New Draft Form 941-X Adds Lines for COVID-19 Tax Credits

The IRS has issued a new draft of Form 941-X (Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund). The new draft adds 14 new lines that are based on lines that were added to the recently-issued Form 941 (Employer’s Quarterly Federal Tax Return), to reflect credits that were enacted earlier this year to provide COVID-19 relief.

Background. Form 941 is used by employers to report, on a quarterly basis: a) federal income tax, social security tax, Medicare tax and Additional Medicare tax withheld from employee compensation; and b) the employer’s share of social security and Medicare taxes.

Form 941-X is used by employers to correct errors on a previously filed Form 941.

In response to the COVID-19 health emergency, the Families First Coronavirus Response Act (FFCRA) and Coronavirus, Aid, Relief and Economic Security Act (CARES Act) were signed into law. These bills provide paid sick leave and expanded family and medical leave, the employee retention credit, and a deferral of certain employment taxes.

The IRS then revised Form 941 to include line items for reporting these COVID-19 tax credits. This newly revised Form 941 must be used by employers beginning with the second quarter of 2020.

New Form 941-X. The IRS has now issued a new draft version of Form 941-X that reflects the changes made to the latest version of Form 941. It adds 14 new lines to Part 3 of the form, which is entitled “Enter the corrections for this quarter…” For example, new line 9 is for Qualified sick leave wages (which corresponds to Form 941, Line 5(a)(ii)), and new line 28 is for Qualified health plan expenses allocable to qualified sick leave wages (which corresponds to Form 941, line 19).

The IRS has not yet issued a draft version of the Form 941-X instructions.