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941 X Instructions for Employee Retention Credit - ERC Form

941 X Instructions
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by Bobby Léone

  • Last Updated: Nov 7, 2022

  • What is Form 941 X for ERC? 

    IRS Form 941-X is a form used by employers to make corrections to their quarterly employment tax returns. Employers who have transacted business in the U.S. must file Form 941 for each quarter, regardless of whether or not they have income tax withholding and social security taxes to report and pay.  This article will provide an overview of Form 941 X and instructions on how to complete it.

    If you're an employer that had to partially or fully shut down operations due to COVID-19, your company may be eligible for the Employee Retention Credit (ERC). The tax credit is available for eligible employers that pay qualifying wages to certain employees during the coronavirus pandemic. 

    Eligibility: Who Can Claim the Credit? 

    The Employee Retention Credit is a refundable tax credit for eligible employers that retain employees and pay qualifying wages. The credit is available to employers of all sizes, including tax-exempt organizations.

    Eligible employers can claim the credit for (Q2 through Q4 in 2020 and Q1 through Q4 for 2021). Businesses will receive a refund for any overpayment of taxes for the specific quarter.

    Claiming the Credit Using the 941 X Form? 

    To claim the credit, eligible employers must file a 941-X tax form, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund, for each quarter they want to claim the credit. The employer must file the 941-x form with the IRS 60 days after the end of the quarter for which the employer intends to claim the credit.

    Eligible employers can claim the credit for qualifying wages paid to eligible employees from March 13, 2020, through December 31, 2020. For more information on eligibility requirements and how to calculate the credit, see Form 941-X Instructions for Employee Retention Credit - ERC.

    Using Form 941-X for Employee Retention Credit? 

    When the COVID-19 pandemic forced businesses across the country to close their doors, companies left many employees without jobs. The federal government responded by creating the Employee Retention Credit (ERC), which allows businesses to claim a credit for each employee they retain during the pandemic.

    If your business is eligible for the ERC, you can claim the credit by filing Form 941-X for underreported taxes. Companies must file for each quarter that they want to claim the credit and file within three years of the date that the tax was due.

    While claiming the ERC is relatively simple, there are some things to consider before you get started. First, you must have a valid Employer Identification Number (EIN).

    Why Does the IRS Need This Form? 

    Businesses use the form to claim the employee retention credit, a refundable credit for eligible employers that kept their employees on the payroll during the COVID-19 pandemic. Employers use IRS Form 941-x to adjust an employer's quarterly federal tax return, and employers can offset the cost of rehiring employees for those they laid off.

    What Information Do I Need for the 941 X Form? 

    To start, you will need the following information for each employee: their name, social security number, and address. You will also need to know how much you paid employees during the relevant quarters and how much your company withheld for federal income taxes, the share of social security taxes, and Medicare taxes. Additionally, you will need to know when your company paid out these wages and the original Form 941 filing. With this information in hand, you can begin filling out Form 941-X.

    How Long Do You Have to File a Form 941-X? 

    You must file the form for each quarter you want to claim the credit and file Form 941-x within three years (3) of the date you paid the tax.

    To file online, you'll need to create an account with the IRS e-Services portal. Once you've logged in, select "Forms 941-X" from the list of available forms. From there, you'll be able to complete and submit your form.

    Preparing Form 941 X - Other IRS Forms Included in the Instructions 

    You will need to get acquainted with the following forms and instructions before completing and submitting the IRS Form 941-x.

    Instructions for Form 941-X - https://www.irs.gov/pub/irs-pdf/i941x.pdf

    IRS Form 941-X - https://www.irs.gov/pub/irs-pdf/f941x.pdf

    IRS Form 941 - About Form 941, Employer's Quarterly Federal Tax Return - https://www.irs.gov/forms-pubs/about-form-941

    IRS Form 5884-D Worksheet - Employee Retention Credit For Certain Tax-Exempt Organizations Affected by Qualified Disasters - https://www.irs.gov/pub/irs-access/f5884d_accessible.pdf

    IRS Tax Form 8974 - Qualified Small Business Payroll Tax Credit for Increasing Research Activities - https://www.irs.gov/pub/irs-pdf/f8974.pdf

    IRS Form 941-X Instructions 

    Use the IRS 941-X Form to correct an employer's quarterly federal tax return. Businesses use the form to report overpayments or underpayments of taxes and to claim a refund for overpaid taxes. Employers use this form can to adjust the taxes withheld from employee paychecks.

    Worksheet 1 (page 1)

    Step 1: Ensure you fill in the required information in the Top Section with EIN, company name, and address. 

    Step 2: Under Return You're Correcting, Check Box 941.

    Step 3: Check the applicable quarters and enter the calendar year (2020 or 2021) you are correcting 

    Step 4: Enter the date you discovered the error. The date can be when you completed the 941-X Form.

    Step 5: Read the instructions just above Part 1. Use a separate Form 941-X for each quarter that needs correcting. You will need previously filed Form 941 submitted to IRS for all the quarters you qualify for and payroll journals for each quarter.

    Step 6: Part 1, Check Box 2 for Claim, which is most appropriate for ERC. 

    Step 7: Part 2, Check Box 3 to certify for filings for W-2 Wages.

    Step 8: Part 2, Check Box 5d, which in part states the Claim is for tax I didn't withhold from employee wages.

    Worksheet 2 (page 2)

    Step 9: Enter company name EIN, correcting quarter and year in the Top Section

    Step 10: Page 2, Part 3, Line 18a, Nonrefundable portion of employee retention credit

    ==> Column 1. Enter total corrected amounts for all employees

    ==> Column 2: Enter the amount of initial tax reported on Form 941 or as previously corrected

    ==> Column 3: Enter the difference between Column 1 and Column 2

    Column 4: Enter the tax correction 

    Worksheet 3 (page 3)

    Step 11: Enter company name EIN, correcting quarter and year in the Top Section

    Step 12: Page 3, Part 3, Line 23, Combine or add the amounts on Form 941 on lines 7 through 22 of Column and enter the amount.

    Step 13: On Page 3, Part 3, Line 26a, Refundable portion of employee retention credit.

    ==> Column 1: Enter the total corrected amount

    ==> Column 2: Enter the amount reported initially or as previously corrected

    ==> Column 3: Enter the difference between Column 1 and Column 2

    ==> Column 4: Enter the tax correction

    Step 14: Page 3, Part 3, Line 27, combine or add amounts on lines 23 through 26c of column 4 and enter the total.

    Step 15: Page 3, Part 3, Line 30, enter the Qualified wages for the employee retention credit.

    Worksheet 4 (page 4)

    Step 16: Enter company name EIN, correcting quarter and year in the Top Section

    Step 17: Review the form for any required entries; this page is usually left blank under most circumstances.

    Worksheet (page 5)

    Step 18: Enter company name EIN, correcting quarter and year in the Top Section

    Step 19: Page 5, Part 4, Line 43, In this section of the form, enter an explanation in detail of how you determined your correction. For example, We (your company) are amending the return to apply for Employee Retention Credits, etc. Please send a refund check to the mailing address on file.

    Step 20: Page 5, Part 5, sign and print your name and title, date, and best daytime phone (required).

    Can I Electronically File Form 941-X? 

    Form 941-x is relatively simple to complete and can be filed electronically or by mail. Employers should consult with their tax advisors to ensure they are eligible for the credit and to determine whether Form 941-x is the best option for their business. To file by mail, download it from the IRS website and complete Form 941-x using black ink..

    Tips to Avoid Employee Retention Tax Credit Mistakes 

    Below are some tips to help you avoid Form 941 errors in completing the 941-x form.

    1. Failing to reduce other payroll tax credits. If you claim the ERC, you must reduce any other payroll tax credits you would otherwise be entitled to, such as the Work Opportunity Tax Credit, qualified Sick and Family Leave Wages, or Medical Leave Credit.

    2. Overlooking eligible expenses. To be eligible, your payroll taxes must be at least 7.65% of your compensation or $2,400 per employee.

    3. Claim credit for employees who have worked for you for less than a full year. Prorate the tax credit for employees who work for you for less than a full year.

    4. Claiming the credit for non-qualifying wages. Your wages must qualify for the regular Social Security tax to be eligible.

    5. Failing to reduce the amount of credit you're entitled to based on how much you pay in wages.

    6. Not using a separate 941-x on the Employee Retention Credit Form for each quarter.

    Conclusion: How to Fill Out Form 941 X to the IRS 

    When the Coronavirus Aid, Relief, and the government enacted the Economic Security Act (CARES Act) in March 2020, it created the Employee Retention Credit (ERC), a refundable payroll tax credit for eligible employers that retained employees during the COVID-19 pandemic.

    When using a federal form to report employee retention credit, you must fill out the "Total amount of qualified wages paid or incurred during the calendar year" section. Remember to file Form 941-x within 3 years from the date initially reported. The grant has been a lifeline for many businesses struggling to keep their doors open.

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