The COVID-19 pandemic led to the government establishing several relief programs, including tax credits for businesses like the employee retention tax credit (ERTC). This credit allows employers to get a credit for qualifying wages paid to employees to help them keep people on the payroll.
The ERTC officially ended on September 30, 2021, but recovery startup businesses can take it for wages paid until December 31, 2021. Qualifying employers can still claim the ERTC retroactively, however. You can do it using Form 941-X, which alters your original Form 941.
There are two processes for using Form 941-X: the adjustment process and the claim process. Which should you use? This guide will cover everything you need to know about Form 941-X and how to determine which process you need to follow to file it properly.
What Is Form 941-X?
Form 941-X is the Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund document that you will submit to the IRS when you previously filed Form 941 and need to correct it.
The IRS created X forms, including 943-X, 944-X, 945-X, and CT-1X, so businesses could “report adjustments to employment taxes and to claim refunds of overpaid employment taxes” on their original returns.
You must have submitted Form 941 to alter it with Form 941-X. You will use this form when you’re ready to claim the ERTC after you have already submitted Form 941 and need to correct it.
When You Would Use Form 941-X
This tax form has several different uses, but they all relate to changing the original Form 941 you submitted to the IRS. You may need to report underreporting or overreporting or claim a credit you missed. Here are some scenarios in which you would use Form 941-X:
Discovering that you underpaid on Form 941 should be addressed as soon as you notice the error. You may start to accrue interest on underpayments if you don’t file an amended Form 941-X by the next deadline for the next payroll tax return filing when the mistake is found.
Claiming Credits That Were Missed
Employers may find they missed claiming a credit they were eligible for, whether they didn’t know about it or didn’t allocate benefits properly. You have three years from the original return filing date or two years from when you paid the tax to submit Form 941-X to file a refund claim.
Claiming the Employee Retention Credit
The ERTC is one credit you may use Form 941-X to claim. The ERTC is a refundable credit, and while the program ended on September 30, 2021, qualified employers can still claim the credit for three years. Use Form 941-X to claim the ERTC to update the information you included on Form 941.
Using Form 941-X allows you to amend your Form 941, whatever error or change you need to report. Find out more about this form and how to use it by working with an ERTC expert.
5 Steps to Choose Which Process to Use
There are two processes to file Form 941-X and correct a Form 941 error: The adjustment process and the claim process. These five steps will help you figure out which approach to use:
1. Understand Underreported versus Overreported
You must first learn what underreported and overreported mean for Form 941-X. Underreporting an employment tax credit or social security tax deferral is treated like an overreported tax amount. Overreporting an employment tax credit or social security tax deferral is treated like an underreported tax amount.
2. Learn What Each Process Entails
The adjustment process is used to claim a credit when you want to claim it against your payroll tax that will be due the next time you file Form 941. The claim process means you are requesting a refund of the overreported tax amounts.
3. If You Are Only Including Underreported Tax Amounts…
The adjustment process is used if you are only including underreported tax amounts on Form 941-X. This means you claim the credit against your payroll tax due on the next Form 941 filing.
4. If You Are Only Including Overreported Tax Amounts…
Overreported amounts may require either process, depending on when you file Form 941-X. Filing more than 90 days before the period of limitations on the credit means you will choose the adjustment process if you want the amount credited to Form 941 for the period you file Form 941-X.
Choose the claim process if you want the amount refunded to you or abated. If you file within 90 days of the expiration of the period of limitations on the credit, you must use the claim process.
5. For Both Underreported and Overreported Tax Amounts…
Including both underreported and overreported tax amounts on Form 941-X means you have to choose between the process options. Filing Form 941-X more than 90 days before the period of limitations expires means you’ll choose the adjustment process if the result of combining underreported and overreported amounts is a balance due or creates a credit you’d like to apply to Form 941.
You will choose both processes if you want the amount you overreported to be refunded or abated. You will file two forms for each process in this case: The adjustment process for the underreported amount and the claim process for the overreported amount., Filing within 90 days of the period of limitations expiration means you must use both the adjustment process and claim process, one for underreported amounts and one for overreported amounts.
The process you use will depend on the type of correction you’re making and the period you’re making it in. The important part is ensuring you file Form 941-X while you are still eligible to receive the ERTC. Talk to an ERTC expert when you have questions about this process.
10 Steps to File Form 941-X
Filing Form 941-X is simple when you understand which process you’re using. How do you ensure you do it properly? Here is a step-by-step guide to filing form 941-X:
1. Gather Your Records
Get started by ensuring you have your original Form 941 that you filed and all necessary payroll information about the period you’re for which you’re filing. You also need to have a blank Form 941-X to use.
2. Determine Your Due Date
The IRS outlines several due dates for Form 941-X based on when you discovered the error. Form 941-X is due by April 30 if you found it in January, February, or March; for April, May, and June, it is due July 31.
The form is due October 31 for July, August, or September, and January 31 for October, November, or December. Remember that you can file Form 941-X within three years from the date you filed Form 941 or two years from when you paid the tax, whichever is later.
3. Complete Your Basic Information
Start by including all your business details on the top of the form, including your business name, year, EIN, and quarter.
4. Determine Quarter Eligibility
You may be eligible for the ERTC in several quarters of 2020 and 2021. Make sure you are claiming the credit for all eligible quarters (each with a different form). Gross receipts must have been 50% less in 2020 than the same quarter in 2019 and 20% less in 2021 than the same quarter in 2019.
5. Enter the Date of Discovery
The form also asks you to enter the date you discovered the errors on your original employment tax return.
6. Select the Process You Are Using
Under Part 1, you will select one process you are using for your Form 941-X. Check box 1 for the adjusted employment tax return option and box 2 for the claim option, as detailed in the above section.
You will typically check box 2 if you are claiming the ERTC retroactively. You can only use one process for each form.
7. Check the Certification Boxes
Certify that you have filed your applicable tax documents (like Forms W-2 for employees) by checking the box in number 3 under Part 2. Go to number 5 and check box d, which states that the claim is for tax that wasn’t withheld from employee wages.
8. Enter the Corrections
Head down to line 18a and enter the non-refundable portion of the ERTC. Then, go to line 23 and combine all the amounts from lines 7 to 22.
On line 26a, you will enter the refundable portion of the ERTC. Total amounts from lines 23 to 26c on line 27. On line 30, you will enter the qualified wages for the ERTC you have calculated.
9. Explain Your Corrections
You will need to provide a detailed explanation of how you arrived at the numbers you provided. Write down all the details on line 43.
You will also need to explain that you are altering your original return to claim the ERTC and describe your calculations.
10. Sign and Submit the Form
In Part 5 of the form, you will sign the form and print your name and title. Your signature indicates that everything you included in the form is accurate to the best of your knowledge. You are ready to send in your form, and the address will depend on the state you live in.
The ERTC has the potential to give you a major tax credit, so ensure you pursue filing Form 941-X within three years from your original tax return filing.
Getting help is always a good idea if you don’t know what to do first, so talk to an ERTC tax professional for guidance.
Some Downsides of Using Form 941-X
Knowing best practices will help you complete Form 941-X to claim the ERTC accurately, so you don’t miss anything or run into trouble with the IRS. Keep these common pitfalls in mind:
- Use a different Form 941-X for each quarter you are correcting.
- You are required to enter the date you discovered the errors in your Form 941, which is the date you have enough information to correct the errors. This would be when you determined that you were eligible to claim the ERTC and how much your credit would be.
- Ensure you meet all ERTC eligibility requirements before you submit Form 941-X.
- Remember that you can now claim the ERTC even if you also received a Paycheck Protection Program (PPP) loan during the pandemic.
- Double and triple-check all your information and calculations, since simple tax form errors are common but could delay your credit being processed.
Tax reporting requirements can already be complicated, and when you find that you need to correct Form 941 to claim the employee retention credit, the process can be confusing. Talk to an ERTC professional who can tell you precisely what you need to do to get your credit.
Contact ERC Today with Questions about Form 941-X
You still have time to claim the ERTC, even though the program ended in 2021. Form 941-X allows you to claim the credit retroactively, so be sure you file the form as soon as you discover you’re eligible.
The team at ERC Today is here to walk you through the process of determining whether you qualify and how to claim the credit. Contact ERC Today for more information about your employee retention credit options.