Learn the easiest way to utilize Form 941 Worksheet 1 to figure the tax credit for paid time off provided to employees.
According to the American Rescue Plan Act of 2021 (ARP), enacted March 11, 2021, employers are required to provide paid time off to employees that request leaves for illness and other personal causes. Considering the health emergencies of the employed Americans, the government has promised to refund a portion of the qualified sick leave to the employers.
The employers, after approving and bearing the employee cost for the paid time off, are compensated by the federal agency with a tax credit. However, this refund applies to employers after a thorough evaluation by the IRS and is only processed per the specifications cited in the American Rescue Plan Act of 2021 (ARP) and more particularly in the Families First Coronavirus Response Act
The calculation for the paid time off and the figuration of the tax credit can be a fairly complex task.
Hence, the IRS encourages taxpayers to use Form 941 Worksheet 1, which must be included in Form 941 filing, to calculate and figure the tax credit for the paid time off provided by the employers.
The following will discuss in detail how you can use Worksheet 1 of Form 941 to calculate and figure the tax credit.
So, let’s get to it.
Quick Links
- What Is Form 941 Worksheet 1
- Form 941 Worksheet 1: An Overview
- Form 941 Worksheet 1: Step 1
- Form 941 Worksheet 1: Step 2
- Form 941 Worksheet 1: Step 3
What Is Form 941 Worksheet 1?
Worksheet 1 is included in the Form 941 filing regime to help employers figure the tax credit for the refundable and the non-refundable portions of the qualified sick and family leave the credit. It has a series of steps that enable the employer to determine the employer’s share of social security tax and the paid sick and family leave the credit.
Form 941 Worksheet 1: An Overview
Worksheet 1 of Form 941 allows the employer to figure the employer’s portion of the social security tax and the paid time off provided to the employees in a quarter.
It has two basic steps and a third step (which is extended to Worksheet 2 of Form 941) as follows.
- Step 1: Determine the employer’s share of social security tax this quarter
- Step 2: Figure the sick and family leave credit
- Step 3: Employee Retention Credit for the Second Quarter
Let’s take a look at these steps in detail.
Form 941 Worksheet 1: Step 1
This step is all about determining the total employer’s share of social security tax. The amount is figured after subtracting any credit claimed on Form 8974 and any credit that’s yet to be claimed on Form 5884-C and/or Form 5884-D.
Form 941 Worksheet 1: Step 2
This step allows you to figure the sick and family leave the credit.
A variety of qualified sick leave wages that were included and reported on Form 941 are used to figure the sick and family leave the credit.
The non-refundable portion and the refundable portion of the credit for qualified sick and family leave wages for leave taken before April 1 of the year are calculated in this step.
Form 941 Worksheet 1: Step 3
Step 3 allows you to figure the employee retention credit for the second quarter of the year. This means the preparer must add the qualified health plan expenses and wages paid to the employee. The non-refundable portion of the credit for qualified sick and family leave wages for leave is deducted from the employer’s share of social security tax from Step 1. (Anchor link to Step 1)
While calculating and determining these amounts, it’s advised to keep a rough copy of Form 941 by your side. Worksheet 1 is called a worksheet for a reason. It allows you to thoroughly calculate and figure the total tax credit you can claim for the paid time off provided to your employees prior to filing.
You can further use this guide and this guide from the IRS while following the above steps.
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Useful Reads:
Everything You Need To Know About Form 941 Schedule B
