2024 IRS Updates for Form 940 and Form 941 (TY 2023)

As we step into 2023, it’s crucial for employers and tax professionals to stay informed about the latest changes to IRS Form 940 and Form 941. Understanding these updates is key to ensuring compliance and making the most of potential benefits. Here’s a breakdown of what’s new and what it means for you.

Updates to Form 940: Federal Unemployment Tax Adjustments

Form 940
Image of Form 940

Credit Reduction States: A New Twist in Unemployment Tax

  • The concept of a “credit reduction state” is significant this year. Certain states are considered Credit Reduction states if they have not repaid loans borrowed from the federal government for unemployment benefits. The US Department of Labor determines which states fall into this category.
  • If an employer pays wages subject to unemployment laws of a credit reduction state, then that employer must pay additional federal unemployment tax on their Form 940.

Spanish Language Option and Electronic Filing Innovations

  • The IRS has introduced Form 940 (sp), a Spanish version, for 2023. This is particularly beneficial for employers in Puerto Rico and the U.S. Virgin Islands. Note that Form 940-PR is no longer in use for tax years beginning after December 31, 2023.
  • In a move towards modernization, the IRS is also planning to enable electronic filing of amended Form 940 via the Modernized e-File (MeF) system starting in 2024.

Changes in Form 941: Social Security, Medicare, and Payroll Tax Credits

Form 941
Image of Form 941

Social Security and Medicare Tax Rates for 2023

  • The rate of social security tax on taxable wages paid in 2023 for leave taken between March 31, 2021 and October 1, 2021 is 6.2% for both employers and employees or a total of 12.4% for both.
    • This includes qualified sick wages and qualified family leave wages.
  • The rate of social security tax on taxable wages paid in 2023 for leave taken between march 31, 2020 and April 1, 2021 is 6.2% for the employee only. They are not subject to the the employer share of social security tax.
  • The social security wage base limit is $160,200.
  • The Medicare tax rate is unchanged at 1.45%, with no wage base limit.
  • These taxes now apply to household and election workers under certain wage thresholds.

Enhanced Payroll Tax Credit for Increasing Research Activities

  • The Inflation Reduction Act of 2022 has increased the payroll tax credit for research activities to $500,000 for tax years starting after December 31, 2022.
  • This credit can be used against the employer’s share of social security tax up to $250,000 per quarter, with any excess amount reducing the Medicare tax.
  • Form 8974 is crucial for determining the applicable credit for the current quarter.

Discontinuation of Specific Forms and Publications

  • Form 941-SS and Form 941-PR will be discontinued after 2023, replaced by Form 941 or its Spanish version, Form 941 (sp).
  • Publications 51, 80, and 179 will no longer be available post-2023. Information relevant to agricultural employers and employers in U.S. territories will be incorporated into Pub. 15 from 2024, including a Spanish version, Pub. 15 (sp).

Staying Informed and Compliant

These updates reflect the IRS’s commitment to modernization and inclusivity, offering Spanish language options and electronic filing advancements. For employers, it’s vital to understand these changes to maintain compliance and optimize tax benefits. Always consult the latest IRS guidelines or seek professional advice for your specific situation. Keep an eye on IRS.gov for the most current information and tools to assist in these processes.

Stay ahead of the curve in 2023 by embracing these changes and preparing your business for a smooth tax filing experience! Check the deadlines today:

BoomTax, The Boom Post, and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors prior to engaging in any transaction.

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