Form 941 Updated to Reflect ARPA Tax Credits

Updated Form 941

The IRS has released an updated draft of the 2021 Form 941, the Employer’s Quarterly Federal Tax Return. This updated draft now includes fields for taking a tax credit for ARPA COBRA subsidies.

Quick ARPA Recap

ARPA provides for a 100% COBRA subsidy for eligible individuals who experience a reduction in hours or an involuntary termination of employment. The potential subsidy period runs from April 1, 2021 through September 30, 2021 (subject to the regular end date of COBRA coverage). Logistically, Assistance Eligible Individuals are “deemed” to have paid their COBRA premiums, and employers are then entitled to take a tax credit for the subsidized COBRA premiums.

How To Claim the Tax Credit

Employers claim the tax credit for the subsidized (deemed paid, but not actually received) COBRA premiums on the quarterly Form 941. Credits are available against the employer portion of Medicare taxes owed. If insufficient Medicare taxes are owed, employers claim against future Medicare tax liability.

Notable Fields on New Form

Line 11(e): Fill in non-refundable credits. These are credits taken directly against the employer portion of Medicare taxes that is owed.

Line 11(f): Fill in the number of Individuals for whom a COBRA premium subsidy was provided.

Line 13(d): Fill in refundable credits. These are credits which are claimed against a future Medicare tax liability. The refundable portion of the credit is allowed after the employer share of Medicare tax is reduced to zero by nonrefundable credits.

Timing

The quarter ending June 30, 2021 will be the first period for which employers can claim credit for ARPA COBRA subsidies. Employers should plan on confirming that their COBRA administrator will be providing documentation of the total ARPA subsidy amount and the number of ARPA subsidized individuals.

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