Form 941 Update

The IRS has finalized 2011 Form 941, Employer's Quarterly Federal Tax Return, and issued a new version of Form 941, Schedule R, Allocation Schedule for Aggregate Form 941 Filers. It has also posted the final 2011 Form 94x Schema (version 2.9.2) on its website.

Form 941. The 2011 version of Form 941 takes into account legislation in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 that reduced the employee Social Security rate from 6.2% to 4.2% for one year, effective with wages earned beginning Jan. 1, 2011 (see lines 5a and 5b of Form 941). It also includes the following changes from the 2010 version: (1) elimination of the lines for the payroll tax exemption in the HIRE Act (lines 6a-6d), since the exemption may not be claimed on wages paid after Dec. 31, 2010; (2) deletion of the advance earned income credit line (line 9), since the advance earned income credit may not be claimed after Dec. 31, 2010; and (3) the addition of a new line for the FICA tax due on unreported tips. In addition, some items from the 2010 form have been put on different lines (e.g., quarterly adjustments for sick pay moved from line 7b to line 8).

The first quarter return must be filed by May 2.

Form 941, Schedule R. This form is filed by “Form 2678 agents.” The Schedule R instructions note that the IRS must approve a person to act as an agent before an agent is allowed to file an aggregate return on behalf of multiple taxpayers. An agent files Form 2678, Employer/Payer Appointment of Agent, to receive permission to file an aggregate return for all of his or her clients under the agent's EIN. A “Form 2678 agent” assumes joint liability with the employer for the employer's Social Security, Medicare, and federal income tax withholding responsibilities.

The form was revised to take into account some of the line changes made to 2011 Form 941. For example, a “Form 2678 agent” now uses line 10 of Form 941, Total taxes after adjustments, to complete column (e) of Schedule R. In quarters ending before Jan. 1, 2011, column (e) was derived from line 8 of Form 941. Column (f) of Schedule R, Advance EIC Payments, should only be completed if the schedule is being prepared for a quarter prior to Jan. 1, 2011, since the advance earned income credit may not be claimed after Dec. 31, 2010.

Form 94x Schema. The IRS has also issued a reminder to software developers, return transmitters, and authorized IRS e-file providers/electronic return originators (EROs) to use the current Form 94x Schema (version 2.9.2) posted on its website. The IRS is advising software developers to perform a pre-validation of XML data and to use a validating parser to determine if their records are valid XML files [IRS Quick Alerts for Tax Professionals, 3/1/11].

IRS Conference Call

The IRS addressed a number of Form 941 issues during the March 3 payroll industry conference call.

Future revisions to Form 941. The IRS does not anticipate any further revisions to Form 941 during this year unless there is new legislation that affects the return. There are no plans to remove HIRE Act boxes 6a to 6d until 2012, even though they have been grayed out for the remainder of the year. The boxes have been maintained for programming purposes in the event the HIRE Act should be extended later this year.

Application of credit from Form 941-X to current quarter. The IRS reminded employers that the filing of Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund, must occur during the first two months of the current quarter to apply the credit toward the current quarter Form 941. Any credit generated from a Form 941-X submitted during the third month of the current quarter cannot be applied to the current quarter Form 941.

Discontinuation of 941 tax packages by mail. The IRS is no longer mailing out Form 941 packages (see IRS e-News for Small Businesses, 3/2/11). All forms are available on the IRS website. The 941 packages had also included the quarterly SSA/IRS reporter. It is unclear whether this publication will continue to be mailed out to employers.

Forms 941-SS and 941-PR. The 2011 versions of: (1) Form 941-SS, Employer's Quarterly Tax Return for American Samoa, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands, and (2) Form 941-PR, Planilla para la Declaracion Federal TRIMESTRAL del Patrono, are now on the IRS website.