Updated Form 941 Draft Instructions Adds New Lines to Worksheet 

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The IRS has issued a June 16, 2021 draft version of the Form 941 (Employer’s Quarterly Federal Tax Return) instructions that add eight new line numbers to one of its worksheets. 

Background 

The federal government took action in response to the coronavirus (COVID-19) pandemic with legislation that included payroll-related provisions. This began with the Families First Coronavirus Act (FFCCRA) and Coronavirus Aid, Relief and Economic Security (CARES) Act, which were signed into law in March 2020. These bills included an employer tax credit for paid sick and family medical leave and the employee retention credit (ERC). 

In December 2020, the Consolidated Appropriations Act (CAA) was signed into law. It extended and expanded the paid sick and family medical leave tax credit and the ERC. On March 11, 2021, ARPA was signed into law. It further extended and expanded the paid sick and family medical leave tax credit and the ERC. It also added a new credit for COBRA premium assistance payments. 

To account for employers taking these credits, the IRS needed to revise certain employment tax forms, including Form 941. The IRS has revised this form a few times since the FFCRA and CARES Act were signed into law. The latest version of Form 941 is from March 2021. This release took place before ARPA was signed into law. So, the IRS is working to update Form 941 and other employment tax related forms. 

Early June 2021 Draft Form 941 Instructions 

The early June 2021 draft Form 941 instructions explained the extension and expansion of the paid sick and family medical leave credit and ERC. It also explained the new COBRA premium assistance credit. The instructions note that employers should not use an earlier version of Form 941 to report taxes for 2021. For example, the March 2021 version of Form 941 should not be used to report taxes for any quarter ending before January 1, 2021. In addition, the June 2021 version of Form 941 (when the final version is issued) should not be used to report taxes for any quarter ending before April 1, 2021. 

Worksheets 

The June 2021 Form 941 draft instructions contain the following five worksheets:  

1. Credit for Qualified Sick and Family Leave Wages for Leave Taken Before April 1, 2021 
2. Employee Retention Credit for the Second Quarter of 2021 Only (Wages Paid After March 31, 2021, and Before July 1, 2021) 
3. Credit for Qualified Sick and Family Leave Wages for Leave Taken After March 31, 2021 
4. Employee Retention Credit for Third and Fourth Quarters of 2021 Only (Qualified Wages Paid After June 30, 2021) 
5. The COBRA Premium Assistance Credit

June 16, 2021 Draft Form 941 Instructions 

The June 16, 2021 draft Form 941 added eight new lines to the instructions for Worksheet 3. This worksheet is used to calculate refundable and nonrefundable portions of the credits for qualified sick and family leave wages for leave taken on April 1, 2021 or later. New lines 2a(i) to 2a(iv) and lines 2g(i) to 2g(iv) take into account qualified leave wages generally excluded from the definition of employment under Code Sec. 3121(b)(1) through (22) and qualified leave wages included on Form 941’s line 23 that were not included as wages reported on line 5a. 

The revised Form 941 and its instructions are to be used for the second, third, and fourth quarters of 2021. The June 16, 2021 draft Form 941 instructions note that its possible form or its instructions could be further revised by changes in the law as necessary. 

This information is general and is provided for educational purposes only. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.