In the second quarter of 2020, Form 941 underwent the biggest overhaul it has seen in the past 30 years of payroll history.
Employers file the form quarterly to report income taxes, Social Security tax or Medicare tax that is withheld from employee paychecks, and to pay the employer’s portion of social security and Medicare tax. In April, the 941 underwent a comprehensive shift due to COVID-19. The federal government is using the form as the avenue to funnel a great deal of funding from federal relief packages to employers.
What was a two-page form is now three pages, yet even the original two pages are vastly different. Those pages now include new data items that can lead to confusion for skilled nursing providers, and mixing them up can lead to missing out on aid from Congress. But those who handle it correctly will benefit.
“The IRS did a good job of incorporating all of the various provisions, and the form is quite comprehensive,” says Yonina F. Shineweather, CPA, consulting director of compliance services at payroll technology company Viventium. “They got it all in there.”
There are four major categories of change from the old 941 to this new one:
- “Taxable social security wages” (line 5a) no longer means exactly what it says
- Employers now have a chance to claim their Families First Coronavirus Response Act
- (FFCRA) credits
- Government will subsidize 50% of wages paid under employee retention program, up to applicable limits
- Employers can report any employer social security tax that they are not yet paying
These changes can potentially trip up operators as they fill out the new form. And while the form might eventually revert back, employers will have to use it at a minimum for Q3 and Q4 of 2020 as well.
Here are three roadblocks to avoid when filling out Form 941 to help ensure that your SNF gets all of the money it should during the pandemic.
Understanding Refundable Versus Non-Refundable Credits
The first potential roadblock is on the bottom of page 1, a page that, again, will look familiar to SNF operators. The final two lines of the page, 11b and 11c, ask for the non-refundable credit for paid time off, and the non-refundable credit for employee retention credit.
“That’s kind of scary when you think of the non-refundable portion of the credit,” Shineweather says. “It sounds like, ‘Oh no, I’m going to lose out.’ … But you will get back every single penny of your non-refundable credit.”
The reason is that “non-refundable” does not mean “not refundable.” The only difference between “non-refundable” and “refundable” is a technical, legalese-based change from the IRS that expands which taxes employers can reduce with their COVID-19 tax credits. The non-refundable portion means the portion of your credit that you apply against your employer social security, just like Congress wrote in its legislation, Shineweather says. The refundable portion means the amount of your credits that you applied against everything else in your federal tax deposit.
“SNF operators need to make sure that they reach out to their payroll provider and see that they are getting reports breaking down the credits between the non-refundable portion and the refundable portion,” she says.
The New Schedule B
Any SNF that is a semi-weekly depositor is obligated to fill out a Schedule B. The schedule did not change — what did change are the instructions of what an operator must fill out on the section. The distinction between the non-refundable and refundable credits becomes crucial with Schedule B.
“What the IRS wants now on the Schedule B is not your liability each week — that’s what they used to want,” Shineweather says. “Because of COVID-19, that has changed. What they want you putting on your Schedule B is your federal liability each week minus only your non-refundable credit.”
The specifics of what the IRS is seeking to capture in the new Schedule B could be another full article. What matters here is that mis-filling out this section could result in the IRS rejecting your entire 941. And with no 941-X yet for this COVID-19 form, a denial could mean a long wait to correct the error and collect your payment.
“It’s going to be lots of headaches, problems with the IRS, back and forth, and we don’t yet have a finalized, amended form,” Shineweather says. “This is the kind of form that you want to be correct on the first time.”
Neglecting to Complete Page 3 Properly
The final possible roadblock to getting the funds you need via Form 941 is the new page 3, and the section “part 3” at the top of the page. On this page, the IRS is collecting information on health plan expenses that an employer paid for employees who were out for sick leave or child care leave driven by COVID-19 or employees on employee retention.
Because this is a new page, and because the section language seems loose, operators might be inclined to skip it. Do not.
“These are mandatory fields,” Shineweather says. “And you don’t know what the IRS will do if these fields are not filled in, but it’s quite likely that they will delay or reject your form, and cause you to have to wait a long period of time before you can amend the form.”
Form 941 poses new challenges in payroll compliance. To learn more about how Viventium can help, visit Viventium.com.