Schedule R (Form 941) Allocation Schedule for Aggregate Form 941 Filers: 2020 Summary Guide

What Schedule R (Form 941) Is For

Schedule R (Form 941) is a supplemental form used by certain third-party payroll service providers to break down employment tax information reported on an aggregate Form 941. Think of it as an itemized receipt that shows how the combined totals on the main Form 941 are distributed among different client businesses.

When professional employer organizations (PEOs), certified professional employer organizations (CPEOs), or IRS-approved agents file payroll taxes on behalf of multiple client companies, they submit one aggregate Form 941 covering all their clients' combined wages and taxes. Schedule R is the required attachment that allocates—or divides up—those aggregate numbers to show each individual client's share of wages, taxes withheld, and tax deposits. This gives the IRS client-specific information to support the totals reported on the aggregate return.

The June 2020 revision of Schedule R was particularly significant because it was updated to accommodate new COVID-19 relief provisions added to Form 941, including qualified sick and family leave wages, the employee retention credit, and social security tax deferrals authorized under the CARES Act and Families First Coronavirus Response Act.

IRS Schedule R Instructions (September 2020)

When You'd Use It (Late/Amended Filing)

Schedule R must be filed with Form 941 every quarter if you're an aggregate filer. For 2020, the quarterly deadlines were April 30, July 31, October 31, and January 31 (for the fourth quarter). If you file late, you must still include Schedule R with your late Form 941—the schedule is never filed separately.

If you discover errors after filing your aggregate Form 941 and Schedule R, you'll need to file an amended return using Form 941-X (Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund). When filing Form 941-X, you'll need to attach a corrected Schedule R that corresponds to the same tax period you're amending. For 2020, you may need to use the appropriate prior revision of Schedule R depending on which quarter you're correcting, particularly if you're claiming or correcting COVID-19 related credits like the employee retention credit.

Important timing note: Always file the original Form 941 for a quarter before filing any Form 941-X for that same quarter. Filing an amended return before filing the original can cause processing delays and errors at the IRS.

Schedule R (Forms 941 and Form 940) - IRS

Key Rules for 2020

Who Must File: Not all employers need to file Schedule R—only aggregate filers. Specifically:

• IRS-approved Section 3504 agents must complete Schedule R each time they file an aggregate Form 941. These agents must first file Form 2678 (Employer/Payer Appointment of Agent) and receive IRS approval before they can file as agents.
• Certified Professional Employer Organizations (CPEOs) must file Schedule R with every aggregate Form 941. CPEOs must apply through the IRS Online Registration System at IRS.gov/CPEO to become certified and maintain their certification status.
• Non-certified PEOs and other third-party payers must file Schedule R, but with a significant exception: they only need to report client-by-client details for clients claiming specific credits or deferrals (qualified small business payroll tax credit for increasing research activities, credit for qualified sick and family leave wages, employee retention credit, or social security tax deferrals). For other clients not claiming these benefits, their amounts can be consolidated and reported on Schedule R line 8.

Electronic Filing: CPEOs generally must file Form 941 and Schedule R electronically. However, for 2020 specifically, CPEOs received a waiver allowing paper filing in lieu of electronic submissions for the second, third, and fourth quarters of calendar year 2020 due to pandemic-related circumstances. Section 3504 agents and non-certified PEOs could file either electronically or by paper during 2020.

Multiple Clients: The main Schedule R page accommodates up to five clients. If you have more than five clients, you must complete additional Continuation Sheets for Schedule R (Form 941), with each continuation sheet handling eight additional clients.

IRS Schedule R Instructions (September 2020)

Step-by-Step (High Level)

Step 1: Complete Form 941 First

Calculate and enter all aggregate amounts on your Form 941 before starting Schedule R. Schedule R allocates the totals from Form 941, so you need those aggregate figures completed first.

Step 2: Enter Business Information

At the top of Schedule R, enter your employer identification number (EIN) and business name exactly as they appear on Form 941. Check the appropriate "Type of filer" box (Section 3504 Agent, CPEO, or Other Third Party). Enter the calendar year and check the correct quarter box to match Form 941.

Step 3: Complete Client Information (Columns a–y)

For each client, complete a separate line reporting:

• Column a: Client's EIN
• Column b (CPEO Only): Wage type code (A, B, C, or D indicating how compensation was paid under various sections)
• Columns c–y: Allocate the corresponding amounts from specific Form 941 lines to each client, including number of employees, wages, taxes withheld, credits claimed, deposits made, and COVID-19 related amounts like sick leave wages, employee retention credit, and social security tax deferrals

Note: When entering amounts over 999.99, do not use commas.

Step 4: Calculate Subtotals and Totals

• Line 6: Enter subtotals for clients listed on lines 1–5
• Line 7: Enter combined subtotals from line 9 of all Continuation Sheets (if applicable)
• Line 8: Enter Form 941 amounts for your own employees (if any). Non-certified PEOs should consolidate amounts for clients not reported individually here.
• Line 9: Add lines 6, 7, and 8. These totals must match the corresponding totals on Form 941 exactly.

Step 5: Verify and Attach

Double-check that line 9 totals match Form 941 exactly. Any mismatch is an error that must be corrected before filing. Attach Schedule R and any continuation sheets to your Form 941 and file together by the quarterly deadline.

IRS Schedule R Form (June 2020)

Common Mistakes and How to Avoid Them

Mismatch Between Line 9 and Form 941

This is the most critical error. The totals on Schedule R line 9 must match the corresponding totals on the aggregate Form 941 exactly. If they don't match, the IRS instructions explicitly state there is an error that must be corrected before filing.
How to avoid: Before filing, carefully compare each column's line 9 total against the corresponding Form 941 line. Use a calculator or spreadsheet to verify your math, and allow time for this final reconciliation check.

Wrong EIN or Business Name

Entering an EIN or business name that doesn't match Form 941 can cause processing delays.
How to avoid: Copy the EIN and name directly from your Form 941 to Schedule R—don't rely on memory.

Incomplete Client Information

Forgetting to enter required information for each client, especially new COVID-19 related credits and deferrals in 2020.
How to avoid: Use a checklist for each client line to ensure all applicable columns are completed, particularly columns s–x which capture pandemic relief provisions.

Filing Schedule R Separately

Schedule R is never filed alone—it's always an attachment to Form 941.
How to avoid: Physically attach Schedule R (and any continuation sheets) to your Form 941 before mailing or ensure your e-filing software packages them together.

Using Commas in Large Numbers

The instructions specifically state not to enter commas when reporting amounts over 999.99.
How to avoid: Enter amounts as "10000.00" not "10,000.00".

Missing Form 8974 Attachments

If any client claims the qualified small business payroll tax credit for increasing research activities (column j), you must attach a separate Form 8974 for each client claiming this credit.
How to avoid: Review column j before filing and prepare the corresponding Forms 8974.

Wrong Quarter or Year

Checking a quarter or year that doesn't match the attached Form 941.
How to avoid: Complete the quarter and year boxes on Schedule R immediately after checking them on Form 941 to ensure consistency.

What Happens After You File

IRS Processing: Once filed, the IRS processes your aggregate Form 941 and Schedule R together. The Schedule R data allows the IRS to apply the allocated amounts to each client's individual employment tax account. This means each client's employment tax history will reflect their share of the wages, withholding, and tax deposits, even though you filed on their behalf.

Processing Time: The IRS estimated that recordkeeping, learning about Schedule R, and completing the form would take approximately 20 hours and 5 minutes per filing. The actual IRS processing time varies but generally takes several weeks. You should retain copies of both Form 941 and Schedule R for your records.

Credit Allocations: For 2020, if you reported COVID-19 related credits (sick and family leave wages, employee retention credit) or social security tax deferrals for clients, the IRS will apply these amounts to each client's account based on your Schedule R allocations. This is particularly important because these credits and deferrals have specific rules about when they can be claimed and how they're refunded.

Notices and Correspondence: If the IRS identifies discrepancies or needs clarification, they may send notices to either your business (as the filer) or to individual clients. Keep detailed records of how you allocated amounts to each client in case questions arise.

Amended Returns: If you later discover errors, you'll need to file Form 941-X with a corrected Schedule R for the affected quarter. The IRS will then adjust each client's account based on the amended allocations. Allow 8-12 weeks for amended return processing, though it may take up to 16 weeks in some cases.

IRS Schedule R Instructions (September 2020)

FAQs

Q1: I'm a small business owner—do I need to file Schedule R with my Form 941?

No. Schedule R is only required for aggregate filers—IRS-approved agents, CPEOs, and certain other third-party payers who file Form 941 on behalf of multiple client businesses. If you're an employer filing Form 941 directly for only your own employees, you don't need Schedule R.

Q2: How many clients can I report on one Schedule R?

The main Schedule R page accommodates five clients (lines 1–5). If you have more than five clients, you must complete Continuation Sheets for Schedule R, with each continuation sheet handling eight additional clients. There's no limit to how many continuation sheets you can attach—use as many as needed to report all your clients.

Q3: What's the difference between a CPEO and a non-certified PEO when filing Schedule R?

CPEOs are professional employer organizations that have applied for and received IRS certification through the Online Registration System. They must complete detailed Schedule R information for every client, including specific wage type codes in column b. Non-certified PEOs don't have IRS certification and, for 2020, only needed to provide client-by-client details for clients claiming specific credits or deferrals—other clients could be consolidated on line 8.

Q4: I made an error on a previously filed Schedule R. How do I correct it?

File Form 941-X (Adjusted Employer's Quarterly Federal Tax Return) for the quarter with the error, and attach a corrected Schedule R showing the proper allocations. Make sure you use the same revision of Schedule R that corresponds to the quarter you're correcting. File a separate Form 941-X and Schedule R for each quarter that needs correction. Processing typically takes 8–12 weeks.

Q5: My Schedule R line 9 totals don't match Form 941. What should I do?

Don't file the return. The IRS explicitly states this is an error that must be corrected before filing. Review your allocations on Schedule R to find where the discrepancy occurred—common issues include miscalculating subtotals, forgetting to include continuation sheet amounts, or transposing numbers. Recalculate all columns and ensure line 9 matches Form 941 exactly before submitting.

Q6: Do I need to attach anything else besides Schedule R to my aggregate Form 941?

If any client is claiming the qualified small business payroll tax credit for increasing research activities (reported in column j), you must attach a separate Form 8974 for each client claiming this credit. Otherwise, Schedule R and any necessary continuation sheets are the standard attachments for aggregate filers.

Q7: Can I file Schedule R electronically for 2020?

Yes. CPEOs generally must file electronically but received a special waiver for quarters 2–4 of 2020 allowing paper filing. IRS-approved Section 3504 agents and non-certified PEOs could choose either electronic or paper filing during 2020. Electronic filing is faster and reduces errors, so it's recommended if your software supports it.

For More Information

• Schedule R Form 941 (June 2020 Revision)
• Schedule R Instructions (September 2020)
• General Schedule R Information - IRS.gov
• Form 941 Instructions and Updates - IRS.gov/Form941

This summary is for informational purposes and is based on 2020 IRS guidance. For specific situations, consult a tax professional or the IRS directly.