The CARES Act introduced several new tax benefits to help businesses recover from COVID-19 losses, and the IRS has updated Form 941 in accordance with these changes. This new form will take effect for filings starting in the second quarter of 2020.
Revisions made to the form include:
- Qualified Sick Leave and Family Leave Wages under the CARES Act will be reported on Lines 5a(i) and 5a(ii), respectively. These wages need to be separated because they are not subject to the employer share of social security tax.
- Small Business Payroll Tax Credit for increasing research activities will be reported on Line 11a.
- Nonrefundable portion of credit for qualified sick and family leave wages will be reported on Line 11b. Businesses with less than 500 employees that are required to provide paid leave under the Emergency Family and Medical Leave Expansion Act are eligible to claim the credit for qualified sick and family leave wages for the period after March 31, 2020, and before January 1, 2021. This is calculated using the IRS’s newly created Worksheet 1.
- Nonrefundable portion of employee retention credit will be reported on Line 11c. It is important to note that an employer cannot claim this credit if they received a Paycheck Protection Program (PPP) loan. All others can calculate the credit on Worksheet 1.
- Line 13 has been broken out, and the deposits normally reported on Line 13 will now be reported on Line 13a.
- Deferred amount of employer share of social security tax will be reported on Line 13b. The CARES Act allows employers to defer 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 deposits and payments due after January 1, 2021, that are required for wages paid during the quarter ending on December 31, 2020.
- Refundable portion of credit for qualified sick and family leave wages will be reported on Line 13c. Businesses with less than 500 employees that are required to provide paid sick leave under the Emergency Paid Sick Leave Act and/or to provide paid family leave under the Emergency Family and Medical Leave Expansion Act are eligible to claim the credit for qualified sick and family leave wages. The refundable portion of the credit is calculated on Worksheet 1.
- Refundable portion of employee retention credit will be reported on Line 13d and calculated on Worksheet 1. This credit is 50% of the qualified wages paid to employees in the quarter. For the second quarter, the credit includes 50% of the qualified wages paid between March 13, 2020 and March 31, 2020. The refundable portion of the credit is allowed after the employer share of social security tax is reduced to zero by nonrefundable credits.
- Advances received from filing Forms 7200 for the quarter, if any, will be reported on Line 13f.
- Additional lines in Part 3 (lines 19-25) of the form are for reporting amounts used on Worksheet 1 to figure the credit for qualified sick and family leave wages and the employee retention credits. If a taxpayer is claiming these credits, the applicable amounts must be entered here.
If you have any questions about claiming your CARES Act tax relief, please contact your Grassi tax advisor or a member of our Tax Services group.
