The Internal Revenue Service (IRS) recently issued updated instructions accompanying the new Form 941 to assist employers with their calculations for second quarter returns. Given the COVID-19 pandemic and the economic mayhem it wreaked on the U.S. economy, the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief and Economic Security (CARES) Act were put into place to help struggling taxpayers across the country. These new provisions also provided for credits against payroll tax liabilities for employers. In addition, the CARES Act gave employers the option to defer payment of their Federal Insurance Contributions Act (FICA) tax liability which would otherwise need to be deposited on or after Mar. 27, 2020, but before Jan. 1, 2021.

With the new legislation’s option to defer FICA tax, Form 941’s instructions were substantially updated with a new worksheet (Worksheet 1) to take into account the new refundable employment tax credits, determine qualified leave wages and calculate the employee retention credit. Other notable updates include changes of the instructions for Schedule B (Report of Tax Liability for Semiweekly Schedule Depositors) and Schedule R (Allocation Schedule for Aggregate Form 941 Filers). Doeren Mayhew’s CPAs and advisors further explore the new changes and give you an in-depth look into what your business needs to know about potentially securing a deferral.

A Deeper Look into FICA Tax Deferrals

If you were planning to defer your employer FICA tax, you may want to read the fine print. Under the CARES Act, your FICA tax liability incurred within the deferral period is due in installments: half by Dec. 31, 2021 and the other half due Dec. 31, 2022. Given these unprecedented times, the new Form 941 instructions offer help in calculating and reporting your FICA tax liability, specifically the following statement:

“The deferred amount of the employer share of social security tax is a deferral of deposits and payments and not a deferral of liability. You won’t receive a refund or credit of any amount of the employer social security tax already deposited or paid for the quarter.”

Essentially, employers who wish to take advantage of the deferral option but have not decreased their 941 deposits made for the quarter may not be able to benefit from the full deferral promised by the CARES Act. This is likely the result of existing legislation – Internal Revenue Code (IRC) Section 6403 calls for an overpayment of any installment to first be applied against unpaid installments. Typically, overpayments under this legislation are only credited or refunded when the amount paid exceeds the tax’s correct amount.

Line 13b of Form 941 comes with instructions to assist employers in calculating the allowable deferral – employers simply reduce their total FICA liabilities for the quarter by the amount their quarterly 941 deposits exceed their total non-employer FICA tax liabilities. Note: this is before the application of FFCRA and CARES Act credits.

Securing a Deferral

If you have not yet made your 941 deposits for the entire quarter, you have options to potentially get back on track toward a deferral. Some approaches include:

  • Decreasing the last payment for all or a portion of your FICA tax for the quarter, which would allow you to preserve your deferral.
  • Re-designating one or more of your deposits to the third quarter (taxpayers have the right to apply payments to the liability they choose).

It’s important to note that if you choose to re-designate your deposits, there may be repercussions. There are electronic deposit regulations in place preventing employers from designating a single deposit for multiple return periods, so take great care to not accidentally trigger any “failure to deposit” penalties.

If you are concerned with potentially not qualifying for a FICA tax liability deferral, contact the dedicated advisors at Doeren Mayhew today. Our tax advisors will assist in helping you re-designate your deposits and weighing any other options available to you.