2017 draft Form 941 reflects research credit

The IRS has released a draft of the 2017 Form 941, which, on revised Lines 11 and 12, reflects the new research and development tax credit for small start-up businesses. A draft Schedule B has also been released. Snag: Even if you don’t qualify for the credit, you will need to update your payroll software to account for the line revisions. The 2017 instructions have not yet been released in draft form. 

Background

Small start-up businesses—businesses with gross receipts of less than $5 million for the taxable year, and that didn’t have gross receipts for the five preceding years, ending with the current taxable year—may take the research and development tax credit against the employer’s share of the Social Security portion of FICA taxes, rather than against income tax liability. 

The credit is equal to the least of these amounts:

  • An amount specified by you, up to $250,000
  • The amount of the research credit determined for the taxable year
  • For qualified small businesses other than partnerships or S corps, the amount of the general business credit carryforward from the taxable year.

The credit can’t exceed your FICA liability for a calendar quarter, but you can carry forward any excess credit into later quarters. Once made, elections can’t be revoked without the IRS’ consent. 

What’s my line?

The three critical lines on the current Form 941 are Line 11, Total Deposits for the Quarter; Line 12, Balance Due; and Line 13, Overpayment.

The line changes on the draft begin with Line 11. The draft renames Lines 11 and 12. Upshot: All the other lines have been renumbered as well. 

  • Line 11: Qualified Small Business Tax Credit
  • Line 12: Total Taxes After Adjustments and Credit
  • Line 13: Total Deposits for the Quarter
  • Line 14: Balance Due
  • Line 15: Overpayment.

Monthly depositors’ liability, as shown on new Line 16, must equal the Line 12 amount; semimonthly depositors’ liability, as shown on Schedule B, must equal the Line 12 amount. 

The Line numbers in the draft Part 3 also increase by two:

  • Current Line 15 becomes Line 17
  • Current Line 16 becomes Line 18.