How to Amend Form 941 to Claim the Employee Retention Credit (ERC)

Form 941, known as the Employer's Quarterly Federal Tax Return, is a tax form that employers use on a quarterly basis to report wages paid to employees, along with the amount of federal income tax, Social Security tax, and Medicare tax withheld from those wages. Employers must submit Form 941 to the IRS every quarter of the year.

The information provided on Form 941 includes the total number of employees, the total wages paid during the quarter, and the amount of taxes withheld from those wages. The form also includes calculations for employer contributions to Social Security and Medicare taxes.

Form 941 also allows employers to claim certain tax credits or make adjustments. For instance, employers can use this form to claim the Employee Retention Credit (ERC) for retaining employees during economic hardships or the qualified small business payroll tax credit for increasing research activities. It is crucial for employers to complete and file Form 941 accurately and in a timely manner to avoid penalties and interest charges.

Form 941-X, known as the Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund, is used to correct errors on previously filed Form 941. Each line of Form 941-X corresponds to the respective line on Form 941. This form allows for adjustments to the reported amount of federal income tax, Social Security tax, or Medicare tax from a previous filing. Common reasons for filing Form 941-X include:

Correcting errors in employee wage and tax information:

Form 941-X can be used to rectify errors made in reporting wages, tips, and other compensation for employees, including taxable Social Security wages, sick leave wages, Medicare wages, and tax information.

Adjusting unreported tips or fringe benefits: If you initially reported incorrect or incomplete information regarding tips or fringe benefits on Form 941, you can use Form 941-X to make the necessary adjustments.

Reconciling overpayments or underpayments of taxes: If you realize that you overpaid or underpaid taxes for a previous quarter or have been notified by the IRS about such discrepancies, Form 941-X can be used to correct these mistakes.

Claiming refunds or abatements:

Form 941-X is also used to claim refunds or abatements that you qualify for but didn't claim on your initial Form 941, such as the ERC.

When completing Form 941-X, it is important to provide a detailed explanation of all the corrections being made and to ensure that the correct version of the form for the relevant year is used. It's essential to note that filing Form 941-X does not exempt you from paying any additional taxes resulting from the correction. Failure to file or pay any additional taxes owed can lead to penalties and interest charges.

Eight Tips for Amending Form 941 to Claim the ERC:

If you discover a tax mistake, you can typically rectify it, especially if you catch it early. Retroactively claiming the ERC is a straightforward process involving amending Form 941. To claim the ERC, follow these practice-based tips:

Gather your original Form 941 documents:

Keep your original Form 941 for reference when amending it. Having your tax returns nearby will help you cross-check information while completing Form 941-X.

Use the most recent version of Form 941-X: Always ensure that you have the latest version of the tax form before starting the amendment process. This will help avoid issues or unnecessary communication with the IRS.

Use separate forms for amending multiple quarters:

If you need to amend multiple payroll tax returns, you must submit a separate Form 941-X for each quarter. Keep track of the qualifying quarters in 2020 and 2021 and submit a new form accordingly.

Ensure you qualify for the ERC:

To claim the ERC on Form 941-X, you must meet the qualification requirements set by the IRS. This may include closure due to a government order or a decline in gross receipts. Additionally, large employers with 500 or more employees can only claim the ERC for wages paid when employees were not providing services.

Calculate wages accurately:

Include calculations for qualified employee wages on Form 941-X, including health plan expenses during qualifying periods. The calculation involves taking a percentage of qualified wages up to certain limits, which vary by year. Provide the corrected amount, the originally reported amount, and the difference, if applicable, to indicate the tax correction being reported.

Double-check accuracy to avoid delays:

Before submitting Form 941-X, thoroughly review all calculations and details to ensure accuracy. This helps prevent delays in processing your credit and avoids penalties or fees resulting from inaccurate information.

Determine if you qualify as a recovery startup business:

If you meet the criteria of a recovery startup business, you may be eligible for an additional quarter in 2021, resulting in additional credit per employee. Make sure to check the corresponding box on Form 941-X (line 31b) if you qualify.

Provide a detailed explanation:

On line 43 of Form 941-X, provide a comprehensive explanation of the amendments being made. Describe each correction along with the grounds and facts that led to your conclusions. Clearly explain the events that caused the underreported or overreported amounts. Failing to provide clear explanations may result in further delays and requests for additional information. Your response can be in paragraph form and should include the line numbers on Form 941-X where new information is entered, the date the error was discovered, the amount of the error, and the cause of the error.

Following these tips and carefully adhering to the instructions on Form 941-X simplifies the process of claiming the ERC. Working with a tax credit professional can further expedite the process and ensure accurate completion.

Contact ERC Refund for Assistance With Form 941 Amendments:

If you qualify for the ERC, there is still time to claim it. You have three years from the date of submitting your original Form 941 or two years from when you paid the tax, whichever is later, to make a claim. Carefully read the instructions for Form 941-X and submit it before the deadline to receive your refund.

Working with a tax credit professional will help ensure compliance with all procedures and accurate calculation of the ERC. The team at ERC Refund is available to assist you throughout the process. We provide industry-leading speed and accuracy and can address your general tax consulting and filing questions. Starting your ERC application online is also made easy through our services. Contact us for more information on your options for the Employee Retention Credit (ERC).