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Line 11

Line 11 (before adjustment for third-party sick pay)

Multiply line 10 by 50% (0.50). The qualified small

– Amount of employer's share of social security tax (on wages paid to

clients’ employees) included on Form 941, line 5a, column 2

business payroll tax credit for increasing research

activities can only be used against the employer’s share of

= Final amount to enter on line 11

social security tax reported on Form 941, 943, or 944. The

amount on line 10 is the total amount of social security tax

(both the employer and employee share) so you must

Example. You entered $12,400 on line 8 and zero on

multiply line 10 by 50% to limit the credit to the employer’s

line 9. Line 10 was also $12,400. 50% of line 10 is $6,200.

share of social security tax. If you’re a third-party payer of

However, this amount must be adjusted because the

sick pay or you received a Section 3121(q) Notice and

amount from Form 941, line 5a, column 2, that was

Demand, check the applicable box on line 11 and see the

entered on line 8 included the employer’s share of social

instructions below.

security tax that you paid for the wages paid to your

client’s employees. There isn’t a line on Form 941 that can

assist in this calculation but you still must determine the

Third-Party Payers of Sick Pay

amount of Form 941, line 5a, column 2, that was for

If you are a third-party payer of sick pay that files

wages paid to your client’s employees. For purposes of

Form 944, you can follow the directions below by

this example, if you determine that $5,000 of employer’s

TIP

substituting references to Form 941, line 8, with

social security tax included on Form 941, line 5a, column

Form 944, line 6; and Form 941, line 5a, column 2, with

2, was attributable to your client’s employees, you must

Form 944, line 4a, column 2.

subtract $5,000 from $6,200 (50% of the amount reported

on line 10) and enter $1,200 on line 11.

You can only take the qualified small business payroll tax

credit for increasing research activities against the

Section 3121(q) Notice and Demand

employer’s share of social security tax on wages paid to

your employees. Because the amount entered on line 8

If you received a Section 3121(q) Notice and Demand

included social security tax for your clients’ employees,

(Letter 3263 or Letter 4520) during the quarter, you report

you must make an adjustment to the amount reported on

the amount for the employer’s share of social security tax

line 11.

and Medicare tax on Form 941, line 5f. Letter 3263 or

Letter 4520 includes an attachment that shows the

Adjustment if you transferred liability. If you

employer’s share of social security tax. You must add the

transferred the liability for the employer’s share of social

employer’s share of social security tax to the amount

security tax to the employer (client), you must reduce the

reported on line 11.

amount reported on line 11 by the amount of social

security tax included on Form 941, line 8. Don’t just

subtract the amount reported on Form 941, line 8,

Line 11 (before considering a Section 3121(q) Notice and

because that line includes both social security tax and

Demand)

Medicare tax.

+ Employer’s share of social security tax from Letter 3263 or

Letter 4520

Line 11 (before considering Form 941, line 8)

= Final amount to enter on line 11

– Amount of social security tax included on Form 941, line 8

= Final amount to enter on line 11

Example. You entered $6,200 on line 8 and $12,400

on line 9. Line 10 was $18,600. 50% of line 10 is $9,300,

Example. You entered $12,400 on line 8 and zero on

but you also reported an amount on Form 941, line 5f,

line 9. Line 10 was also $12,400. 50% of line 10 is $6,200.

because you received Letter 3263. Letter 3263 showed

However, this amount must be adjusted because you

unreported tips of $20,000 and tax due of $1,530. The

reported $6,120 ($4,960 of social security tax and $1,160

attachment to Letter 3263 listed your liability for tax on

of Medicare tax) on Form 941, line 8. You must subtract

unreported tips as follows.

$4,960 (amount of social security tax reported on Form

Employer’ share of social security tax: $1,240

941, line 8) from $6,200 (50% of the amount reported on

Employer’s share of Medicare tax: $290

line 10) and enter $1,240 on line 11.

You must add $1,240 (employer’s share of social security

tax from Letter 3263) to $9,300 (50% of the amount

Adjustment if you didn’t transfer liability. If you didn’t

reported on line 10) and enter $10,540 on line 11.

transfer the liability for the employer’s share of social

security tax to the employer (client) and you paid the

Line 12

employer social security tax on the third-party sick pay

Enter the smaller of line 7 or line 11. Also enter this

that you paid on behalf of the client, you must reduce the

amount on Form 941, line 11; Form 943, line 12; or Form

amount reported on line 11 by any employer social

944, line 8. If line 12 is less than line 7, the remaining

security tax (included on line 5a) that was for the

amount can be used on a Form 8974 for the next quarter

employees of the client.

(Form 941) or year (Form 943 or 944).

Paperwork Reduction Act Notice. We ask for the

information on Form 8974 to carry out the Internal

Revenue laws of the United States. You are required to

-4-

Instructions for Form 8974 (Rev. 12-2017)

Instructions For Form 8974 - Qualified Small Business Payroll Tax Credit For Increasing Research Activities Page 4

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