What You Need to Know About the Updated Form 941 for 2020

July 7, 2020 | Article

The IRS recently released the updated version of Form 941 for quarters two, three and four of 2020. The purpose for the updates is to allow employers to report wages paid out due to Families First Coronavirus Response Act (FFCRA) and the CARES Act. With these wages we can identify if employers can receive credits or deferrals for 2020.

We broke down how various relief provisions are affecting your payroll.

What is Form 941?

IRS Form 941, the Employer’s Quarterly Federal Tax Return, is an IRS form used by employers to report federal income taxes, Social Security tax or Medicare tax withholding from employee’s paychecks.

How Will the New 941 Form 2020 Changes Affect Me?

How your software company set up the form and how the earning codes report the wages will determine how the numbers flow onto your Form 941.

To make sure you are ready to begin, you need to know if your company took part in the FFCRA or CARES Act.

For FFCRA wages, you will need to report qualified sick leave wages and qualified family leave wages on separate lines on Form 941.

For the CARES Act, you’ll need to know if you took part in either the Employee Retention Credit (ERC) or the Payroll Tax Deferral.

If you answer yes to any of the above, the next step will be determining if you:

  1. Offset your EFTPS tax payment for the credit?
  2. Filed form 7200 to receive your credit?
  3. Plan on taking the credit on your Form 941?

If you answer yes to 1 or 3, you will need to fill out the new Worksheet 1 Credit for Qualified Sick and Family Leave Wages and the Employee Retention Credit. This worksheet is in your Form 941 instruction pdf. The amounts will be reported on the nonrefundable or refundable credit lines.

If you answer yes to the second question, you will report the amount on 13f on your Form 941 return because you already claimed the credit.

What Else is Part of the New Form 941?

The form itself has three parts, Part 1 and Part 3 have all the new lines and Part 2 has no changes. Here are instructions for other pieces of Form 941.

Part 1

In Part 1, of Form 941, you need to be able to identify the wages paid this quarter because you must split out your taxable Social Security wages. Kind of like tips if you have ever reported those wages, you need to enter the taxable wages for FFCRA—sick leave wages 5a(i) and FFCRA—family leave wages on separate lines.  Remember the FFCRA wages are exempt from employer Social Security tax.

Example:
Regular wages/Overtime: $80,000
Bonus: $10,000
FFCRA – Sick wages: $5,000
FFCRA – Leave wages: $5,000
Total wages: $100,000

941 Lines reporting 5a Taxable Social Security wages: $90,000
5a(i) Qualified sick leave wages: $5,000
5a(ii) Qualified family leave wages: $5,000

Lines 11b & 11c – These amounts will come from Worksheet 1 and will report the amount of credits you have already applied against the EFTPS tax deposit for FFCRA and ERC wages.

Line 13b – This line helps identify to the IRS the amount your company will defer for employer Social Security tax. Remember, this deferral means you still have to pay this but at a later date. The due date for 50% of this deferral is December 31, 2021, and the remaining 50% is due December 31, 2022.

Lines 13c & 13d – These amounts will come from Worksheet 1 and will report the amount you are requesting as a refund for the credits for FFCRA and ERC.

Line 13f – This line is to report the dollar amount of advances that your company received from filing form 7200 for the quarter.

Part 3

For Part 3, the updates in this section come from lines 19-25. This part of Form 941 identifies wages that we are reporting and allocable health care costs that are being applied for FFCRA and ERC. Plus, they had to figure out how to report items from quarter one for the ERC (only should be used for quarter two).

To help understand your health care costs for reporting purposes, the IRS has a section of FAQs on how to determine the amount of allocable qualified health plan expenses.

For Worksheet 1, there are three steps to determine the nonrefundable and refundable credits to apply to the Form 941. You will find this worksheet in the Form 941 instructions.

  1. If you paid qualified sick leave, family leave and have qualified wages for the employee retention program, you will fill out all three parts of this worksheet.
  2. If you only paid out the FFCRA wages, part 1 and part 2 need to be filled out.
  3. If you only have qualifying wages for the ERC, part 1 and part 3 will be filled out.

Reminder, if you took only partial credits to enter your wages accordingly on this worksheet.

Where Do You File Form 941 for 2020?

You are encouraged to sign up to file your Form 941 electronically. f you are filing a paper return, where you mail it depends on if you are making a payment with the return or not. You will find the mailing addresses in the Form 941 instructions. It is based on what state your company is located.

 

The Importance of Understanding Form 941

The goal of Form 941 is to make sure that the amounts we show for liabilities ties out to our deposits, deferral and credits. This is especially complicated given that relief provisions have now affected payroll records and reporting.


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