2. If adjusting Quarter 2 (or later) and not making any increase or decrease to the employer share of social security tax or to any of the new COVID-related lines that were added to the Quarter 2 Form 941, the IRS strongly recommends not using the existing Form 941-X, but rather waiting for the new Form 941-X revision to be released.
3. If adjusting Quarter 2 (or later) and making any increase or decrease to the employer share of social security tax, or to any of the new COVID-related lines, do not use the existing Form 941-X; instead, wait for the new Form 941-X revision.
5. If you have already done either of 3-4 above, wait for correspondence to find out if the IRS was able to process the tax return or had to reject it. Given the backlog of paper forms and correspondence due to COVID-19, the IRS is unable to estimate when correspondence will go out.
Notice 2020-54 provides guidance to employers on the requirement to report the amount of qualified sick leave wages and qualified family leave wages paid to employees under the Families First Coronavirus Response. Employers are required to report these amounts either on Form W-2, Box 14, or on a separate statement. This required reporting provides employees who are also self-employed with information necessary for properly claiming qualified sick leave equivalent or qualified family leave equivalent credits under the Families First Act.
The Coronavirus, Aid, Relief and Economic Security Act (CARES Act) allows employers to defer the deposit and payment of the employer's share of Social Security taxes and self-employed individuals to defer payment of certain self-employment taxes.
The IRS is aware that a small population of employers that reduced their tax deposits in anticipation of claiming the sick and family leave credits, or employee retention credit, may have received a notice stating there was a failure to deposit penalty applicable to the Form 941 on which the credits were claimed. Under Notice 2020-22, employers claiming the new tax credits may reduce their deposits throughout the tax period up to the amount of the credit. However, in reporting the schedule of liabilities on Form 941, the reported liabilities did not match the reduction in deposits for every pay date. In these situations, they incurred a failure to deposit penalty on the difference in the reported liabilities and the reduced deposits (in situations where deposits were reduced by the amount of the anticipated credit(s) in excess of liability for the employer portion of social security for a given pay date).
Although the IRS has taken steps to implement rules that prevent the failure to deposit penalty from incurring on employers reducing their deposits in anticipation of these credits, we've become aware some employers may still have inadvertently received notice of the penalty. The IRS is taking actions to identify these employer accounts and correct them as soon as possible. Employers that have recently received these notices do not need to take additional actions at this time. To avoid future receipts of these notices, please check IRS.gov/form941 for future guidance on reporting liabilities when reducing deposits.