IRS Form 941 Schedule R for COVID-19 Related Employment
Tax Credits

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IRS released a new draft of the Form 941 Schedule R

Updated on January 20, 2021 - 10:30 AM by Admin, TaxBandits

On June 05, 2020, the IRS released a new draft of Form 941, Employer’s Quarterly Federal Tax Return, with instructions on the changes to accommodate the reporting of employment tax credits related to COVID-19.

As expected, on May 5, 2020, the IRS released a new draft of Schedule R for Aggregate Form 941 filers. Section 3504 Agents and Certified Professional Employer Organizations (CPEOs) can use their own EIN to file a single revised Form 941 for their clients. Reporting agents must complete the revised Schedule R along with their respective wages and tax liability information for the tax period.

In this article, we discussed the following points:

All Aggregate Form 941 filers must be familiar with the changes in time for the second quarter of 2020, when these changes take effect. The draft should be used only as a reference for what to expect. A final version is expected to be released in the near future.

1. What to Expect?

The new draft of Form 941, recently released by the IRS, has 23 new data-entry fields. These fields have been added to accommodate any additional reporting for three payroll credits. They also accommodate the amounts of employment taxes that employers have retained instead of deposited in anticipation of refundable payroll tax credits, and the reporting of advances claimed on Form 7200. A similar change was expected for Schedule R (Form 941).

As expected, the Schedule R is also being revised to include additional information about the employer’s credit for qualified sick and family leave wages, the employee retention credit, and the deferral of employer Social Security tax.

Please note that the new draft of Schedule R doesn't have instructions attached to it. Instead, you will need to refer to the draft instructions for Form 941 under Aggregate Form 941 filers on Page 2. Hopefully, the finalized version will have the necessary instructions attached to the form, much like the current Schedule R.

2. Revisions to Form 941 Schedule R

The Form 941 revisions proposed by the IRS on April 30, 2020 include the following:

  • Information about the employer’s credit for qualified sick and family leave wages
  • Employee retention credits
  • Deferral of employer social security tax
  • Advance payments received by filing Form 7200

Depending on the employer’s eligibility for COVID-19 relief, reporting this information in both the aggregate Form 941 and Schedule R separately.

The following are significant changes to Schedule R:

  • The field Type of Filer includes a new checkbox, Other Third Party, in addition to the existing Section 3504 Agent and CPEO.
  • In the earlier Schedule R, information against each of the Client’s Employer Identification Number (EIN) from Form 941 was reported in 8 columns. The revised Schedule R will have a whooping 24 columns. This information is reported from Form 941 against each of the Client’s EIN.

Here are the 24 columns of the Aggregate Form 941 that must be reported for each client.

  • Column b:

    Type of wages (CPEO only)

  • Column c:

    Number of employees who received wages, tips, and other compensation (Line 1)

  • Column d:

    Wages, tips, and other compensation (Line 2)

  • Column e:

    Federal income tax withheld from wages, tips, and other compensation (Line 3)

  • Column f:

    Qualified sick leave wages (Line 5a(i), Column 1)

  • Column g:

    Qualified family leave wages (Line 5a(ii), Column 1)

  • Column h:

    Total social security and Medicare taxes (Line 5e)

  • Column i:

    Section 3121(q) Notice and Demand—Tax due on unreported tips (Line 5f)

  • Column j:

    Qualified small business payroll tax credit for increasing research activities (Line 11a)

  • Column K:

    Non Refundable portion of the credit for qualified sick and family leave wages from Worksheet 1 (Line 11b)

  • Column l:

    Non Refundable portion of employee retention credit from Worksheet 1 (Line 11c)

  • Column m:

    Total taxes after adjustments and nonrefundable credits (Line 12)

  • Column n:

    Total deposits for the quarter including overpayment applied from a previous quarter and overpayments applied from Form 941-X, 941-X (PR), 944-X, 944-X (SP) filed in the current quarter (Line 13a)

  • Column o:

    Deferred amount of the employer’s share of Social Security tax (Line 13b)

  • Column p:

    Refundable portion of credits for qualified sick-leave and family-leave wages (Line 13c)

  • Column q:

    Refundable portion of employee retention credit (Line 13d)

  • Column r:

    Total advances received from filing Forms 7200 for the quarter (Line 13f)

  • Column s:

    Qualified health plan expenses allocable to qualified sick-leave wages (Line 19)

  • Column t:

    Qualified health plan expenses allocable to qualified family-leave wages (Line 20)

  • Column u:

    Qualified wages for the employee retention credit (Line 21)

  • Column v:

    Qualified health plan expenses allocable to wages reported for employee retention credit (Line 22)

  • Column w:

    (Total of Column 2 of lines 5a and 5b)

  • Column x:

    Qualified wages paid between March 13 through March 31, 2020, to be used only for second-quarter filing (Line 24)

  • Column y:

    Qualified health plan expenses allocable to qualified wages paid between March 13 through March 31, 2020, to be used only for second-quarter filing (Line 25)

Page 1 of the revised Schedule R can accommodate only information of 5 clients. The continuation sheet on Page 2 must be used to fill information for up to 8 additional clients.

3. Further Assistance

While the final revision of the Form 941 and Schedule R have not yet been released by the IRS, you can still refer to the frequently asked questions on the IRS website. They have readily available information about the employment tax credits.

  • For FAQs on a range of topics related to the employee retention credit under the CARES Act,
    click here.
  • For general information FAQs on COVID-19 related tax credits, click here.

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