The American Rescue Plan Act of 2021 (ARP), signed into law on March 11, 2021, comes with new credits for employers and an IRS update on Form 941.
The IRS released a new draft of Form 941 for the second quarter of 2021. This draft forecasts changes on 23 fields of the form and four new Form 941 worksheets. Here is your guide to the ARP, what it may mean for your business, and a line-by-line rundown on IRS changes on the drafted Form 941.
The American Rescue Plan Act of 2021
The American Rescue Plan Act of 2021 (ARP), also known as the COVID-19 stimulus package, was passed by the 117th U.S. congress and hopes to help with the impacts of COVID-19 on the economy and public health.
Among other things, the ARP is offering credits for COBRA premium assistance and qualified sick and family leave wages.
Form 941
Form 941, the Employer’s Quarterly Federal Tax Return, is a quarterly filing requirement for employers and businesses of all sizes. This form allows employers to report amounts withheld from employee paychecks for income tax, Social Security, and Medicare taxes.
Since Form 941 deals so much with payroll taxes, the IRS is updating Form 941 to reflect new credits offered under the ARP.
Click here for a quick review on Form 941 changes for the first quarter of 2021.
COBRA Premium Assistance
The ARP announced a 100% COBRA subsidy between April 1, 2021 and September 30, 2021. Employers will be able to recover any premiums collected by eligible employees during this period. COBRA premium assistance covers certain eligible individuals who may have been involuntarily terminated.
COBRA premium assistance will be reported on Form 941 for the second quarter of 2021, once the IRS releases an updated version of the form.
Qualified Sick and Family Leave Wages
The ARP allows smaller employers to claim refundable tax credits for qualified sick and family leave wages, helping them to provide paid leave due to COVID-19. These tax credits are available between April 1, 2021 and September 30, 2021.
As always, this information will need to be reported on Form 941 for the second quarter of 2021. The IRS will be releasing an updated version of Form 941 to accommodate these refundable credits.
Worksheet 1 Changes for 2021
In addition to Form 941 updates, the IRS has drafted a new Worksheet 1. For the second quarter of 2021, Worksheet 1 will be used to calculate credit for qualified sick and family leave wages for leave taken before April 1, 2021. For Quarter 2, these wages should have also been paid after April 1st. The IRS has also shortened this worksheet from 3 to 2 steps.
New Form 941 Worksheets
There are 4 new worksheets that go with Form 941 for the second quarter of 2021. Here’s what you need to know:
Worksheet 2
Worksheet 2 is going to be used to calculate employee retention credit on wages paid between March 31, 2021 and July 1, 2021. As far as we know for now, this worksheet is only going to be used for the second quarter of 2021.
Worksheet 3
The new Worksheet 3 is for determining the nonrefundable and refundable portions of credits for sick and family leave wages for leave taken after April 1, 2021.
Worksheet 4
Worksheet 4 is planned for the third and fourth quarters of 2021 to help employers calculate employee retention credit.
Worksheet 5
Worksheet 5, the final new Form 941 worksheet, is here to help employers calculate non refundable and refundable portions of COBRA premium assistance. This worksheet should be around for the rest of 2021.
Line-by-line Form 941 Changes
As promised, here are the line-by-line Form 941 changes forecasted on the draft form that the IRS released. These updates are subject to change but they are a good indicator of what to expect on Form 941 for Q2 2021.
Line 5a, 5a(i) and 5a(ii)
Previously, Form 941 Line 5a, 5a(i), and 5a(ii) reported on taxable social security wages, qualified sick and family leave wages for the whole quarter. Now, these lines report on taxable qualified sick and family leave wages taken after March 31, 2021.
Lines 5a and 5a(i) and 5a(ii) are drafted to report only on wages paid after March 31, 2020 and leave taken before April 1, 2021)
Line 11b
This line was for reporting the non-refundable portion of credits for sick and family leave wages from Worksheet 1. Now, it’s drafted to only be for leave taken before April 1, 2021.
Line 11d
Previously, employers would add together lines 11a, 11b, and 11c to get total non-refundable credits. Now, 11b will be used for reporting the non-refundable portion of sick and family leave wages for leave taken after March 31, 2021.
Line 11e
Last quarter, this line was reserved for future use. On the draft of Form 941, employers can use it to report the non-refundable portion of COBRA premium assistance credits.
Line 11f
Previously not applicable, on the drafted Form 941, this line is for reporting the number of individuals provided COBRA premium assistance.
Line 11g
On the draft of Form 941, this line is for reporting total nonrefundable credits.
Line 13c
This line is for reporting the refundable portion of sick and family leave wages. On the drafted Form 941, it is only for leave taken before April 1, 2021.
Line 13e
Instead of total deposits and refundable credits, this line is planned to report refundable portions of credit for qualified sick and family leave wages taken after March 31, 2021.
Line 13f
Total advances received from filing Form 7200 for the quarter Refundable portion of COBRA premium assistance credit.
Line 13g
Before, this line was for total deposits and refundable credits, excluding advances. It is drafted to report on total deposits and refundable credits.
Line 13h
Planned to report on total advances received from filing Form(s) 7200 for the quarter.
Line 13i
Planned to report on total advances received from filing Form(s) 7200 for the quarter
Line 14
Instead of if Line 12 is more than line 13g, the Form 941 draft says if line 12 is more than line 13i, enter the difference to calculate balance due.
Line 15
This line still handles overpayment, but the lines used to determine it have changed.
Line 18b
This line is drafted to ask employers to check the box if eligible for employee retention credit solely because their business is a recovery startup business.
Line 19
This line is still about qualified health plan expenses allocable to qualified sick leave wages on the Form 941 draft, but is now only focused on leave taken before April 1, 2021.
Line 20
This line was for qualified health plan expenses allocable to qualified family leave wages. Now it is just for leave taken before April 1, 2021.
Line 23
Previously, employers reported credit from Form 5884-C on this line. Now it is drafted for reporting qualified sick leave wages for leave taken after March 31, 2021
Line 24
This line is drafted to report qualified health plan expenses allocable to qualified sick leave wages reported on Line 23.
Line 25
This line is drafted to report on mounts under certain collectively bargained agreements allocable to qualified sick leave wages reported on Line 23.
Line 26
On the drafted Form 941, this line asks about qualified family leave wages for leave taken after March 31, 2021.
Line 27
Drafted to report on qualified health plan expenses allocable to qualified family leave wages reported on Line 26.
Line 28
This line is planned to report on amounts under certain collectively bargained agreements allocable to qualified family leave wages reported on Line 26.
E-file Form 941 for 2nd Quarter of 2021
The second quarter Form 941 due date for 2021 is August 2, 2021. ExpressEfile is committed to offering the most updated Form 941 for the 2021 tax year. For right now, Form 941 is still just in the draft stage, but once the IRS finalizes and releases it, employers will be able to e-file safely and easily with ExpressEfile.
Visit this blog to plan ahead for all your Form 941 deadlines for the 2021 tax year.
Stay on top of the latest updates and IRS news with our blog, and get ready to e-file Form 941 for your 2nd Quarter deadline for 2021!
