IRS Advises on Filing new Form 941-X

The latest version of Form 941-X and its instructions are now in the draft stage. Although scheduled to be finalized in late September the IRS has issued some advice concerning using the form. This advice appeared in the e-news for Payroll Professionals issued on August 25 and states:

The newest version of the Form 941-X (to allow for corrections to the new lines added to the Quarter 2 Form 941) is expected in late September. In the meantime, for 2020:

  1. If adjusting Quarter 1 or earlier, you may use the existing Form 941-X.
  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.
  4. Please do not send a Form 941 with “Amended” (or similar notation) written on the form.

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.

 

Avoiding Common Errors When Filing Form 7200

In news for tax professionals and small businesses, the IRS has advised those who are beginning to deal with Form 7200, Advance Payment of Employer Credits Due to COVID-19 to do so carefully to avoid making error when completing the new form.  Mistakes in completing the form can lead to processing delays, which in turn delays the IRS approving the credits.

Background: The Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief and Economic Security or CARES Act both provide refundable tax credits for the employer.  FFCRA requires employers (of a certain size) to provide paid sick leave or paid family leave.  To offset the cost of this leave, the employer is permitted to take refundable tax credits against employment taxes.  The CARES Act permits the employer to take a “employee retention credit” equal to 50% of “qualified wages”.  This is also offset against employment taxes. However, it is possible for these credits to exceed the employer’s actual tax deposits.  In this case, the employer is permitted to receive the excess paid leave credits or the employee retention credit in advance by using Form 7200.

 

However, the IRS has noted some common errors or mistakes in filling out the form, slowing the process.  The errors to avoid include:

  • Missing or inaccurate Employer Identification Number (EIN). Each EIN on a tax return should be exact.
  • Checking more than one box for applicable calendar quarter. Only one box should be checked for the correct quarter.
  • Check more than one box for Part 1, Line A. Likewise, only one box should be checked in Part 1, Line A.
  • Skipping Part 1, Line B. Complete Part 1, Line B. In Part 1, Line B check either “Yes” or “No”.
  • Not fully completing Part II. Complete all the lines in Part II. This identifies which credits are being claimed.
  • Not completing Part II, Lines 1-8. Part II should be completed using dollar amounts, not the number of eligible employees. All lines in Part II should be completed with an actual dollar amount.
  • Inputting the number of eligible employees on lines in Part 2, instead of dollar amounts.
  • Not checking the math on lines 4, 7 and 8 (i.e., subtracting instead of adding or vice versa)
  • Not signing the form (automatic rejection)
  • Wrong individual signing the form
    • Sole proprietorship—The individual who owns the business.
    • Corporation (including a limited liability company (LLC) treated as a corporation)—The president, vice president, or other principal officer duly authorized to sign.
    • Partnership (including an LLC treated as a partnership) or unincorporated organization—A responsible and duly authorized partner, member, or officer having knowledge of its affairs.
    • Single-member LLC treated as a disregarded entity for federal income tax purposes—The owner of the LLC or a principal officer duly authorized to sign.
    • Trust or estate—The fiduciary.

Also, Form 7200 may be signed by a duly authorized agent of the Eligible Employer if a valid Form 2848 (Power of Attorney and Declaration of Representative) has been filed.

For more information about Form 7200 and its use can be found on IRS.gov: About Form 7200, Advance Payment of Employer Credits Due to COVID-19.

IRS Reminder of COVID-19 Credits

In their latest issue, IR-2020-89, the Internal Revenue Service is reminding businesses of the three new credits that are available to many businesses hit by COVID-19. To recap, these are:

Employee Retention Credit:

The employee retention credit is designed to encourage businesses to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19. The credit is available to all employers regardless of size, including tax-exempt organizations. There are only two exceptions: State and local governments and their instrumentalities and small businesses who take small business loans.

Qualifying employers must fall into one of two categories:

  1. The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
  2. The employer’s gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.

Employers will calculate these measures each calendar quarter.

Paid Sick Leave Credit and Family Leave Credit:

The paid sick leave credit is designed to allow business to get a credit for an employee who is unable to work (including telework) because of Coronavirus quarantine or self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis. Those employees are entitled to paid sick leave for up to 10 days (up to 80 hours) at the employee’s regular rate of pay up to $511 per day and $5,110 in total.

The employer can also receive the credit for employees who are unable to work due to caring for someone with Coronavirus or caring for a child because the child’s school or place of care is closed, or the paid childcare provider is unavailable due to the Coronavirus. Those employees are entitled to paid sick leave for up to two weeks (up to 80 hours) at 2/3 the employee’s regular rate of pay or, up to $200 per day and $2,000 in total.

Employees are also entitled to paid family and medical leave equal to 2/3 of the employee’s regular pay, up to $200 per day and $10,000 in total. Up to 10 weeks of qualifying leave can be counted towards the family leave credit.

Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.

Eligible employers are entitled to immediately receive a credit in the full amount of the required sick leave and family leave, plus related health plan expenses and the employer’s share of Medicare tax on the leave, for the period of April 1, 2020, through Dec. 31, 2020. The refundable credit is applied against certain employment taxes on wages paid to all employees.

How will employers receive the credit?

Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.

Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns or Form 941 beginning with the second quarter. If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.

Eligible employers can also request an advance of the Employee Retention Credit by submitting Form 7200.

The IRS has also posted Employee Retention Credit FAQs and Paid Family Leave and Sick Leave FAQs that will help answer questions.

Updates on the implementation of the Employee Retention Credit and other information can be found on the Coronavirus page of IRS.gov.

Related Items:

FS-2020-05, New Employee Retention Credit helps employers keep employees on payroll

COVID-19 Update

The IRS (including the Social Security Administration) holds a monthly payroll profession phone meeting.  Usually on the first Thursday of the month, it was delayed this month due to the COVID-19 pandemic.  It was held yesterday.  As expected, the call centered around the latest updates for the pandemic on the new legislation. Here’s the recap for you:

1. There was a brief discussion on the updates the IRS has released, which include:

  • Notice 2020-21: discusses tax credits
  • Notice 2020-62: retention credits and FAQs
  • Notice 2020-54: HSA adjustments for the pandemic

2. It also discussed the latest forms to be released.  This includes the Form 7200 and its instructions.  This form is used to request tax credits in advance for the Families First Act and the CARES Act.

3. The Form 941 was discussed.  It is in the drafting stage and this draft version should be released by the end of next week.  This will be the form to use for the second quarter and beyond. It is being redesigned to allow for lines to report the various COVID-19 tax credits.  The form will go from two pages to three.  It is still unclear whether or not the Schedule B will be revamped as well.

4. Social Security Administration reminded the attendees that they are also on limited staffing so the employer 800# is not being staffed as it is not able to be accessed remotely by employees.  Employers are urged, instead, to use the email employers@ssa.gov  for any questions they may have.  This can be staffed from home by SSA staff members.  If you have questions on using the Business Services Online (BSO) you should email bso.support@ssa.gov.

The meeting for May will be on schedule and I will have any news from it posted by Friday of the same week.

Upcoming Corona Virus Update Webinar

Register today for my special webinar/lecture on the Corona virus and the payroll related effects on Friday, April 10, 2020 from 10:00 am Pacific to 11:30 am Pacific. This 90-minute webinar  discusses the quickly changing regulations…federal and state…that the payroll department and payroll professionals must comply with as governments and businesses respond to the COVID-19 pandemic. Topics include:

 

 

Federal Regulations:
·         Families First Act
·         Cares Act
·         All New Pertinent Regulations Passed and Signed by the Webinar Date

State Updates On:
·         Tax Filing
·         Unemployment Insurance
·         Paid Sick Leave

Garnishment Updates:
·         Student Loans
·         Creditor Garnishments
·         Child Support
·         Federal Tax Levies

The price for this information packed webinar is $149.  As usual, our blog followers will receive a 10% discount by using coupon code CJYFRQA6 at checkout.

Coronavirus Update

As I posted in my last blog, many states as well as the federal government are making temporary changes to tax filing deadlines, unemployment insurance requirements and other matters during this pandemic.  The following is a recap of the latest updates that have crossed my desk this week:

Note:  I will be offering a webinar on the payroll related items occurring during this pandemic.  See info at bottom of blog for more details.

Federal: the U.S. Treasury Department, Internal Revenue Service (IRS), and the U.S. Department of Labor (Labor) announced that small and midsize employers can begin taking advantage of two new refundable payroll tax credits, designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees. This relief to employees and small and midsize businesses is provided under the Families First Coronavirus Response Act (Act), signed by President Trump on March 18, 2020. For full details see IRS website’s Coronavirus webpage.

The following states are providing filing or deposit penalty relief or extending deadlines due to the Corona Virus:

 

Unemployment Insurance Update: The following states are waiving waiting times or making other temporary changes:

The following is provided by these states:

San Francisco, California: Workers and Families First Program will provide paid sick leave to impacted workers.

New York: Guaranteed sick leave for New Yorkers under mandatory or precautionary quarantine

I will be offering a webinar/lecture on major impacts that affect payroll professionals due to the pandemic.  It will be held on Friday, April 10, 2020 from 10 am to 11:30 am Pacific time.  More details will be available next week.

Lock In Letter Guidance Updated by IRS

The new Form W-4 just keeps on providing more and more info for us payroll professionals.  We now turn to handling lock-in letters.  The IRS has updated its FAQs to explain how to handle the lock-in letters using the new 2020 Form W-4.  As a quick review on the background of lock-in letters.

If the IRS determines that an employee does not have enough withholding, they will notify the employer to increase the amount of withholding tax by issuing a “lock-in” letter that specifies the withholding arrangement permitted for the employee. The employer will also receive a copy for the employee that identifies the withholding arrangement permitted and the process by which the employee can provide additional information to the IRS for purposes of determining the appropriate withholding arrangement. If the employee still works for for the employer, the employer must furnish the employee copy to the employee. If the employee NO LONGER WORKS for the employer, NO ACTION IS REQUIRED. However, if the employee should return to work within twelve (12) months, the employer should begin withholding income tax from the employee’s wages based on the withholding arrangement stated in this letter. The employee will be given a period of time before the lock-in rate is effective to submit for approval to the IRS a new Form W-4 and a statement supporting the claims made on the Form W-4 that would decrease federal income tax withholding. The employee must send the Form W-4 and statement directly to the IRS office designated on the lock-in letter. The employer must withhold tax in accordance with the lock-in letter as of the date specified in the lock-in letter, unless otherwise notified by the IRS. The employer will be required to take this action no sooner than 60 calendar days after the date of the lock-in letter. Once a lock-in rate is effective, an employer cannot decrease withholding unless approved by the IRS.

The new FAQs include:

  • how to handle revised W-4s after the lock-in letter is received
  • How to handle a modification letter
  • Handling employee self service portals and lock-in letter

The site still includes info on how to handle lock-in letters using the 2019 and prior forms.

 

IRS Issues Proposed Regs for Withholding

The U.S. Department of the Treasury and the Internal Revenue Service have issued proposed regulations updating the federal income tax withholding rules to reflect changes made by the Tax Cuts and Jobs Act (TCJA) and other legislation.

In general, the proposed regulations, available now in the Federal Register, are designed to accommodate the redesigned Form W-4, Employee’s Withholding Certificate, to be used starting in 2020, and the related tables and computational procedures in Publication 15-T, Federal Income Tax Withholding Methods. The proposed regulations and related guidance do not require employees to furnish a new Form W-4 solely because of the redesign of the Form W-4.

Employees who have a Form W-4 on file with their employer from years prior to 2020 generally will continue to have their withholding determined based on that form.

To assist with computation of income tax withholding, the redesigned Form W-4 no longer uses an employee’s marital status and withholding allowances, which were tied to the value of the personal exemption. Due to TCJA changes, employees can no longer claim personal exemptions. Instead, income tax withholding using the redesigned Form W-4 will generally be based on the employee’s expected filing status and standard deduction for the year.

The Form W-4 is also redesigned to make it easier for employees with more than one job at the same time or married employees who file jointly with their working spouses to withhold the proper amount of tax.

In addition, employees can choose to have itemized deductions, the child tax credit, and other tax benefits reflected in their withholding for the year. As in the past, employees can choose to have an employer withhold a flat-dollar extra amount each pay period to cover, for example, income they receive from other sources that is not subject to withholding. Under the proposed regulations, employees now also have the option to request that employers withhold additional tax by reporting income from other sources not subject to withholding on the Form W-4.

The proposed regulations permit employees to use the new IRS Tax Withholding Estimator (discussed in our previous blog)  to help them accurately fill out Form W-4. As in the past, taxpayers may use the worksheets in the instructions to Form W-4 and in Publication 505, Tax Withholding and Estimated Tax, to assist them in filling out this form correctly.

The proposed regulations also address a variety of other income tax withholding issues. For example, the proposed regulations provide flexibility in how employees who fail to furnish Forms W-4 should be treated. Starting in 2020, employers must treat new employees who fail to furnish a properly completed Form W-4 as single and withhold using the standard deduction and no other adjustments. Before 2020, employers in this situation were required to withhold as if the employee was single and claiming zero allowances.

In addition, the proposed regulations provide rules on when employees must furnish a new Form W-4 for changed circumstances, update the regulations for the lock-in letter program, and eliminate the combined income tax and FICA (Social Security and Medicare) tax withholding tables.

Treasury and IRS welcome public comment on these proposed regulations. See the proposed regulations for details. Updates on TCJA implementation can be found on the Tax Reform page of IRS.gov.

IRS Launches New Tool for Estimating Taxes

The Internal Revenue Service has launched the new Tax Withholding Estimator, an expanded, mobile-friendly online tool designed to make it easier for everyone to have the right amount of tax withheld during the year. The Tax Withholding Estimator replaces the Withholding Calculator, which offered workers a convenient online method for checking their withholding. The new Tax Withholding Estimator offers workers, as well as retirees, self-employed individuals and other taxpayers, a more user-friendly step-by-step tool for effectively tailoring the amount of income tax they have withheld from wages and pension payments.

“The new estimator takes a new approach and makes it easier for taxpayers to review their withholding,” said IRS Commissioner Chuck Rettig. “This is part of an ongoing effort by the IRS to improve quality services as we continue to pursue modernization and enhancements of our taxpayer relationships.” The IRS took the feedback and concerns of taxpayers and tax professionals to develop the Tax Withholding Estimator, which offers a variety of new user-friendly features including:

  • Plain language throughout the tool to improve comprehension.
  • The ability to more effectively target at the time of filing either a tax due amount close to zero or a refund amount.
  • A new progress tracker to help users see how much more information they need to input.
  • The ability to move back and forth through the steps, correct previous entries and skip questions that don’t apply.
  • Enhanced tips and links to help the user quickly determine if they qualify for various tax credits and deductions.
  • Self-employment tax for a user who has self-employment income in addition to wages or pensions.
  • Automatic calculation of the taxable portion of any Social Security benefits.
  • A mobile-friendly design.

In addition, the new Tax Withholding Estimator makes it easier to enter wages and withholding for each job held by the taxpayer and their spouse, as well as separately entering pensions and other sources of income. At the end of the process, the tool makes specific withholding recommendations for each job and each spouse and clearly explains what the taxpayer should do next.

The new Tax Withholding Estimator will help anyone doing tax planning for the last few months of 2019. Like last year, the IRS urges everyone to do a Paycheck Checkup and review their withholding for 2019. This is especially important for anyone who faced an unexpected tax bill or a penalty when they filed this year. It’s also an important step for those who made withholding adjustments in 2018 or had a major life change.

Those most at risk of having too little tax withheld include those who itemized in the past but now take the increased standard deduction, as well as two-wage-earner households, employees with nonwage sources of income and those with complex tax situations.

 

Keep your knowledge current when it concerns payroll regulations with Payroll 24/7.  For only $149 per year, get all updates daily as they are issued right to your inbox.

IRS Revises EIN Application Process…hoping to enhance security

The Internal Revenue Service (IRS) announced today that starting May 13th only individuals with tax identification numbers may request an Employer Identification Number, or EIN, as the “responsible party” on the application.  This change will prevent entities, such as employer, from using their own EINs to obtain additional EINs. The requirement will apply to both the paper Form SS-4, Application for Employer Identification Number, and the online EIN application.

Individuals named as responsible party must have either a Social Security Number (SSN) or an individual taxpayer identification number (ITIN). The IRS is making the announcement now to give entities and their representatives time to identify proper responsible officials and to comply with the new policy.

This change is part of the IRS’s ongoing security review. It provides greater security to the EIN process by requiring an actual individual to be the responsible party and improves transparency. If the employer needs to change the responsible party, it can complete the Form 8822-B, Change of Address or Responsible Party within 60 days of the change.

Entities such as federal, state, local or tribal governments are exempt from the responsible party requirement, as is the military including state national guard units.

 

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