A Guide to Filing Form 941-X for Employee Retention Credits
Thought Leadership by KBKG
If you believe your company is eligible to receive the Employee Retention Credit, the good news is that qualifying companies have until April 15, 2024 for the 2020 credit and April 15, 2025 for the 2021 credit, to file. However, to claim this benefit, you’ll need to file Form 941-X.
Table of Contents:
What Is IRS Form 941-X?
Form 941-X is the tax form employers fill out when they need to amend Form 941. While this form is generally used to correct errors, eligible businesses can also file IRS Form 941-X to retroactively apply for the ERC.
Are There Any Penalties for Underreporting Taxes?
In most cases, you can avoid penalties if you file by the due date, pay the amount shown on line 27 by the time of filing, enter the date you found the error, and adequately explain the requested correction.
However, you will be penalized if the underreported amount was related to an issue that was brought up during a previous examination period or if you deliberately underreported your employment tax liability. Additionally, you will have to pay interest if you receive a notice and demand for payment or a notice of determination under section 743.
What Is the Employee Retention Tax Credit?
The employee retention tax credit is a fully refundable payroll tax refund offered by the IRS to businesses that saw a significant decline in gross income during the pandemic or experienced full or partial shutdowns due to government orders that impacted commerce, travel, or group meetings.
A 941-X ERC example of an eligible business includes a restaurant with 50 employees that had to partially shut down its operations in March 2020 and then experienced significant income loss in 2021. This company would likely be eligible to claim the ERC for every quarter under the scope of the credit, Q1 2020 through Q3 2021 (Q4 2021 is only for recovery startup businesses).
This incentive program was initiated to prevent job loss and encourage employers to retain employees in 2020 and 2021. For each employee paid wages and or health care benefits, eligible employers can receive up to $5,000 for all of 2020 or up to $7,000 for each quarter in 2021.
Why Do Companies Hire Third-Party Payroll Services?
Many businesses outsource payroll to a third-party agency, especially companies that lack a structured HR department or need assistance managing salaries, taxes withheld, and employee benefits. Outsourcing these functions helps business owners save time and to avoid potential errors and oversights.
Using a Professional Employer Organization To File ERC for Your Small Business
A professional employer organization can handle a wide range of services for your business, including payroll, HR, compliance, training, and data analytics. The range of services offered depends on the provider, which can include PEO ERC assistance.
Your PEO company has access to payroll information for your employees and can also file your 941-X on your behalf, ensuring the form is filed correctly and that you don’t miss any deadlines.
How Do You File Form 941-X?
Access 941-X instructions and the 941-x worksheet for ERC by downloading the form from the IRS website. You will need to file a form for each quarter in 2020 and 2021 you qualify for credits for. Credits for Q1 2020 are reported on the Q2 2020 941-x.
On each page, fill out the box that asks for your employer identification number and other identifying information.
On the first page:
- Fill out the “Return You’re Correcting” box and select 941.
- Check the quarter being corrected and the year to which the quarter relates.
- For Part 1, most businesses will need to select box 2.
- For Part 2, check boxes 3 and 5d.
On page two, you only need to enter your non-refundable portion of ERC on line 18a. The non-refundable portion is calculated by completing the 941-x worksheet that can be downloaded with the form.
On page three:
- Enter the refundable portion of ERC on line 26a.
- Line 27 should be the sum of line 18 and line 26a.
- Record your qualified wages for ERC on line 30.
- Record your qualified health plan expenses on line 31a.
- For Q2 2020 only, record any Q1 2020 qualified wages and health plan expenses in lines 33a. and 34 respectively.
On page five, provide an explanation of how you determined your corrections, which should include that you are amending your return to apply for ERC. Finalize the form by signing your name and filling out Part 5 above the Paid Preparer Use Only section.
Where To Mail 941 With Payment
You will need to file your claim using mail, as there is no electronic option for submitting Form 941-X. If using a private delivery service, such as UPS or FedEx, use the following mailing address:
Ogden – Internal Revenue Submission Processing Center
1973 Rulon White Blvd.
Ogden, UT 84201
Department of the Treasury
Internal Revenue Service
If you use the U.S. Postal Service, the mailing address you need to use depends on your business’s location, including special filing addresses for exempt organizations and governmental entities.
Deadline for Filing Form 941-X
If you are filing to claim the ERC, the deadline to apply is April 15, 2024, for all quarters in 2020 and April 15, 2025, for all quarters in 2021.
- January through March: due April 30th
- April through June: due July 31st
- July through September: due October 31st
- October through December: due January 31st
Have a Professional File Your 941-X Form for You
Understanding your eligibility for ERC and filing a 941-X to claim these credits can be overwhelming and time-consuming. KBKG offers solutions for tax professionals and businesses, including assisting employers in claiming their ERC tax credit. Contact us to see if you qualify and to learn about our full suite of services.
KBKG is providing the following services to assist with ERC:
- Determine if the employer qualifies, and if so, for which quarters,
- Determine which employee wages qualify
- Calculate credits, including analysis of PPP interplay, and
- Reconcile actual credits with advance credits requested
- Prepare reconciled data for Form 941-X
- Prepare documentation supporting a business’ qualifications