Beginning with the second quarter 2020 Form 941, the form has been updated to include Worksheet 1 (on page 5). Credit for Qualified Sick and Family Leave Wages and the Employee Retention Credit.
Both the Sick and Family Leave Credit and the Employee Retention Credit have a nonrefundable and refundable portion. To figure the nonrefundable portion, complete Step 1 of Worksheet 1.
Step 1. Determine the employer share of social security tax this quarter after it is reduced by any credit claimed on Form 8974 and any credit to be claimed on Form 5884-C.
The total nonrefundable portion of the Sick and Family Leave Credit and the Employee Retention Credit is calculated by adding Form 941, Part 1, line 5a, column 2 and Form 941, Part 1, line 5b, column 2, then multiplying the total by 50%. This amount is then reduced by any adjustment on line 8 of Form 941, if you are a third-party sick payer, the amount from Form 941, Part 1, line 11a (credit from Form 8974), and the amount to be claimed on Form 5884-C, line 11, for the applicable quarter.
Step 2. Figure the sick and family leave credit.
The total credit for sick and family leave wages is calculated by adding the total sick or family leave wages reported on Form 941, Part 1, line 5a(i) or 5a(ii), and any amount included on line 5c that was not reported on lines 5a(i) or 5a(ii) due to being limited by the social security wage base. The total sick or family leave wages are then added to the qualified health plan expenses allocable to these wages (line 19 or 20 of Form 941, Part 3), and the employer portion of Medicare tax allocable to these wages. The sick and family leave amounts are then added together for the total credit.
The nonrefundable portion is limited to the amount calculated on Step 1, line 1l, and flows to Form 941, line 11b. Any credit amount in excess of Step 1, line 1l is refundable and flows to Form 941, line 13c.
Step 3. Figure the employee retention credit.
The total employee retention credit is calculated by adding Form 941, Part 3, lines 21, 22, 24, and 25. This amount is then multiplied by 50%.
The nonrefundable portion of the employee retention credit is limited to any remaining amount from Step 1, line 1l, after the sick and family leave credit is applied. This amount then flows to Form 941, line 11c. Any amount in excess of Step 3, line 3i, is refundable and flows to Form 941, line 13d.
These credits, along with other items on Form 941, serve to reduce the employer's liability on Form 941, Part 1. See the Form 941 Instructions and the About Form 941 page for further information.