IRS RELEASES PROPOSED 2021 1Q CHANGES TO PAYROLL TAX RETURN FORM 941

Appliable for the first quarter 2021, the IRS released a draft version of Form 941, plus instructions, to reflect changes to Form 941 regarding the expiration of Social Security tax deferral provisions.

While these changes can be complicated, TaxMe simplified the process by automating most of Form 941, including Worksheet 1.

FORM 941, PART 1 CHANGES

Line 11c. Instructions for Line 11c, which is used to report the nonrefundable portion of the employee retention credit, were updated to reflect that the calculation of the credit was redefined under the 2021 Consolidated Appropriations Act to be 70% of qualified wages paid from Jan. 1, 2021 to June 30, 2021, up to a maximum of $10,000 per employee per quarter. The amount of the credit for wages paid from March 13, 2020, to Dec. 31, 2020, was 50% of those wages, up to a maximum of $10,000 per employee for all quarters.

Line 13b. The draft 2021 Form 941 designates the line as reserved for future use, as it no longer is to be used to report amounts of deferred employer and employee portions of Social Security tax. Instructions for Line 13b were removed.

Line 13e. The form and instructions for Line 13e were updated to remove references to Line 13b.

Line 24. The draft 2021 Form 941 designates the line as reserved for future use. The line previously was used to report the deferred amount of the employee portion of Social Security tax. Instructions for Line 24 were removed.

The instructions also included a reminder that employers must pay at least half of deferred amounts of the employer portion of Social Security tax by Dec. 31, 2021, and remaining amounts by Dec. 31, 2022. Additionally, employers must ratably withhold and send deferred portions of the employee portion of Social Security tax from Jan. 1, 2021, to Dec. 31, 2021.

WORKSHEET 1: CREDIT FOR QUALIFIED SICK AND FAMILY LEAVE WAGES AND THE EMPLOYEE RETENTION CREDIT

Worksheet 1 helps users determine the refundable/nonrefundable portion of the COVID-19 Credits. It is not filed, but kept in your records. As part of the filing process, TaxMe automatically creates this worksheet.

Line 1j(i). Section 303(d) of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 allows for a new payroll tax credit for certain tax-exempt organizations affected by certain qualified disasters not related to COVID-19. This new credit is claimed on new Form 5884-D and may be available to certain employers during the first and second quarters of 2021. New line 1j(i) was added to account for this credit.

Line 2a(iii). This line was added to capture qualified sick leave wages excluded from the definition of employment under section 3121(b).

Line 2e(iii). This line was added to capture qualified family leave wages excluded from the definition of employment under section 3121(b).

Lines 3c and 3d. lines were updated to eliminate reference to qualified wages and health care expenses that were applicable only in 2020. The remaining steps of Worksheet 1, Step 3 were renumbered/tweaked to reflect this removal.

In particular, new line 3d, which is used to determine the amounts of the credit for qualified sick and family leave wages and the employee retention credit, was updated so that qualified wages for the employee retention credit are multiplied by 70%, up from 50%.

FORM 941, SCHEDULE B

Deferral of social security tax expired. The deferral of the deposit and payment of the employer share of social security tax for deposits and payments due on or after March 27, 2020, and before January 1, 2021, as well as the deferral of the withholding, deposit, and payment of the employee share of social security tax on wages paid September 1, 2020, through December 31, 2020, have expired. Any references to these deferrals have been removed from the Form 941, Schedule B instructions.