The last couple of years saw many changes to the way business runs. The government took measures to help support businesses, including enacting the payroll tax credit relief. While they are complex, they are well worth the effort in filing for these credits. But you may have made some mistakes when filling those forms and missed some credits. Your business now has to make changes to take full advantage of the employee retention credit, or ERC, and you’ve determined your qualified wages and health plan expenses. What now? You only need to amend the form to claim your credit and submit the paperwork if you’ve already filed Form 941. The form for amending Form 941 is Form 941-X.
Filling out IRS tax forms can often be a challenge. We’re here to help with this step-by-step guide to filing your Employee Retention Tax Credit 941-X Payroll Tax Refund form.
As each business has its own unique needs, make sure that you consult with your tax expert with any specific questions or concerns when completing this form.
What is the Employee Retention Credit?
The Coronavirus Aid, Relief, and Economic Security Act, or CARES, established the ERC to boost employers’ retaining their employees on the payroll during the COVID-19 pandemic. The ERC provides a refundable 50% payroll tax credit for up to 10K in qualified wages per quarter per employee.
The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted in December of 2020 under the American Rescue Plan Act of 2021, extended the ERC through December of 2021, allowing employers to claim the refundable ERC in the third and fourth quarters of the tax year 2021, making the maximum ERC for 2021 $28K per employee. It also opened the ERC up to recipients of PPP loans who were not initially eligible.
What is the Payroll Tax Refund Form?
The Employee Retention Credit is a refundable tax credit lowering specific employment taxes equal to 50% of the qualified wages employers pay to employees after March 12, 2020, and before January 1, 2021. This reduces the employment tax deposits employers are required to make.
If the employment tax deposits don’t cover the credit, the employer may be able to get an advance payment from the Internal Revenue Service. Per employee, the wages up to $10K can be counted to determine the 50% credit amount. Businesses qualify if they operated during the 2020 calendar year and either:
- A full or partial suspension of operations occurred due to governmental orders limiting commerce, travel, or group meetings due to the pandemic.
- They experienced a significant decline in gross receipts
The 941 X Payroll Tax Refund form is used to amend the 941 forms filed in 2020 and 2021. As you can now have both PPP loans and ERTCs, the 941s must be revised.
For every quarter that your company had qualified wages for the ERTC, you must file an amended 941x payroll tax return to get refunds from the IRS. When determining your ERC amounts, remember that ERC credits started in March 2020, missing the first quarter.
The IRS required businesses to include the adjustments from the first quarter with the second quarter adjustments. The form was revised to allow corrections on Form 941 due to changes in COVID-19 related employment tax credits under the ARP.
When Can Corrections be Made to Amounts Reported on Form 941?
If you left your credits on the table, it’s time to make those amendments because there are deadlines. The period for applying for your refund using Form 941-X is the later of three years from the original filing or two years from the date that you paid the taxes.
Things to Note
- Before you begin to complete Form 941-X, make sure you have the instructions on hand for Form 941 for any guidance. You can get this from IRS.gov/Form941, choose the link for “All Form 941 Revisions” under “Other Items You May Find Useful.”
- All Internal Revenue Service forms, instructions, and publications may be found at IRS.gov/Forms.
- If a line on Form 941-X doesn’t apply to your business, please leave it blank.
- Form 941-X can be filed to correct Form 941 or Form 941-SS.
- IRS help is available at IRS.gov/EmploymentTaxes or IRS.gov/CorrectingEmploymentTaxes
- You may also call the IRS Business and Specialty Tax Line at 800-829-4933 or 800-829-4059 (TDD/TTY)
How to Complete 941 X for Employee Retention Credit?
Step-by-Step Form 941-X Instructions – Page One
- Start by filling in the required information on the page header, including your company name, EIN, quarter, and year.
- Determine which quarters in 2020 and 2021 for which your business qualifies that were reported on form 941.
- Get the original 941, a blank 941-X, and payroll records for each quarter.
- Input your company information. Choose the return you are amending (941) and the quarter and year.
- Choose the calendar year of the quarter being corrected.
- Choose the date you discovered the errors reported on Form 941. This can be the date you complete the 941-X form.
- Part One – Choose either an adjusted employment tax return or a claim. You will most likely select claim.
- Part Two – Checkboxes 3 and 5d stating that the claim is for taxes you didn’t withhold from employee wages.
Page Two
- On page 2, part 3, line 18a, input your non-refundable portion of the employee retention credit. This will be represented as a negative amount. This non-refundable portion of the ERC is the amount that applies against your 6.2% share of social security tax. This balance is the refundable portion and will be represented on line 26a. Remember that the total ERC is fully refundable with Form 941-X because you paid the social security tax with the original filing of Form 941.
Page Three
When completing part three, show the amounts for all employees, not just those being corrected.
- On page 3, part 3, line 23, add the amounts from lines 7 through 22 of column 4.
- On page 3, part 3, line 26a, input your refundable portion of the employee retention credit. This will be represented as a negative amount.
- On page 3, part 3, line 27, add the amounts on lines 23-26c of column 4 and enter the total.
- On page 3, part 3, line 30, input the qualified wages for the employee retention credit.
- On page 3, part 3, line 31, enter the qualified health plan expenses allocable to the employee retention credit. The sum of lines 30 and 31, multiplied by the credit percentage of 50% for 2020 and 70% for 2021, should be equal to the total ERC on lines 18 and 26.
Page Four
- On page 4, part 3, line 37, describe the events that caused overreported amounts. Include the line number from 941-X that was affected, the date errors were discovered, the difference, and the cause of the error.
Page Five
- On page 4, part 4, line 43, explain how you determined the correction. Example: Amending return to apply for ERC credits, please send a refund check to the address on file.
- On page 5, part 5, complete this portion and sign as required. When signing, keep in mind your business structure.
- The owner of the business should sign sole proprietorship forms.
- Corporation, including LLC, forms should be signed by the president, vice president, or other principal officer authorized to sign.
- Partnership, including LLC, forms should be signed by an authorized member, partner, or officer.
- Single-member LLC forms should be signed by the owner or principal officer authorized to sign.
- Trustor estate forms should be signed by the fiduciary.
You have now completed Form 941 x Refund Form. Send the form to the Internal Revenue Service and await your refund check.
