Form 941 Changes And Other Important First Quarter Payroll News

IRS Releases The Final Forms And Instructions For Form 941

There are a few minor changes to Q1 Form 941 for 2023. The instructions for Line 1 have changed slightly to include the pay period (March 12) for the first quarter.

  • The IRS has introduced a second worksheet for Form 941.
  • The social security wage base limit for the 2023 tax year is now $160,200. It is also important to note that Forms 941-PR and 941-SS will be discontinued after the 2023 tax year.
  • The most notable changes this quarter can be found on Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities. This form is used by small businesses to claim a tax credit of up to $250,000.
    • For tax years beginning after December 31, 2022, the Inflation Reduction Act of 2022 increases this amount up to $500,000. Beginning in 2023, the credit will first reduce the employer’s share of social security up to $250,000 per quarter, and any remaining credit will be applied to the Medicare tax.
    • To reflect this, Line 12 of Form 8974 has been updated. In previous quarters it has been “Credit”, it is now ‘Credit against the employer share of social security tax’.
  • Additionally, two calculation fields, Lines 13 -17, have been introduced to the form for the first quarter of 2023 and beyond.

Sourced from 

Bank Failures Impact Payroll Professionals

The APA Released this information in an article released on 3/14. On Friday, March 10, 2023, Silicon Valley Bank (SVB) was closed by the California Department of Financial Protection and Innovation and the Federal Deposit Insurance Corporation (FDIC) was appointed as the receiver. On Sunday, March 12, Signature Bank was closed by the New York Department of Financial Services and the FDIC was appointed as the receiver.

On March 12, the U.S. Department of the Treasury, Federal Reserve, and FDIC announced that all deposits in both banks, regardless of the dollar amount, would be protected and depositors would have access to their money starting on March 13. In an FAQ for SVB, the FDIC explained that “all direct deposits, for example, social security, payroll, veterans’ benefits, disability, unemployment or any payment you receive electronically will continue as usual.” A similar statement is included in the FAQ for Signature Bank. The delay in access to funds raised numerous payroll issues for employers.

Employees and Employers

Employees who had their payroll direct deposit account at SVB would not have received their pay on March 10. Payments made on or after March 13 should be deposited as scheduled in the FDIC financial institutions handling the former SVB and Signature Bank accounts.

Employers using SVB also would not have been able to fund their payroll deposits on March 10 (unless they also had funds in another financial institution that could be used for payroll).

Sourced from

IRS Warns Employees About Recent W-2 Based Schemes

WASHINGTON — The Internal Revenue Service issued a consumer alert today to warn taxpayers of new scams that urge people to use wage information on a tax return to claim false credits in hopes of getting a big refund.

One scheme, which is circulating on social media, encourages people to use tax software to manually fill out Form W-2, Wage and Tax Statement, and include false income information. In this W-2 scheme, scam artists suggest people make up large income and withholding figures as well as the employer it is coming from. Scam artists then instruct people to file the bogus tax return electronically in hopes of getting a substantial refund – sometimes as much as five figures – due to the large amount of withholding.

The IRS along with the Security Summit partners in the tax industry and the states, are actively watching for this scheme and others. In addition, the IRS works with payroll companies and large employers – as well as the Social Security Administration – to verify W-2 information.

With National Consumer Protection Week starting Monday, the IRS and Summit partners warn people not to fall for these scams.

“We are seeing signs this scam is increasing, and we worry that innocent taxpayers could be at risk of being tempted into falling into a trap that puts them at risk of financial and criminal penalties,” said Acting IRS Commissioner Doug O’Donnell. “The IRS and Security Summit partners remind people there is no secret way to get free money or a big refund. People should not make up income and try to submit a fraudulent tax return in hopes of getting a huge refund.”

Two variations of this scheme are also being seen by the IRS; both involve misusing Form W-2 wage information in hopes of generating a larger refund:

  • One variation involves people using Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, to claim a credit based on income earned as an employee and not as a self-employed individual. These credits were available for self-employed individuals for 2020 and 2021 during the pandemic; they are not available for 2022 tax returns.
  • A similar variation involves people making up fictional employees employed in their household and using Schedule H (Form 1040), Household Employment Taxes, to try claiming a refund based on false sick and family wages they never paid. The form is designed to report household employment taxes if a taxpayer hired someone to do household work and those wages were subject to Social Security, Medicare or FUTA taxes, or if the employer withheld federal income tax from those wages.

The IRS reminds people who try this that they face a wide range of penalties. This may include a frivolous return penalty of $5,000. Filers also run the risk of criminal prosecution for filing a false tax return.

Sourced from IRS notice IR-2023-38, March 3, 2023

Increased FUTA Credit Reduction for 2023

The U.S. Department of Labor (DOL) released its list of potential FUTA credit reduction states for 2023. These states already have a credit reduction of 0.3% for 2022 and may face a credit reduction of 0.6% for 2023: California, Connecticut, Illinois, and New York. The U.S. Virgin Islands also faces a potential credit reduction of 4.8%. The determination will be made after November 10, 2023.

States With Outstanding Loans

If states have an outstanding Federal Unemployment Account (FUA) loan on January 1 of at least two consecutive years and on November 10 of the second year, they are subject to a credit reduction on their Federal Unemployment Tax rate until the loan has been paid off. Each year a loan continues to be unpaid, the credit reduction increases by 0.3%, though states that have made an effort to keep their balances in check have some opportunities to avoid the reduction.

Story sourced from DOL website and APA