How to File IRS Form 941-X: Instructions & ERC Guidelines

BusinessTaxesERTC
7 min read

Learn how eligible employers can amend a previously filed Form 941 to claim the ERTC’s fully refundable portion of all qualified wages paid. To receive your employee retention credit refund check, you are allowed to retroactively file Form 941-x for up to three years beyond your calendar quarter filing date.

Form 941

Unless your business taxes are long overdue, you’ve most likely already filed your Employer’s Quarterly Federal Tax Return (IRS Form 941) for which you could have previously claimed the employee retention tax credit. On each quarterly Form 941 filed, you would have reported your federal income tax withholding from employee’s pay, including Social Security taxes and Medicare taxes.

The amount of employment taxes withheld as entered on form 941 will now be used to determine the refundable portion of your ERC claim. In some cases, owner wages can be considered qualified wages paid, as long as come from payroll rather than business profits.

If you haven’t yet filed your Form 941 yet, why not learn all about how to qualify for the ERC or simply take our 5 minute-quiz below to see if your are eligible?

Form 941-x

The internal revenue service Form 941-x is an adjusted Employer’s Quarterly Federal Tax Return Form. An employer is required to file an IRS 941X in the event of an error on a previously filed Form 941. The adjustments also entail administrative errors and alterations to employee retention tax credits.

Errors

All errors regarding federal tax liabilities reported on an already filed Form 941 can be corrected with Form 941X. These are steps to take if you detect an error on your original Form 941:

  • Utilize Form 941X to rectify tax-reported mistakes, such as overreported taxes or underreported tax amounts
  • File a different Form 941-X for each inaccurate Form 941

Usage

When using Form 941-X to make an ERC claim amendment to a previously filed form 941, you’ll most likely be required to edit or update the following entries:

  • Wages, tips, and compensation
  • Income tax withheld from wages, tips, and compensation
  • Taxable social security wages and taxable social security tips
  • Taxable Medicare wages and taxable Medicare tips
  • Taxable wages and tips associated with additional Medicare tax withholding

As an employer, you can also modify the deferred amount of Social Security tax deferred from your share and that of your employee using Form 941X.

Separate Form

Usually, you are expected to file Form 941X independent of Form 941. You are exempted if you have never documented Form 941, and there was no federal income tax withholding because your employees are non-staffs, and you were not expected to fill out the quarterly federal tax return form.

That being the case, you can concurrently file both Form 941 and Form 941X. Ensure to contact experienced tax attorneys in your locality within the tax period for further guidance if this pertains to you.

Are you tired of waiting for your IRS refund check to arrive, or concerned about a looming 9-12 month wait time? Then, why not look into an ERC advance payment where you can get paid in 2-4 weeks? We can also offer your business a free second opinion to make sure no money was left on the table in your initial claim.

Worksheet 2

An employer who claimed the ERC wages after March 12, 2020, and before July 1, 2021, will need to reference Worksheet 2. If it is your first time claiming the employee retention tax credit on Form 941X, you will need Worksheet 2 for credit configuration.

Non-Refundable Portion

Distinguishing between refundable and non-refundable tax credits is expedient when adjusting the Federal Tax Return form. The non-refundable portion is based on adjusted ERC connected to the Paycheck Protection Program (PPP).

Initially, businesses that had accepted small business loans were considered ineligible to claim the ERC. However, the clause was removed in the Taxpayer Certainty and Disaster Tax Relief Act of 2020. You can also benefit from payroll tax credit election if your business is at a startup with minimal or no income tax liability.

If your business collected a Small Business Interruption Loan under the Paycheck Protection Program and you cannot claim the correct credit amount, you can make use of Worksheet 2.

PPP Loan Forgiveness

Currently, eliigble employers are able to claim the Employee retention credit on any taxable wages and tips labeled as payroll costs during the PPP loan forgiveness procedure. Qualified wages can be applied either to ERC or PPP loan forgiveness. However, they cannot be used for both programs. Utilize Worksheet 2 to effect those changes on Form 941.

For correction on the non-refundable part of the Credit qualified wages paid between March 12 and July 1, check Line 11c on Form 941 for the actual amount you filed.

In the Column on Worksheet 2, input the total adjusted amount from step 2, Line 2j. After this, input the initial amount you recorded in Column 2. Then, enter the calculated differences between Columns 1 and 2 into Column 3.

For Column 4, enter the exact amount you got for Column 3. However, to indicate the amount as a Credit/balance due, you need to substitute the positive number in Column 3 with a negative when copying to Column 4. Howbeit, if the number in Column 3 is negative, convert it to positive in Column 4.

Now, after duly observing all the instructions in Worksheet 2, and you have ascertained the adjusted amount of federal tax liabilities reported on Form 941, the next step is to effect the changes. Enter the changes on Line 18a, Form 941X.

Refundable Portion

For the refundable portion of ERC that applies to qualified wages paid after March 12 and July 1, 2021, utilize Worksheet 2 to make necessary alterations.

You would originally find this amount in Line 13d of Form 941.

To change it, input in Column 1 the adjusted amount from worksheet 2, Step 2, Line 2k. Afterward, enter your previously adjusted amount in Column 2.

Then, as you earlier did for ERC non-refundable portion, calculate the disparity between the first and the second Column, and enter the amount in the third Column. Also, copy it to Column 4, and change the positive number to a negative number to positive to indicate Credit due. Lastly, go to Line 26a on Form 941X and input the amount from Column 1.

Health Expenses

Occasionally, the amount of your originally reported qualified Medicare expenses in Line 22 of Form 941 may require some alterations. The changes would apply to wages entered on Form 941, Line 21.

In this case, you will need to use Worksheet 2 to determine your new amount of qualified health plan expenses between March 2st and July 1st, 2021.

To do this, input in Column 1 the total adjusted amount for all employees. Go to Column 2 and input the actual or earlier adjusted amount.

After that, calculate the disparity between the first and the second Column, and enter the amount in the third Column. Also, copy it to Column 4, and change the positive number to negative or negative number to positive to indicate Credit due.

Lastly, on Line 31a of Form 941X, input the amount you have on Line 2b, Step 2, Column 1.

Worksheet 4

Worksheet 4 is to be referenced by employers needing to make immediate changes to claimed ERC for wages salaried between July 1, 2021, and December 31, 2022. Worksheet 4 is used similarly to worksheet 2; if you’re claiming the Credit for the first time, you can use Worksheet 4 for credit configuration.

Qualified Wages

You can as well record alterations to qualified wages for the ERC spanning the period ascribed to Worksheet 4.

You can do this by entering in Column 1 the total adjusted amount from Line 2i, Step 2, on Worksheet 4. Go to Column 2 and input the initially reported or earlier adjusted amount

Then calculate the disparity between Columns 1 and 2, and enter the amount in the third Column. Also, copy it to Column 4, and change the positive number to negative or the negative number to positive as required.

Finally, on Form 941X, Line 30, input the amount from Column 1.

Health Expenses

In case of changes to the amount of your originally reported qualified Medicare expenses, with the alterations associated with wages salaried between July 1, 2021, and December 31, 2021, you will need to use Worksheet 4 to determine your new amount.

To do this, input the total adjusted amount you have in Column 1, Worksheet 4 on Line 31a of Form 941X.

Worksheet 1

While not related to an employee retention credit refund, the Paid Sick and Family Leave Credit is often referred to as the ERC for self-employed. Worksheet 1 allows you to calculate the recoverable and non-refundable components of paid sick and family leave wages, which you also need to file a Form 941-x to claim.

This somewhat unknown business tax credit, the IRS paid sick leave credit was first introduced in the Families First Coronavirus Response Act (FFCRA), then amended in the Disaster Tax Relief Act of 2020 to include leave taken before April 1, 2021.