Employee Retention Credit
- Deferred Amount of the Employer Share of Social Security Tax
Credit for Qualified Sick and Family Leave Wages (Families First Act)
Businesses with fewer than 500 employees, that are required to provide paid sick leave or family leave under the Families First Act, are eligible to claim the credit for qualified sick and family leave wages for the period from April 1, 2020, to December 31, 2020. In addition to the credit available, these wages are not subject to the employer share of social security tax.
Starting 2nd quarter 2020, in order to differentiate between the employer and employee share of social security tax on the revised 941 form, these wages will be reported separately.
The “taxable social security wages” line includes qualified wages paid to employees during the quarter for the employee retention credit, non-qualified sick pay, and taxable fringe benefits subject to social security taxes. Do NOT include the qualified sick and family leave wages on this line as they are not subject to the employer share of social security tax.
Employee Retention Credit
The Employee Retention Credit is equal to 50% of qualified wages paid to employees between March 13, 2020, and December 31, 2020. Qualified wages are limited to a maximum of $10,000 for each employee for the cumulative total of all calendar quarters. An employer may NOT claim the employee retention credit if the employer receives a loan under the Paycheck Protection Program under the CARES Act.
- If there are not sufficient employment taxes to cover the credits above, employers who paid qualified sick and/or family leave wages, or qualified wages eligible for the employee retention credit, are eligible to file Form 7200, Advance Payment of Employer Credit Due to COVID-19, for the quarter.
Deferred Amount of the Employer Share of Social Security Tax
Employers who have received a Paycheck Protection Loan may defer deposit and payment of the employer share of social security tax that otherwise would be required for deposit beginning on March 27, 2020, through the date the lender issues a decision to forgive the loan. Once an employer receives a decision from its lender that its loan is forgiven, the employer is no longer eligible to defer deposit and payment of the employer share of social security tax due after that date. One-half of the amount of you deferred is due by December 31, 2021, and the remainder is due by December 31, 2022.
Worksheet 1 is provided by the IRS to help guide employers in calculating portions of the new Form 941. (See instructions page 14) The worksheet is broken down into three steps providing guidance in the calculation of the following:
- Step 1 --- employer share of social security tax that is used to reduce the credit to be claimed
- Step 2 --- sick and family leave credit to be reported on the Form 941
- Step 3 --- employee retention credit to be reported on Form 941
If you have questions about how this might benefit your situation, please feel free to contact one of our CPAs at (616) 642-9467 or request a complimentary accounting consultation.
By: Karly Morris
Photo by Marcos Santos from FreeImages