Whether you’re dealing with monthly, quarterly, or annual taxes for your business, there are many critical documents you need to fill out and deadlines you need to stay on top of to avoid receiving financial penalties from the Internal Revenue Service (IRS). Sadly, some of the critical tax documents that businesses need to file with the IRS have become even more complicated during the past several years.
For example, IRS Form 941, the Employer’s Quarterly Federal Tax Return, now involves several critical worksheets that employers need to complete, depending on the credits they claim during specific quarters. In the resource below, our team of dedicated tax professionals at TaxRobot will explore the basic information that business owners need to understand about each of these worksheets, including how to fill them out and how they contribute to the overall filing requirements of IRS Form 941.
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The Five Worksheets of IRS Form 941
Because of the economic devastation and tax implications caused by COVID-19 over the past few years, several business tax documents have recently undergone notable changes that impact the information businesses need to provide to the IRS and how they need to file many of their tax documents. Below, we’ll explain the basics regarding each worksheet and what they are used to calculate for various components of Form 941.
The IRS has only fully released Worksheets 1 and 2 for 2022 on their website, found at the bottom of the linked page.
IRS Form 941: Worksheet 1
IRS Form 941 Worksheet 1 is used to help businesses calculate the credits for Qualified Sick and Family Leave Wages for Leave taken by any employees after March 31, 2020, and before April 1, 2021. This worksheet should help businesses calculate the refundable and non-refundable portions of the sick and family leave credits taken before this date.
You can access the document by downloading the June 2022 revised version of the Form 941 Instructions provided by the IRS. The worksheet is located on page 21 and includes two primary steps. The first steps allow employers to determine their share of social security tax, which is reduced after receiving credits claimed on IRS Form 8974 and any additional credits to be claimed via Form 5884-C and Form 5884-D. The second step allows business owners to calculate the whole of their sick and family leave credits.
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IRS Form 941: Worksheet 2
Worksheet 2 for Form 941 can be found on page 22 of the revised Form 941 Instructions and will help business owners record the credits for Qualified Sick and Family Leave Wages for leave taken after March 31, 2021 and before October 1, 2021.
Business owners filling out this worksheet should keep in mind that there have been a few notable changes to the document from previous years. For example, last year, a secondary Worksheet 2 of Form 941 allowed employers to calculate their Employee Retention Credit for Q2 of 2021 based on wages paid after March 3, 2021, and before July 1, 2021.
This worksheet was specifically designed for calculating the refundable and non-refundable parts of employee retention credits in Q3, 2021. After Q2, 2021, employers were instructed to no longer rely on worksheet 2 to calculate their employee retention credits and instead calculate them using Worksheet 4 during Q3 and Q4.
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IRS Form 941: Worksheet 3
IRS Form 941 Worksheet 3 is also meant to help employers calculate the credits for Qualified Sick and Family Leave Wages regarding leave taken after March 31, 2021. All employers who have claimed these credits should also complete Worksheet 3 for Q2, Q3, and Q4 of 2021.
The two steps in filling out Worksheet 3 require employers to determine their share of Medicare taxes for employees while also helping them calculate the relevant sick and family leave credits for the quarter. Line 2r of the Worksheet is dedicated to the non-refundable portion of the credit, while Line 2s is the refundable portion. Employers need to calculate these two values on the worksheet to later include them in Form 941.
IRS Form 941: Worksheet 4
As noted at the bottom of the section covering Worksheet 2 above, Worksheet 4 will help employers calculate the refundable and non-refundable Employee Retention Credit for Q3 and Q4 of 2021, based on qualified wages paid after June 30, 2021. It’s essential to use Worksheet 4 for the last two quarters of 2021 instead of Worksheet 2, which was meant only for Q2. Using Worksheet 2 for Q3 or Q4 will result in incorrect calculations on Form 941.
IRS Form 941: Worksheet 5
The American Rescue Plan Act (ARPA) was released in early 2021 to extend and expand the tax credits provided by the government to address significant economic issues related to COVID-19. The ARPA includes family leave credits and employee retention credits, though it also added the COBRA premium assistance credit, which employers were permitted to claim throughout 2021.
The ARPA permitted employees who lost their jobs or full-time working status due to the pandemic to receive a COBRA subsidy, which employers would cover. Employers can then claim this credit later using Worksheet 5 of Form 941. Line 2g and 2h correspond to the non-refundable and refundable portions of the credit, and both should be included as part of the Form 941 submission.
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Final Thoughts and Factors to Keep in Mind
Our passionate team of tax experts at TaxRobot hopes that the above guide has helped explain a lot of the critical information you need to complete the various worksheets involved with quarterly IRS tax Form 941.
If you’d like additional help navigating the complexities of your business taxes this year, please consider trying out our specialized tax services and the capabilities of our top-quality, AI-powered tax software.
Please get started by creating an account on our website, and take a moment to learn how our services can help your business earn bigger refunds and audit-proof your tax paperwork for value-based pricing! Also, please consider browsing our wide selection of other great educational resources to access more information on critical tax and business topics.
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