IRS releases rules for filing, reproducing substitute forms 941

The IRS has provided the general rules and specifications for reproducing paper and computer-generated paper substitutes of Form 941, Employer’s QUARTERLY Federal Tax Return, Schedule B, Report of Tax Liability for Semiweekly Schedule Depositors, Schedule D, Report of Discrepancies Caused by Acquisitions, Statutory Mergers, or Consolidations, and Schedule R, Allocation Schedule for Aggregate Form 941 Filers. Employers should follow the specifications as set forth.

Qualified small business payroll tax credit for increasing research activities

For tax years beginning after December 31, 2015, a qualified small business may elect to claim up to $250,000 of its credit for increasing research activities as a payroll tax credit against the employer’s share of social security tax. The portion of the credit used against the employer’s share of social security tax is allowed in the first calendar quarter beginning after the date that the qualified small business filed its income tax return. The election and determination of the credit amount that will be used against the employer’s share of social security tax is made on Form 6765, Credit for Increasing Research Activities. The amount from Form 6765, line 44, must then be reported on Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities. Form 8974 is used to determine the amount of the credit that can be used in the current quarter. The amount from Form 8974, line 12, is reported on Form 941, line 11. If you are claiming the research payroll tax credit on your Form 941, you must attach Form 8974 to that Form 941.

New certification program for professional employer organizations

The Tax Increase Prevention Act of 2014 required the IRS to establish a voluntary certification program for professional employer organizations (PEOs). PEOs handle various payroll administration and tax reporting responsibilities for their business clients and are typically paid a fee based on payroll costs. To become and remain certified under the certification program, certified professional employer organizations (CPEOs) must meet tax status, background, experience, business location, financial reporting, bonding and other requirements described in sections 3511 and 7705 and related published guidance. The IRS began accepting applications for PEO certification in July 2016. Certification as a CPEO affects the employment tax liabilities of both the CPEO and its customers. A CPEO is generally treated as the employer of any individual performing services for a customer of the CPEO and covered by a contract described in section 7705(e)(2) between the CPEO and the customer (CPEO contract), but only for wages and other compensation paid to the individual by the CPEO. For more information, visit the IRS website at IRS.gov/cpeo. CPEOs generally must file Form 941 and Schedule R electronically. For more information about a CPEO’s requirement to file electronically, see Rev. Proc. 2017-14, 2017–3 I.R.B. 426, available at IRS.gov/irb/2017-03_IRB/ar14.html.

Schedule R redesigned

Schedule R has been redesigned to include filing by CPEOs and reporting of the qualified small business payroll tax credit for increasing research activities. (Rev. Proc. 2017-32, IRB 2017-17 (reprinted as Publication 4436), April 24, 2017.)
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