Changes to IRS Form 941 Due to COVID-19 Tax Relief & Form 7200
The IRS has recently released a new Form 941, Employer’s Quarterly Federal Tax Returns to be used for the rest of 2020. By now, we’re all pretty familiar with the Families First Coronavirus Response Act (FFCRA). The FFCRA requires employers to provide paid sick leave and paid family and medical leave for their employees under certain conditions related to COVID-19. The act also credits wages and the employer’s portion of the Medicare tax against the employer’s federal tax liability. Further, the Coronavirus Aid, Relief, And Economic Security Act (CARES Act) gives employers the option to defer or postpone the employer’s paid portion of the Social Security taxes. Through the CARES Act Social Security tax deferral, employers must repay 50% of the deferred amount by 12/31/2021. They will need to repay the remaining 50% by 12/31/2022. To properly report these amounts, the Internal Revenue Service made significant changes to the Form 941, which you can find here.
In a nutshell, Form 941 - Employer’s Quarterly Federal Tax Return, is used to report the following amounts:
· Employees’ share of income tax, Social Security, and Medicare tax.
· Employer’s share of Social Security and Medicare tax.
For each quarter, there is a standard deadline for filing Form 941. And, it is the last day of the month that follows the quarter’s end.
· Q1 (Jan, Feb, & Mar) — Apr 31, 2020
· Q2 (Apr, May, & Jun) — Jul 31, 2020
· Q3 (Jul, Aug, & Sep) — Nov 2, 2020
· Q4 (Oct, Nov, & Dec) — Jan 31, 2020
The impact of these two laws is that certain amounts are deducted from your federal tax liabilities and payments. Here’s how you can expect the legislation to affect this quarter’s Form 941.
What are the main changes? There are at least fifteen new lines and reporting elements added to the Form 941 (plus new intermediate subtotal lines). Form 941 previously featured a total of 20 elements, so it will expand from two pages to three. The following lines are new and related to the FFCRA and CARES Act programs:
Qualified sick leave wages
Qualified family leave wages
Nonrefundable portion of credit for qualified sick and family leave wages from Worksheet1
Nonrefundable portion of employee retention credit from Worksheet 1
Deferred amount of the employer share of Social Security tax
Refundable portion of credit for qualified sick and family leave wages from Worksheet 1
Refundable portion of employee retention credit from Worksheet 1
Total advances received from filing Form(s) 7200 for the quarter
Qualified health plan expenses allocable to qualified sick leave
Qualified health plan expenses allocable to qualified family leave wages
Qualified wages for the employee retention credit
Qualified health plan expenses allocable to wages reported on Line 21
Credit from Form 5884-C, Line 11, for this quarter
Qualified wages paid March 13 through March 31, 2020, for the employee retention credit (second quarter 2020 only)
Qualified health plan expenses allocable to wages reported on line 24 (second quarter 2020 only)
Check with your payroll provider, Accounting Department & HR Department to ensure that all your qualified credits are being captured.
File Form 7200, Advance Payment of Employer Credits Due to COVID-19. The link to Form 7200 can be found here.
Form 7200 is the form promulgated by the IRS to aid taxpayers in claiming advance credits related to the COVID-19 global pandemic, including credits related to qualified sick and family wages, along with employee retention credit. Form 7200 can be filed at any time before the end of the month following the quarter in which you paid the qualified sick or family leave wages, or paid qualified wages eligible for the employee retention credit. For qualified wages paid in the 2nd quarter of 2020, Form 7200 must be filed no later than 7/31/2020. Form 7200 can be filed several times during each quarter. Each filing is cumulative so you must take into account previous amounts reported on Form 7200 for each quarter. You may file a single Form 7200 before the end of the month following the quarter in which you paid the qualified wages. However, no employer is required to file Form 7200.
In anticipation of claiming the relevant credits, employers can instead retain the federal employment taxes that they otherwise would have deposited, including federal income tax withheld from employees, the employees’ share of social security and Medicare taxes, and the employer’s share of social security and Medicare taxes with respect to all employees. Importantly, though these taxes can be utilized against the credit, it is not clear what tracking will be required. As a result, it may be advisable to only apply the credit against employer-side employment taxes. In addition, the various statutes authorizing the payroll tax credits did not provide for an ability to take the credit against taxes other than the employer-side social security tax. Therefore, employers may wish to proceed with caution when utilizing the credits against other employment taxes, despite the Form 7200 instructions.
The IRS has indicated that it expects to begin processing refund requests under Form 7200 beginning in April 2020. The length of time between processing the form and issuing payments is not yet known. The form 7200 has been set up to capture the employee retention credit, qualified sick leave wages eligible for credit, and qualified family leave wages eligible for credit, all on the same form, with a separate line for reporting each type of credit. Thus, the Form 7200 provides an easy way to claim all relevant credits on the same form.
One of the relief measures contained in the CARES Act was the ability for businesses to defer 2020 employer-side social security payments until 2021 and 2022. Recent IRS guidance made clear that the deferral is available along with all relevant credits. Thus, employers can defer their employer-side social security payments AND claim relevant credits in the same period.
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