The Employee Retention Credit (ERC), which was made a part of the CARES Act in 2020 and then expanded in 2021, gives small and medium-sized business owners who were hurt by the COVID-19 pandemic a refunded payroll tax credit.
The ERC program finished on September 30, 2021, but companies that are eligible have up to three years to file an amended payroll tax return and get the credit. In order to get these benefits, you usually have to fill out a form.
Form 941-X is a form from ERC that you can use to make changes to details you didn’t include on Form 941 and to apply for ERTC. Not many people know about this form, and even fewer know how to fill it out. Here’s how to fill out Form 941-X for Employee Retention Credit.
What is Form 941-X for ERC?
The Employee Retention Credit (ERC) can be used by employers whose gross income has gone down because of the coronavirus outbreak. Employers who didn’t take advantage of the ERC in the first two quarters of 2021 can still do so by filing a Form 941-X.
On Form 941-X for the first and second quarters of 2021, the nonrefundable part of the ERC equals the employer’s share of Social Security tax, which is 6.4% of wages.
If a taxpayer doesn’t claim the ERC and instead pays the employer’s part of Social Security tax through federal tax deposits, the term “nonrefundable” is misleading. The part of the ERC that isn’t refundable is refundable if the company paid their share of the Social Security tax. Check the status of a refund for an employee retention credit.
Can I File 941-X for Employee Retention Credit?
The statute of limitations for the 2020 ERC doesn’t end until April 15, 2024. The statute of limitations for ERCs from 2021 won’t end until April 15, 2025. Organizations can still apply for the ERC by making changes to their Form 941 X for the quarters in which they were an Eligible Employer.
The Employee Retention Credit is a tax credit that companies that apply for it can use to help pay for some of these employment taxes. It’s not a loan, so there’s no need to pay it back. For the vast majority of taxpayers, the credit they can get back is more than the social security taxes they paid during the time when the credit was made.
How to Fill Out 941-X for Employee Retention Credit in 2021?
This is how a 941-X ERC Form should be completed.
-Enter the necessary information, including the EIN number, quarter, company name, and year, on the page header.
-Locate the payroll quarters in 2020 and 2021 for which your association was eligible.
-Bring together your previous 941, payroll logs, and a blank 941-X for each quarter you are getting ready for.
-Inform people about your business. Select (941), the quarter, and the year from the form.
-Choose the correct calendar year for the quarter.
-Pick the day that your 941 Form’s errors were discovered for the first time.
-Choose whether you’re submitting a claim in Part 1 or an amended job tax return; you’ll probably select box 2.
-Check box 3 in Part 2. Next, mention that the claim is for the tax that wasn’t deducted from the employee’s pay in box 5d.
-Enter your non-refundable amount or ERC’s wage on line 18a of the second page.
-The sums on lines 7 through 22 of Column 4 should then be added on Line 23.
-Fill out your refundable ERC share on the following page.
-To the numbers on lines 23–26c of column 4, add the total on the following page’s line 27.
-Add the ERC’s Qualified revenue on Line 30.
Write a thorough explanation of how you arrived at your decision on line 43. For instance, converting a refund to an ERC Credits application. Your account’s contact information should be used to mail your refund check.
-Read and submit the final page of Part 5 as necessary.
The ERC cuts the amount of payroll taxes that certain companies have to pay. For 2020 and the first and second quarters of 2021, the appropriate employment tax was the worker’s share of Social Security tax, which is 6.2% of salaries. For the third and fourth quarters of 2021, the appropriate employment tax was the worker’s share of Medicare taxes, which was 1.45% of the worker’s pay for qualified wages.
The ERC 941-X does need someone to know how it works and how to fix it. The steps are very easy. As stated in IRS Notice 2021-23, the Relief Act lets an employer choose a different quarter to see if a worker is eligible. Under this choice, a worker could get a quarter of the calendar in 2021 if the gross income for the whole previous calendar quarter was at least 20% less than the same calendar quarter in 2019.
What are Qualified Wages?
Qualified wages are based on two important factors, and one of them must be used in the calendar quarter in which the amount is to be used with an employer share. The other is when a business or trade is partially shut down or has to cut its hours because the government says so. Here are all the facts about the employee retention tax credit for restaurants.
Form 941 should be used to report that for each quarter, a new ERC, total qualifying salaries, qualified wages, and health insurance costs should be added up and deducted from the deposit. You can get a credit even if you have already filed your tax return for 2020. Fill out Form 941-X to do this.
With Form 7200, which is for Advance of Employer Credits, people can get their first tax payment. Covid-19 makes it available to workers, and it could help them if they work for a small company. Advance payments are not given to companies with more than 500 workers.
How Do I Claim Employee Retention Credit on Form 941-X?
A qualifying employee can claim on their federal employment tax return with the ERC using IRS Form 941. Prior to receiving the ERC, qualified employers can take the following actions:
-They can reduce their deposits of government employment taxes that would otherwise be owed up to the amount of the anticipated credit.
-Fill out IRS Form 7200 to submit a request for an advance of the anticipated credit amount, up to the point when it exceeds the reduced federal employment tax payments.
In 2021, only small businesses will be able to ask for an advance payment of the bonus up to 70% of the average quarterly wages paid in 2019. Notice 2021-23 says that for qualified small businesses in 2021, the requirement to lower deposits to prepare for credit before getting an advance will still be in place.
As I said at the beginning of this essay, taxpayers should pay close attention to the directions on line 18 of Form 941-X for employer share, especially the instructions on how to change a positive number in column 3 to a negative sign in column 4.
If you don’t change a positive number in column 3 to a negative number in column 4, the ERC claimed on Form 941-X will be cut unfairly to pay for an employee’s social security.
941-X Employee Retention Credit Example
The ERC is a tax credit that is meant to encourage companies to keep their workers on the job and reduce the number of claims for unemployment benefits during the covered time. In 2020, the tax credit was equal to 50% of the qualified wages given to workers in a calendar quarter, up to $5,000 per worker.
For 2021, the tax credit was equal to 70% of the qualified salaries given to employees by eligible businesses that have plan costs that can be allocated. The maximum credit for registered businesses was $7k per employee per quarter, or $28k per year. Even if there were administrative mistakes, income tax refund mistakes, or other mistakes that weren’t administrative, the form would still need to be filled out.
941-X Instructions
The lessons show you how to fill out the new Form 941-X, also called the “Claim for Refund,” which is still being finished. Form 941-X, which was sent out on July 22, 2021, has been updated with a number of new and changed lines related to changes to Form 941, Employer’s Quarterly Federal Tax Return, during the hours of business.
Because the directions for Form 941-X don’t include all of the same information as the instructions for Form 941, the IRS suggests making corrections to the form by following the instructions for the quarter being fixed. The directions now have a table of contents with information about social security tax deferral and other sources that are important.
On the new Form 941-X, you can now report changes to the following COVID-19-related things that were entered on Form 941. Five new worksheets have been added to the rules to help figure out how to get more tax credits. These are for the paid qualifying sick and family leave earnings, the employee wages, and the COBRA premium support tax credit. There were no math mistakes made when the numbers in a column were changed.
Worksheet 1 has also been changed. In the old set of directions, it was the only worksheet. Third-party funders have to make each form from scratch for each customer who needs it. No tax numbers that were not reported are to be shared here. Instead, the difference between the two columns will show everything. You can be happy with the employer part because it covers all the important points, such as the employer rate, whether the employer is a qualified employer, and the quarter-to-quarter amounts used.
941-X Worksheet
Form 941-X has five sheets to fill out. Each of them is used in a different way. Worksheet 1 was used to figure out the Credit for Qualified Sick and Family Leave Wages for Leave Taken Before April 1, 2021. The recoverable and non-refundable parts of sick and family leave allowances were taken before April 1, 2021. This was calculated using the payroll tax credit option. On Form 941 Worksheet 1, the first step is to:
Step 1:
Find the percentage of the social security tax that goes down because of work after you take into account the rebate from Form 8974 and any credits to be claimed on Forms 5884-C and 5884-D.
Worksheet 2 should only be used to figure out the ERC for the second quarter of 2022 by employers. With this worksheet for qualified leave pay, you can figure out the non-refundable parts of the ERC for the third quarter of 2022.
After the second quarter of 2022, staff shouldn’t use 941 Worksheet 2 to figure out the ERC. For the third and fourth quarters of 2022, workers should instead use Worksheet 4.
Worksheet 3 is meant to help companies figure out how much sick leave and family leave used after March 2022 will be paid. Workers who got these points for the second, third, and fourth quarters of 2022 should fill out Worksheet 3. This sheet of paper has two parts.
First, employers have to figure out how much they owe in Medicare taxes.
Step 2:
This is a much longer part that helps companies figure out the sick and family leave credit for the quarter.
Line 2r of Worksheet 3 shows the amount of sick and family leave pay that is not refundable, while Line 2s shows the amount that is refundable. These two lines are important because the employer will need to write these numbers on Form 941.
In the third and fourth quarters of 2021, workers will need to use worksheet 4. If they use Worksheet 2, which was only meant for the second quarter, they will get wrong answers on their Form 941. Based on their stats, employees in groups can be told apart.
The (ARPA), which was passed in early 2021, made the COVID-19 tax credits better. This includes the credit for keeping employees as well as the credit for sick and family leave as their social security. But this bill also made a new tax credit called the COBRA premium assistance credit that workers can use until the end of 2022.
Under the American Rescue Plan Act (ARPA), people who lost their jobs or full-time status because of the pandemic could get a COBRA original return. This should be paid for by the employer, who can then claim it on Form 941. Employers must use Worksheet 5 to claim amounts that were overreported. Lines 2g and 2h add up the parts of the COBRA monthly support credit that you can’t get back and the parts that you can get back. Both numbers should be written down as asked on Form 941.
The amounts in the column with the workers’ names would be used to figure out how much each worker makes based on the amounts in a column that show how much they vary.
Can 941-X Be Filed Online?
You use the 941-X to change the details on the 941 forms. You can print out the 941-X form and return it to the IRS. You can’t send Form 941-X to the IRS online. You can print out the 941-X form and return it to the IRS. But right now, the IRS can’t take 941-X forms that are sent in over the internet.
A “period of restrictions” is what each of the time groups is called. For the purposes of the statute of limitations, Forms 941 for a calendar year are considered filed on April 15 of the following year if they are sent in before that date.
Other FAQs Related to 941-X for Employee Retention Credit
What Is A 941-X Used For?
Taxable Medicare wages and tips, Employee earnings, Taxable Medicare wages and tips subject to Additional Medicare Tax deductions, Form 941-X can be used to make changes to taxable social security pay, taxable social security tips, federal income taxes, and taxable employment taxes. You must fill out a different Form 941-X for each tax period in which you made a mistake.
If a person who files a 941 every three months made a salary mistake for the whole year, they would have to file four 941-Xs. Do not send a Form 941-X from a previous quarter along with a Form 941. Before Form 941-X can be filed, a certain amount of time must have passed. This form must be filled out within three years of the date you filed your first tax return or two years after you paid the tax, whichever comes first.
For example, if all Forms 941 are turned in by April 15 of the next year, they are all assumed to have been turned in on that date. The IRS handled all of your tax returns as if they had been sent on April 15, 2018, as long as your first three quarterly returns were sent in 2017 and your Form 941 for the last quarter was sent on January 31, 2018.
In this case, the deadline to send in changes to all four weekly Forms 941 for 2017 was April 15, 2021. This is called the statute of limitations. This is the case because all four tax forms were due on April 15, 2018. Part 1 of Form 941-X lets you choose between two ways to fix a Form 941 that has already been filed. The changes on the form will take effect in 2022. At that time, you will also be able to see the percentage of pay for your job.
What is the Difference Between 941 and 941-X?
Form 941-X was changed for the first time in 2022. It is the first update to form 941. This tax return form was made to help you make changes to your 941 forms for the years 2020 and 2021. Now that you can have both PPP loans and ERTC, you’ll need to change your Form 941, which you had to file with the IRS in the past.
Where Does 941-X Get Mailed to?
The IRS says that e-filing Form 941 is the best way to get it processed quickly. Since you can’t send Form 941-X to the IRS electronically, you can print it out and return it to them. At this time, the IRS is not able to accept 941-X forms that are sent in online. So, here is their mailing address:
- P.O. Box 932100, Internal Revenue Service, Louisville, KY 40293-2100.
- Internal Revenue Service, P.O. Box 409101, Ogden, UT 84409.
Is There a New 941-X for 2022?
The IRS is giving you a copy of the new Form 941-X, as well as a tax form, instructions, or a publication, early. Instructions and publications are often changed before they are sent out to the public. You can tell the IRS what you think about finished forms, instructions, or publications at IRS.gov/FormsComments.
Conclusion and Summary on How to Fill Out 941-X for Employee Retention Credit
The above guide tells you everything you need to know about taxable wages, how to handle underreported amounts, business operations and how they affect workers, as well as how to deal with ERC for any recovery startup business in Form 941-X.
You can fill out Form 941-X to make the changes you wanted to make to Form 941 and get the ERC for the same. Make sure you fill out Form 941-X with the right information and include all the necessary papers.