The Employee Retention Credit (ERC), which was introduced under the CARES Act in 2020 and later expanded in 2021, provides a refundable payroll tax credit to qualified small to medium-sized business owners that were affected during the COVID-19 pandemic.
The ERC program expired on September 30, 2021, but qualifying companies have up to three years to claim the credit by filing an amended payroll tax return. It usually necessitates the completion of a form in order to obtain those advantages.
Form 941-X is a form by ERC that you can use to update the information which you have not added in Form 941 and claim ERTC. Many people do not know about this form and many do not know how to fill up this form. Here is a guide on how to fill out Form 941-X for Employee Retention Credit.
Key ERC Credit Takeaways You Will Learn:
- Understanding Form 941-X for ERC: Learn the purpose and importance of Form 941-X in claiming Employee Retention Credit.
- Filing 941-X for ERC: Discover the process of filing Form 941-X to claim Employee Retention Credit for your business.
- Defining Qualified Wages: Gain insight into the concept of qualified wages and their role in the Employee Retention Credit program.
- Claiming ERC on Form 941-X: Understand the steps to claim Employee Retention Credit on Form 941-X for maximum benefits.
- Addressing FAQs on 941-X: Stay informed with answers to frequently asked questions related to Form 941-X and the Employee Retention Credit.
See Important 2024 Employee Retention Tax Credit Deadline Information at the Bottom of This Article.
What is Form 941-X for ERC?
Employers who have suffered a drop in gross income as a result of the coronavirus pandemic are eligible for the Employee Retention Credit (ERC). Employers that missed out on the ERC in the first two quarters of 2021 can still file a Form 941 X worksheet for ERC to take advantage of it.
The nonrefundable element of the ERC matches the employer’s contribution of Social Security tax, or 6.4% of salaries, on Form 941-X for the first and second quarters of 2021.
If a taxpayer does not claim the ERC and instead pays the employer’s part of Social Security tax through federal tax deposits, the phrase “nonrefundable” is misleading. The nonrefundable element of the ERC is refundable if the employer’s contribution to the Social Security tax was paid.
Check out Employee Retention Credit Refund Check Status.
Can I File 941 X Worksheet for ERC?
For the 2020 Employee Retention Credit, the statute of limitations does not expire until April 15, 2024. The limitation period for the ERCs from 2021 will not expire until April 15, 2025. Organizations can still apply for the ERC by amending their Form 941 X for the quarters that they were an Eligible Employer.
The Employee Retention Credit is a tax credit that qualifying companies can claim against some of these employment taxes from qualified wages paid. It is not a loan, and no repayment is required. The recoverable credit is more than the payroll taxes paid during the credit-generating period for the vast majority of taxpayers as social security during their period of limitations.
How to Fill Out 941-X for Employee Retention Credit in 2021?
This is how to fill out a 941-X ERC Form.
- Fill in the required details on the page header, such as the EIN number, quarter, company name, and year.
- Find which payroll quarters in 2020 and 2021 your association was qualified for.
- For each quarter you prepare for, gather your earlier 941, payroll logs, and a blank 941-X.
- Share information about your company. From the form, choose (941), as well as the quarter and year.
- For the quarter, select the appropriate calendar year.
- Choose the date when you first detected the errors on your 941 Form.
- Choose whether you’re filing an updated job tax return or a claim in Part 1; you’ll probably go with box 2.
- In Part 2, check box 3. Then, in box 5d, state that the Claim is for the tax that was not withheld from the employee’s pay.
- On the second sheet, Line 18a, enter your non-refundable sum or ERC’s salary.
- Then shift to Line 23 and add the sums on lines 7 through 22 of Column four.
- On the subsequent page, fill in your refundable share of the ERC.
- Add the sum on the following page, Line 27, to the numbers on lines 23–26c of column 4.
- In Line 30, add the Qualified revenue for the ERC.
- On-Line 43, write a detailed description of how you got to your decision. For instance, changing a return to applying for ERC Credits. Your refund check should be mailed to the contact shown on your account.
- As needed, read and submit the last page of Part 5.
The ERC reduces the amount of payroll taxes paid by qualifying employers. The worker’s share of Social Security tax, which is 6.2% of salaries, was the relevant employment tax for 2020 and the first and second quarters of 2021. The worker’s portion of Medicare taxes, which is 1.45% of the payout of the eligible worker for qualified wages, was the relevant employment tax for the 3rd and 4th quarters of 2021.
The ERC 941-X does require someone to understand the procedure and how it should be solved. The process is very simple. The Relief Act allows an employer to share where they choose an alternate quarter to assess eligibility, as explained in IRS Notice 2021-23. Any worker was eligible for a quarter of the calendar in 2021 under this election if gross receipts for the entire previous calendar quarter fell by at least 20% from the same calendar quarter in 2019 for the qualified wages.
What are Qualified Wages?
Qualified wages are determined by two crucial variables, one of which must be utilized in the calendar quarter in which the amount is to be used with an employer share. The other is when a trade or business has partial suspension or is completely forced to reduce its hours due to a government edict. Read full employee retention tax credit restaurants details here.
To declare that for each quarter, a new ERC, qualifying salaries in total, qualified wages, and related health insurance expenses should be calculated and subtracted from the deposit made using Form 941. When you have already filed your tax return for 2020, you can claim some credit retroactively. To do so, fill out Form 941-X.
People can obtain an initial tax deposit by using Form 7200, which is for Advance of Employer Credits. It is offered to employees as a result of Covid-19, and it might benefit them if they qualify as a small company. Corporations with more than 500 employees are not eligible for advance payments.
Learn more about 7 Ways to Determine Qualified Wages for the Employee Retention Credit.
How Do I Claim Employee Retention Credit on Form 941-X?
On IRS Form 941, a qualified worker can claim on the worker’s federal employment tax return with the ERC. Eligible employers can do the following in advance of getting the ERC:
- Up to the amount of the expected credit, they can decrease their deposits of government employment taxes that would otherwise be due.
- Fill out IRS Form 7200 to request an advance of the expected credit amount to the extent it surpasses the lower federal employment tax payments.
Only small companies in 2021 will be able to seek an advance payment of the benefit in a sum not exceeding 70% of the average quarterly salaries paid in the calendar year 2019. The obligation to lower deposits in preparation of credit before obtaining an advance remains in effect for 2021 eligible small enterprises, according to Notice 2021-23.
As stated at the outset of this essay, taxpayers should pay great attention to the instructions on line 18 of Form 941-X for employer share, particularly the instructions on turning a positive number in column 3 to a negative sign in column 4.
If a positive figure in column 3 is not changed to a negative number in column 4, the ERC claimed on Form 941-X will be reduced unnecessarily on behalf of the social security of an employee.
Check out a detailed guide on How to Claim the Employee Retention Credit (ERC)?
941-X Employee Retention Credit Example
The ERC is a tax credit meant to encourage firms to keep their employees on the job and minimize unemployment compensation claims in the covered period. In 2020, the tax credit was equal to 50% of qualified salaries paid to workers in a calendar quarter, up to $5k per employee.
The tax credit for 2021 was equal to 70% of qualified salaries paid to employees by eligible businesses that have plan expenses allocable, with a maximal credit of $7k per employee per quarter (or $28k per year) for registered businesses. The form would need to be completed regardless of administrative errors, income tax withholding errors, or nonadministrative errors.
941-X Instructions
The teachings walk you through completing the revised Form 941-X or Claim for Refund, which is still being finalized. Multiple new and altered lines in the retention Form 941-X have been updated, which was issued on July 22, 2021, relating to revisions to Form 941, Employer’s Quarterly Federal Tax Return, during the hours of service.
Because the Form 941-X instructions do not duplicate all of the information given in the Form 941 instructions, the IRS recommends the corrections on the form utilizing the particular instructions for the quarter that is being rectified. A table of contents is now included in the instructions with social security tax deferral information along with other relevant sources.
Corrections to the following COVID-19 related items recorded on Form 941 can now be reported on the updated Form 941-X. The paid qualifying sick and family leave earnings, the employee wages, and the COBRA premium support tax credit have five new worksheets that have been added to the instructions to compute additional credits. The amounts in a column have been changed without any math errors.
Worksheet 1 has also been changed (it was the sole worksheet in the prior version of the instructions). Third-party funders must prepare each worksheet individually for each customer for whom it is appropriate. No underreported tax amounts are to be shared here, while the difference between columns will clearly explain everything. You can find the employer portion satisfactory with all the crucial points regarding employer rate, eligible employer status, and quarter to amounts used.
941-X Worksheet
There are Five worksheets for Form 941-X. Each of them has separate uses. The Credit for Qualified Sick and Family Leave Wages for Leave Taken Before April 1, 2021, was calculated using Worksheet 1. The recoverable and non-refundable components of sick and family leave allowances were taken before April 1, 2021, which was calculated using payroll tax credit election. The first step on Form 941 Worksheet 1 is to:
Step 1: Calculate the employment percentage of the social security tax that is decreased after the rebate obtained on Form 8974 and any credits to be claimed on Form 5884-C and 5884-D.
Employers should utilize Worksheet 2 to compute the ERC only for the second quarter of 2022. The non-refundable components of the ERC for the third quarter of 2022 are calculated using this worksheet for the qualified leave wages.
Staff should no longer utilize 941 Worksheet 2 to compute the ERC after the second quarter of 2022. Workers should instead utilize Worksheet 4 for the third and fourth quarters of 2022.
Worksheet 3 is designed to assist employers in calculating qualifying pay for sick and family leave used after March 2022. Workers that have claimed these credits for the 2nd, 3rd, and 4th quarters of 2022 should complete Worksheet 3. There are two parts to this worksheet.
Employers must first calculate their part of Medicare taxes and check if they are qualified health plan expenses.
Step 2: This is a considerably lengthier part, assists employers in calculating the quarter’s sick and family leave the credit.
The non-refundable amount of credit for sick and family leave pay is on Line 2r of Worksheet 3, while the refundable portion is on Line 2s; these two lines are critical since the employer will need to record these figures on Form 941.
Workers will need to use worksheet 4 in the 3rd and 4th quarters of 2021. They will have inaccurate computations on their Form 941 if they utilize worksheet 2, which was only intended for the second quarter. Employees in columns are differentiated on their stats.
The existing COVID-19 tax credits were enhanced by the (ARPA), which was passed in early 2021. This includes the credit for employee retention as well as the credit for sick and family leave as their social security. However, this measure also created a new tax credit, the COBRA premium assistance credit, which employees can claim for the rest of 2022.
Employees who lost their employment or full-time status owing to the pandemic might get a COBRA original return under the American Rescue Plan Act (ARPA). Employers should pay for this and then claim it on Form 941 later. Employers must utilize Worksheet 5 to claim overreported amounts. The nonrecoverable and refundable elements of the COBRA premium support credit are summed on Lines 2g and 2h. Both amounts should be recorded on Form 941 as requested.
The amounts from the column where the workers have been listed would count their wages for the amounts in a column that explain their differences.
Can 941-X Be Filed Online?
The 941-X is used to make changes to the information on the 941 forms. To mail to the IRS, you can download and print the 941-X form. Form 941-X cannot be filed online with the IRS. The 941-X form can be printed and mailed to the IRS. But at this time, the IRS is unable to accept 941-X forms filed over the internet.
A “period of restrictions” is a term that refers to each of the time ranges. Forms 941 for a calendar year are deemed filed on April 15 of the following year if submitted before that date for purposes of the statute of limitations.
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 wages, and tips subject to Additional Medicare Tax withholding, Taxable social security wages, Taxable social security tips, Federal income taxes, and Applicable employment taxes may all be corrected using Form 941-X. For each tax period in which an error occurred, you must file a separate Form 941-X.
If a quarterly 941 filer committed a payroll mistake for the full calendar year, they would file four 941-Xs. Do not mail a Form 941-X from a prior quarter with a Form 941. A specific amount of time must pass before Form 941-X may be filed. This form must be filed within three years after the date you filed your first return or two years after you paid the tax, whichever comes first.
For instance, if all Forms 941 are filed by April 15th of the following year, they are considered filed on that date. The IRS treated all of your tax returns as if they were submitted on April 15, 2018, provided you filed your first three quarterly returns in 2017 and your final quarter Form 941 on January 31, 2018.
In this case, the statute of limitations, or the date to submit adjustments for all four 2017 quarterly Forms 941, was April 15, 2021. Because all four tax returns were due on April 15, 2018, this is the case. To rectify a previously filed Form 941, you have to choose one of two methods on Part 1 of Form 941-X. The corrections on the form are applicable in 2022 when you will also be able to see the percent of wages for your task.
Check out more about Employee Retention Credit (ERC) Form 941-X: Everything You Need to Know.
What is the Difference Between 941 and 941-X?
Form 941-X was upgraded in 2022, and it is the initial update of form 941. This tax refund form was designed to assist you in updating your 941 Forms for 2020 and 2021. You’ll need to change your Form 941 that troubled employers filed to the IRS in past quarters now that you’re permitted to have both PPP loans and ERTC.
Where Does 941-X Get Mailed to?
The IRS Recommends filers to e-file form 941 for quick processing. As the IRS does not allow electronic filing of Form 941-X, you can print and mail the 941-X form to the IRS. The IRS does not have the capability to accept 941-X forms submitted online at this time. So their mailing address is given here.
- 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 sending an early release of the IRS tax form, guidelines, or publication for your information on the new form 941-X. Instructions and publications are frequently revised before their final distribution. At IRS.gov/FormsComments, you can make comments to the IRS on final forms, instructions, or publications.
Conclusion and Summary on How to Fill Out 941-X for Employee Retention Credit
The above guide shares all the information regarding taxable wages, the way to deal with underreported amounts, business operations, and their effect on employees, along with ways to deal with ERC for any recovery startup business in the Form 941-X.
You can file Form 941-X and make the updates that you wanted in Form 941 and claim the ERC for the same. Make sure that you fill out all the correct information in Form 941-X and provide all the relevant documents along with it.
ERC PDF Download of This News Article
Download a PDF version of How to Fill Out 941-X for Employee Retention Credit?
Help on How to Fill the 941-X Form to Get the Employee Retention Tax Credit (ERC / ERTC): Receive Up to $26,000 Per Employee for Your Business
Disaster Loan Advisors can assist your business with the complex and confusing Employee Retention Credit (ERC) and Employee Retention Tax Credit (ERTC) program.
Depending on eligibility, business owners and companies can receive up to $26,000 per employee based on the number of W2 employees you had on the payroll in 2020 and 2021.
The ERC / ERTC Program is a valuable tax credit you can claim. This is money you have already paid to the IRS in payroll taxes for your W2 employees.
Schedule Your Free Employee Retention Credit Consultation to see what amount of employee retention tax credit your company qualifies for.
ERC Deadline Urgency in 2024
April 15, 2024 Deadline for the 2020 ERC Tax Year
The deadline is coming up for the final opportunity to retroactively claim your business Employee Retention Credit for the past 2020 tax year. With the April 15, 2024 deadline fast approaching, we urge you; don’t let this final chance pass!
While not all businesses will qualify, as it depends on multiple factors per IRS Rules and Guidelines, you might be leaving significant financial relief on the table from prior COVID impact to your business during the past 2020 and 2021 business operation years.
Last year, in September 2023, the IRS temporarily paused processing ERC Claims for the remainder of last year. We at Disaster Loan Advisors (DLA) predicted this over one year ago when we made this ERC video warning business owners. See the ten-minute mark of the video for details.
TAKE ACTION NOW IN 2024
Even though the IRS has temporarily paused processing, you will still want to check eligibility and file now (if you qualify) because once the IRS will resume processing, ERC tax credit claims are processed in the order they are received.
If you haven’t previously filed for the ERC Credit, it is worth scheduling a phone call to at least explore your possible eligibility from both the past 2020 and 2021 business tax years. Contact us today for a deep-dive analysis to determine if your business qualifies one or more quarters from the 2020 and / or 2021 tax years.
Cover Image Credit: 123RF.com / Andreypopov / Disaster Loan Advisors.
As a leading dedicated member of the Tax and Accounting Team at Disaster Loan Advisors™, Mark focuses on unlocking the ERC Tax Credit's potential for eligible firms that qualify, providing strategic advice, and detailed guidance to ensure substantial financial recovery and growth. His methodical approach to client engagement includes comprehensive deep-dive analysis, customized consultation and guidance, and a commitment to achieving tangible results for each business served.
Disaster Loan Advisors™ (DLA) offers a comprehensive suite of services designed to navigate the complexities of the Employee Retention Tax Credit (ERC) program, ensuring that qualified businesses leverage the maximum possible benefit with minimum hassle. Unlike some firms that charge exorbitant contingency or percentage-based fees (often between 10% to 30% of your ERC refund), DLA operates on a fair and reasonable, transparent flat-fee structure that aligns with the IRS's guidelines.
If you are looking for an ERC Company that believes in providing professional ERC Services and value for small business owners, in exchange for a fair, reasonable, and ethical fee for the amount of work required, Disaster Loan Advisors™ is a good fit for you. STAY SAFE. STAY COMPLIANT. KEEP MORE OF YOUR REFUND.™