On March 9, the IRS released the 2021 Form 941, Employer’s Quarterly Federal Tax Return, and its instructions. The IRS also revised the instructions for Form 941, Schedule B and the instructions for Form 941, Schedule R. When the IRS released the instructions, Congress was considering changes to COVID-19 tax relief. When the new legislation changes these instructions, the IRS will post updates here.

Updates to Form 941

The Form 941 instructions have been updated to include extensions of the COVID-19-related tax credits under the Consolidated Appropriations Act, 2021:

• The Families First Coronavirus Response Act (FFCRA) tax credit for emergency paid sick leave wages and expanded family and medical leave wages was extended to qualified leave wages paid for leave taken before April 1, 2021.
• The employee retention credit, established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, was extended to qualified wages paid through June 30, 2021.
•  The instructions also provide guidance on claiming advance tax credits using Form 7200, paying the employer and employee social security tax deferred in 2020, and a new payroll tax credit for tax-exempt organizations affected by qualified disasters.

Paying Deferred Amount of Social Security Tax

The IRS said it will update its Electronic Federal Tax Payment System (EFTPS) to allow employers to pay the deferred amounts of the employer and employee share of social security tax by March 19. Filers will be able to select the new option to make these payments.

Courtesy of the APA

By March 31, 2021, California private employers with 100 or more employees that are required to file the annual federal Employer Information Report (EEO-1) are required to submit a pay data report to the state. The California Pay Data Reporting Portal is open.

Due to the COVID-19 pandemic, the California Department of Fair Employment and Housing will consider an employer’s request that the agency defer seeking an order for compliance (to submit the required report by the due date). An employer must submit the request before March 31. Requests must be submitted using the online form.

Legislation requiring California pay data reporting in 2021 was passed last year. Guidance is available for employers, including a User Guide, FAQs, and a template that employers may use to submit their data.

Courtesy of the APA Lia Coniglio, Esq

The IRS released the 2021 Form W-2, Wage and Tax Statement, Form W-3, Transmittal of Wage and Tax Statements, and the General Instructions for Forms W-2 and W-3. The instructions have been updated to address how employers should handle COVID-19-related employment tax credits.

Items of interest to payroll professionals:

• Potential discrepancies when reconciling Forms W-2 and W-3 with Forms 941 and 944 due to COVID-19-related employment tax credits.Employers may have a discrepancy when reconciling Forms W-2 and W-3 with Forms 941 and 944 if COVID-19 tax relief was taken in 2020. Paid qualified sick leave and family leave wages are not subject to the employer share of social security tax. Also, the deferred amount of the employee share of social security tax is reported on Forms 941 and 944, but it is not reported on Forms W-2 and W-3.
• Reporting deferred employee share of social security tax from 2020. Employee social security tax deferred in 2020 under Notice 2020-65 that is withheld in 2021 and not reported on the 2020 Form W-2 should be reported in Box 4 on Form W-2c. Enter tax year “2020” in Box c and adjust the amount previously reported in Box 4 of the Form W-2 to include the deferred amounts withheld in 2021. All Forms W-2c should be filed with the Social Security Administration, along with Form W-3c, as soon as possible after withholding the deferred amounts. For more information, see the IRS webpage on Form W-2 reporting of employee social security tax deferred under Notice 2020-65.

Circular E summarizes the COVID-19-related tax credits and other tax relief on page 2.

COVID-19 Items 

Due to the COVID-19 pandemic, employers with participants in health and dependent care flexible spending arrangements (FSAs) can amend their plans to allow:

• Participants in health and dependent care FSAs to carry over any unused benefits or contributions remaining in the account from the plan year ending in 2020 to 2021 and also from the plan year ending in 2021 to 2022.
• A 12-month grace period for unused benefits or contributions in health and dependent care FSAs for plan years ending in 2020 or 2021.
• Post-termination reimbursements from health FSAs from unused benefits or contributions for 2020 or 2021 through the end of the plan year in which an employee ceases participation in the plan.
• A midyear change in the election amounts up to the maximum allowable amount for the year for health and dependent care FSAs for plan years ending in 2021.

Reminder on Withholding Tables

The percentage method and wage bracket method withholding tables, as well as the amount to add to a nonresident alien employee’s wages for figuring income tax withholding, are now in Publication 15-T,  Federal Income Tax Withholding Methods.

The IRS released the 2021 Employer’s Supplemental Tax Guide (Publication 15-A). The 2021 Circular E, Employer’s Tax Guide (Publication 15), and the Employer’s Tax Guide to Fringe Benefits (Publication 15-B).

Breakdown of Publications 15

• Publication 15 (Circular E) contains the bulk of the information employers need for tax information. For 2021, Circular E summarizes much of the COVID-19-related tax credits and other tax relief on page 2.
• Publication 15-A contains specialized and detailed employment tax information supplementing the basic information provided in Circular E.
• Publication 15-B contains information about the employment tax treatment of various types of noncash compensation.
• Publication 15-T, Federal Income Tax Withholding Methods, contains the percentage method and wage bracket method withholding tables, as well as the amount to add to a nonresident alien employee’s wages for figuring income tax withholding.