Here’s what you need to know to use updated Form 941 for COVID-related tax credits
The IRS has revised Form 941, Employer’s Quarterly Federal Tax Return, to accommodate COVID-19-related employment tax credits granted under the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security Act (CARES).
If you’re eligible for the credits, you can claim them on the updated Form 941.
What tax credits are allowed under the FFCRA?
If you have fewer than 500 employees, the FFCRA mandates you to provide paid sick and family leave to employees adversely impacted by COVID-19.
The FFCRA also lets you claim tax credits equal to 100% of the qualified sick and family leave you paid your employees from April 1, 2020 to Dec. 31, 2020.
What tax credits are allowed under the CARES Act?
The CARES Act offers an Employee Retention Credit of 50% of qualified wages paid to each employee from March 13, 2020 to Dec. 31, 2020. You can take the Employee Retention Credit if either of these situations applies:
- You fully or partially suspended your business operations because of a government order due to COVID-19.
- Your gross receipts have declined more than 50% when compared with the same quarter in 2019.
Additionally, the CARES Act permits eligible employers to defer their share of Social Security tax that would normally be due between March 27 and Dec. 31.
Where does Form 941 fit in?
Pursuant to IRS Notice 2020-22, you can claim the FFCRA and CARES Act tax credits immediately by reducing your federal employment tax deposits to the IRS. If you have credits left over after the reduction, you can quickly apply for an advance payment of the remaining credits by submitting Form 7200 to the IRS.
Alternatively, you can make federal employment tax deposits as usual and wait until it’s time to file your quarterly Form 941 to claim all your tax credits.
When completing your Form 941, you will need to reconcile your qualified wages paid for the quarter with any credits claimed when you reduced your federal employment tax deposits or requested advance payment on Form 7200.
What changes have been made to Form 941?
The form has been updated to include:
- The tax credit for FFCRA paid sick and family leave.
- The CARES Act Employee Retention Credit.
- Social Security deferral of the employer’s share of Social Security tax.
- Advance credits received due to filing Form 7200.
The IRS has also issued revised instructions to go with the updated Form 941. The updated Form 941 is applicable starting with the second quarter of 2020. It cannot be used for the first quarter of 2020.
Contact us to ensure you receive all the tax credits you’re entitled to under the FFCRA and the CARES Act.