A No-Worries Guide to Complete Form 941 Worksheet 1 for 2020

A complete guide for 941 filers to fill out Form 941 Worksheet 1!

Nowadays, changes are happening in the blink of an eye. A few months ago, we didn’t have to worry about a pandemic, social distancing, or wearing masks! Although, we have now adjusted to all of these things and accepted them as a part of our daily lives. Similarly, the familiar Form 941, Employer’s Quarterly Federal Tax Return, has also been adjusted due to COVID-19 to benefit the employers during this crucial time.

Beginning in March, we have seen revised drafts and new versions of Form 941 being released by the IRS. After drafting these changes, the IRS has finalized Form 941, incorporating new fields related to COVID-19. These changes are effective from the second quarter of 2020. One such addition is the introduction of Worksheet 1 to calculate the refundable and non-refundable portions of credits.

This article will discuss every aspect of Form 941 Worksheet 1.

Revisions to Form 941 — Second and Third Quarters of 2020

There were few concerns about filing Form 941 before COVID-19. Employers were familiar with the format, therefore it was considered fairly simple.

Employers used the standard Form 941 to file for the first quarter of 2020. However, when the pandemic hit, the IRS began revising the Form 941 for the second quarter, and it didn’t stop there. The IRS has also added additional revisions to Form 941 that will be used to report for the third quarter.

Form 941 was adjusted to include the tax relief introduced under the FFCRA and the CARES Act. As per these changes, employers are allowed to get refundable credits for paid sick and family leave. In addition, employers are also entitled to employee retention credits. All these tax credits can be applied during the second and third quarter of 2020. A few more changes such as deferring employer and employee share of social security tax were also introduced. Filers can complete Form 941 Worksheet 1 for determining these credits for the quarter.

No one is familiar with this worksheet since it is a new addition. Thus, the IRS has revised 941 instructions to make it simple for filers.

The core purpose of Worksheet 1

Worksheet 1 was created to help you complete the calculations for the newly added data fields. Don’t worry, this worksheet is not an official attachment form, so it doesn’t have to be filed to the IRS, it is only a tool to help you.

Who should complete Form 941 Worksheet 1?

As we said earlier, this worksheet is optional. Employers who want to claim the following credits may use this worksheet to calculate the exact amount. Worksheet 1 will help you determine refundable or non-refundable credits of the following taxes.

• Qualified sick leave credits
• Qualified family leave credits
• Employee retention credits

It is important to note that these credits are available only from the second quarter of 2020.

How to complete Form 941 Worksheet 1?

Don’t panic when you look over Worksheet 1. Initially, it might be daunting, but it is not difficult to complete. In total, this worksheet has 3 sections, and employers need to complete only the portions that apply to them.

Let’s have a quick look at how Worksheet 1 should be completed!

The worksheet has three sections, namely, Step 1, Step 2, and Step 3. Employers should complete these sections based on how they have paid their employees for the quarter.

Step 1

The total amount you get from Step 1 is the remaining Employer Share of Social Security tax. It can be used in Step 2 and Step 3 calculation.

Step 2

Step 2 is to calculate refundable and nonrefundable portions of credits for qualified sick, and family leave wages. By completing this section, employers can find their eligible refundable tax credits.

Step 3

Step 3 is to determine the refundable and non-refundable portions of employee retention credit. This section can help employers find the refundable and non-refundable portion of tax credits from the employees’ wages.

Step 1, Step 2, and Step 3 of the worksheet should be completed if employers have paid sick and family leave wages and qualified wages under employee retention credits.

Step 1 and Step 2 need to be completed if employers have paid sick and family leave wages but have not paid qualified wages under employee retention credits.

Employers should complete Step 1 and Step 3 if they have paid qualified wages under retention credits, but they have not paid sick and family leave wages.

Reading through all of the steps above, Worksheet 1 might seem confusing but do not worry. TaxBandits has got your back.

TaxBandits is an IRS certified e-file provider that supports Form 941 with Worksheet 1. You can also complete Schedule B if you’re a semiweekly schedule depositor. File Form 941 before the deadline and be compliant with the IRS.