How to Correct IRS Form 941 Errors
Employers who keep employees on their payroll are eligible for an employee retention credit (ERC). The ERC can now be claimed in the first and second quarters of 2021, according to legislation passed in December 2020 that extended the tax credit until June 30, 2021. With the approval of the American Rescue Plan Act in March 2021, the credit was extended again, this time until the end of 2021. Form 941 is used by the employer to record qualified pay for this credit.
Employers can also report qualified pay for employee sick leave and family medical leave credits using Form 941. Sick leave and family leave credits were also extended to December 31, 2021, as part of the same law that prolonged the ERC. For 2020, Form 941 has been updated to add line items for this tax credit.
Please note that you need to make sure you’re utilising the correct Form 941 and Form 941-X versions. Line items for recording revenue for the employee retention credit, sick leave/family leave credits, and other COVID-19-related tax credits are included in the most recent version of these forms, dated March 2021 (Form 941) or October 2020 (Form 941-X).
What is Form 941?
The Employer’s Quarterly Federal Tax Return is filed with the Internal Revenue Service (IRS). Employers must file it every quarter to report on income taxes and FICA taxes (Social Security and Medicare) deducted from employees’ salaries. It also shows the amount of FICA taxes owed by the employer.
Form 941 is not intended to be used to make a payment. It contains information regarding your payroll tax responsibilities and charges that you must provide to the IRS. The following items are included in the form:
- The total amounts withheld from employee pay for FICA taxes and federal income taxes for the previous quarter.
- The amount that the employer is responsible for in terms of FICA taxes.
- Amounts already deposited in the previous quarter for these payroll taxes.
The Internal Revenue Service must receive Form 941 within 30 days of the end of each quarter.
To correct Form 941 errors, use Form 941-X.
Form 941-X is the form you must use to repair Form 941 mistakes. When you compare Form 941 to Form 941-X, you’ll notice that the latter is essentially a replica of the former. That’s because the Internal Revenue Service planned it that way. The IRS has devised a series of “X” forms to report modifications to most employment tax forms, including Form 941.
What Can You Do With Form 941-X?
You can utilise Form 941-X to make the following changes:
- Wages, tips, and other forms of compensation and income tax deducted on these payments.
- Wages from social security are taxable.
- Social security tips that are taxable.
- Wages and tips are taxable under Medicare.
- Additional Medicare Tax withholding applies to taxable wages and tips.
- Increased research efforts qualify for a qualified small business payroll tax credit.
- COBRA premium assistance payment credits (COBRA premium assistance payments are getting phased out, but you can correct a previous claim using the 2017 revision of Form 941-X).
The IRS distinguishes between two types of mistakes, and when you can repair them depends on which one you have.
- Administrative errors include transposition (number mix-ups) and math errors, including improper reporting of a withheld amount. If you want to repair a simple administrative error, you can do it simultaneously, as long as the error does not result in underreported or overreported tax.
- Federal withholding errors can only be corrected if discovered during the calendar year in which the earnings were paid. Only if you were additionally repaid or compensated may you rectify federal income tax withholding.
When does Form 941-X have to be submitted?
The filing deadline for Form 941-X is determined by when you uncover an error and whether you underreported or overreported tax. You can make an interest-free adjustment on a future quarterly 941 form or file a claim for refund or reduction if you over-reported tax. Use the Claim for Refund and Request for Abatement, Form 843. Depending on when you file Form 941-X, the process is different. You must file Form 941-X and pay the amount owing by the due date of the specified Form 941 if you underreported tax. 7 For example, if Form 941 was due on April 30 (for the first quarter) and you discovered the error on June 30 (for the second quarter), you must file Form 941-X and pay the amount due by July 31, the second-quarter Form 941 due date.
Please note that the method you employ for underreporting and overreporting numbers are convoluted. For more information, see the table “Which process should you use?” on Form 941-X.
What is the best way to file Form 941-X?
You can submit your Form 941-X by mail. The location of your company determines the mailing address. Use this list on “Where to File Your Taxes” (for Form 941-X) to find the correct place.
To summarise, This blog is meant to provide you with a general understanding of this form; however, it is not intended to provide tax or legal advice. The 941-X form is complicated, and each tax situation is unique. Your tax professional or a payroll agency can assist you with this form. I hope that this blog helped you and proved to be helpful, and was worth a read.