The IRS has revised Form 941, Employer’s Quarterly Federal Tax Return, and its instruction to reflect the payroll forgiveness tax credit provided by the Hiring Incentives to Restore Employment (HIRE) Act. Form 941 was revised for use beginning in the second quarter of 2010. If you are claiming the credit for the second quarter, the deadline to file revised Form 941 to claim payroll tax forgiveness is quickly approaching: the second calendar quarter of 2010 ends June 30, 2010 and Form 941 is due by July 31 (August 2, 2010 under the weekend rule).

Payroll tax forgiveness

In brief, the HIRE Act provides qualified employers with payroll tax forgiveness. Qualified employers are exempt from the employer’s 6.2 percent share of Social Security tax on all wages paid to covered employees from March 19, 2010 through December 31, 2010. To qualify, covered employees must begin work after February 3, 2010 and before January 1, 2011.

Claiming the credit for the second quarter

The payroll tax exemption is claimed on the revised Form 941 beginning with the second quarter of 2010. The HIRE Act does not allow employers to claim payroll tax forgiveness in the first calendar quarter, thereby providing for a credit in the second quarter. You may also claim the payroll tax exemption for wages paid from March 19, 2010 through March 31, 2010 on Form 941 for the second quarter of 2010.

Revised Form 941

The revised Form 941, to be used by employers to claim payroll tax forgiveness under the HIRE Act for qualifying new hires, includes a number of new lines and asks a set of new questions for purposes of the credit. New lines on Form 941 include:

• Line 6a: Number of qualified employees first paid exempt wages/tips this quarter;
• Line 6b: Number of qualified employees paid exempt wages/tips this quarter;
• Line 6c: Exempt wages/tips paid to qualified employees this quarter;
• Line 6d: Payroll tax forgiveness this quarter;
• Line 12c: Number of qualified employees paid exempt wages/tips March 19 – March 31, 2010;
• Line 12d: Exempt wages/tips paid to qualified employees March 19 – March 31, 2010; and
• Line 12e: Payroll tax forgiveness March 19 – March 31, 2010.

Line 6b asks employers to report the total number of covered employees paid exempt wages/tips to which they applied the Social Security exemption in this quarter. On Line 6c, you enter the amount of exempt wages/tips paid this quarter to all covered employees reported on Line 6b. Employers multiply the amount of exempt wages/tips reported on line 6c by .062 and enter the result on Line 6d.

Note. Lines 12c, 12d, and 12e will be on the Form 941 for the third and fourth quarters, but apply only for the second quarter.

Form 941 instructions

The instructions for the new Form 941 explain how this credit for wages paid from March 19 through March 31 can be claimed on the second quarter return. The IRS also explained how qualified employers will report the payroll tax exemption on Schedule B, Report of Tax Liability for Semi-weekly Schedule Depositors.

Please contact our office if you have any questions on the revised Form 941 or the payroll tax forgiveness credit.