Making Sense of the New 941 Tax Form Changes

Form 941 is the Employer’s Quarterly Federal Tax Return. It is an IRS form used by employers to report federal income taxes, Social Security tax or Medicare tax withholding from employee’s paychecks. You are likely familiar with this form if you filed for the Paycheck Protection Program. In June of 2020, the IRS released an updated form to account the credits available to businesses who are taking part in the FFCRA or CARES Act. Meaning, you will need to report your earnings differently due to COVID-19 aid packages.

What’s New On The 2020 941 Tax Form?

There are 11 new lines in Part 1 of the revised form and those new lines relate to qualified family and sick leave and the tax credit associated with that. Qualified leave is granted to an employee according to the IRS when, “the employee is unable to work or telework because the employee is caring for a son or daughter whose school or place of care is closed or whose child care provider is unavailable for reasons related to COVID-19.” As an employer, you should be tracking that time if either yourself or an employee is impacted. Those credits work in your favor and the new lines on the 941 form documents that benefit.

Part 2 of the form has been left unchanged. Part 3 has been revised. There are 7 new lines. These new additions aim to capture health plan expenses incurred if an employee was unable to work due to COVID-19 and the Employee Retention Credits your business was able to claim during the quarter. Again, as a business owner, you should be tracking that expense and then claiming the credit in Part 3 of the revised 941 form.

How Can You Help Your Tax Preparer?

The third quarter of 2020 is ending soon and your tax preparer will need to know if you took part in the FFCRA and/or the CARES Act. Be prepared. Don’t go into a meeting with your tax preparer blind. Take note of the aid you’ve received for your business, or the time off that you’ve granted to employees because of COVID-19.

For the CARES Act, your tax preparer will need know if you participated in the Employee Retention Credit (ERC) or the Payroll Tax Deferral.

Have your documentation surrounding time off due to COVID-19 related reasons ready by contacting your payroll provider. It is important that your business properly shows affected payroll records to accurately track the credits received from the various COVID-19 relief efforts. If you’ve been tracking it on your own, export the information into a readable format for your tax preparer and be prepared to explain your numbers.

Before sending that information out to your tax preparer, ask if they know about the additional lines on the revised 941 form. Tell your tax preparer or accountant if you accepted the PPP or EIDL as part of CARES Act. If you did take advantage of those programs, you will not be able to take advantage of the wage credits in Part 1 and Part 3 of the revised form. It would essentially be double dipping on tax credits for the same wages. It is good news for your tax preparer; the 941 form will be much simpler to fill out.

We hope that this article answers some questions that a small business owner might have surrounding the new 941 form. Business owners are facing even more uncertainties as Covid-19 continues to create difficulties. Contact us today for a free consult with CFOshare’s experts.

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