Two of the four CoronaTax bills have directly impacted the payroll taxes that businesses pay. There wasn’t enough time to make changes to the first quarter payroll tax Form 941 (due 4/30/2020), so there is a big change and some catch up calculations on the second quarter payroll tax return that is due 7/31/2020. Please note that most of these credits and deferrals only apply if your business has NOT taken a PPP loan.
The IRS has issued a draft copy at: https://www.irs.gov/pub/irs-dft/f941–dft.pdf
It’s complicated, so even if you’re used to preparing your own payroll tax reports as a small business owner, you may want some professional help with this filing. Here are some of the issues you’ll need to grapple with.
The changes to the payroll tax due are:
- Three new refundable payroll tax credits,
- Some of the taxes can be deferred in anticipation of other credits, and
- The employer portion of Social Security tax will deferred to 2021 and 2022.
The Form 941 is now 3 pages instead of just 2 and the form’s Schedule R (Allocation Schedule for Aggregate Form 941 Filers) has been made even more complicated.
The refundable credit for providing qualified sick leave wages and the credit for providing qualified family leave wages are in effect for wages from 4/1/2020 – 12/31/2020. So those would be reported on the second, third and fourth quarter Form 941s for 2020.
The refundable employee retention credit is based on wages paid from 3/13/2020 – 12/31/2020. The deferrals of the employer portion of Social Security taxes are applicable for 3/27/2020 – 12/31/2020. Technically both were partially in place for the first quarter of 2020, but the payroll tax return forms had not yet been modified. This should be adjusted on the second quarter payroll tax return. In other words, you get additional credit and deferrals.
We’re still waiting for the complete instructions on what to do with this complicated form when it’s time to file it. Luckily, there is a little bit of time available before it’s due, so we all have time to figure out how to properly fill out the return to get all the credits and deferrals due.
Some of the credits are available for self-employed persons as well. Quoting From CoronaTax:
“The due date for payment of the employer share of employment tax on wages subject to Social Security tax (6.2% of wages up to $137,700 for 2020) due on or after March 27, 2020, and before January 1, 2021 is delayed. One half of these taxes will be due in 2021 and the other half will be due in 2022. Fifty percent of self-employment taxes are subject to the same delayed payment rule.”
The self-employment taxes aren’t reported on the payroll tax form, but it’s important to note this for the people that are subject to it. It’s a nice benefit. Don’t forget to use it!
There is also a new Form 7200 that provides for an advance payment of employer credits due to COVID-19. In fact, that’s the name of the form, Form 7200, Advance Payment of Employer Credits Due to COVID-19. The credits listed above are refundable where stated.
A refundable credit is one that pays you the credit amount even if you don’t have enough tax to offset it. For example, let’s say you owe $1,000 in taxes. You have $1,500 in credit. If it’s a nonrefundable credit, you wouldn’t pay any tax and you would have a rollover tax credit for the future of the $500 difference. If it was a refundable credit, you wouldn’t pay any tax and you’d get a check for the $500 difference,
So, the Form 7200 is a form you will want to file wherever possible. The problem is that you can’t e–file it or mail it. Under current instructions and unless they change them, the only way you can file it is by fax.
We live in strange times indeed.