Do I need to amend IRS Form 941 to claim the employee retention tax credit?
In these difficult times, businesses must navigate various federal income tax, credits, and relief options to maintain viability. An important option is the Employee Retention Credit (ERC), a valuable payroll tax credit designed to incentivize employers to retain employees during the COVID-19 pandemic.
To claim this tax credit, after determining eligibility, and running correct calculations, yes you do need to amend Form 941, a separate form that reports your quarterly federal employment payroll taxes. This is done with IRS form 941-X which allows you to claim the ERC credit.
Keep reading to learn more about the process of amending Form 941 and 941-X for the ERC, discuss eligibility criteria, explore common mistakes to avoid, and highlight additional considerations when claiming this lucrative opportunity.
If you have not already claimed the tax credit, you can still claim the employee retention credit retroactively in 2023, 2024, and 2025.
Key ERC Credit Takeaways You Will Learn:
- Eligibility Requirements for Employee Retention Credit: Understand if your business qualifies for this tax credit to boost your bottom line.
- Qualifying for the Credit: Learn the criteria and steps necessary to ensure your business meets the requirements.
- Not All Employees Are Eligible: Discover which employees are eligible for the Employee Retention Credit and maximize its benefits.
- Meeting Requirements: Familiarize yourself with the specific requirements your business must meet to claim the credit successfully.
- Unlock Your Business’s Potential: Leverage the Employee Retention Credit to claim up to $26,000 per employee and boost your refund.
See Important 2024 Employee Retention Tax Credit Deadline Information at the Bottom of This Article.
Learn More About the Employee Retention Credit (ERC)
To claim the Employee Retention Credit (ERC), it’s crucial to understand the qualifying criteria, which include factors such as eligible employers, qualified wages paid, and periods.
Determining ERC Qualifying Wages And Time Periods
One of the critical aspects of claiming the Employee Retention Credit (ERC) is determining which wages and periods are eligible for this valuable tax relief. To qualify, wages paid must be after March 12th, 2020, and before July 1st, 2021, full or partial shutdown.
Generally speaking, qualifying wages include salaries or hourly rates and certain employee benefits such as health plan expenses and employment taxes.
In contrast, smaller businesses with fewer than a hundred full-time employees can count all employee wages towards the ERC calculation during any calendar year or quarter where they met eligibility requirements – either suffering from significant revenue decline or having operations fully or partially suspended due to government-imposed regulations related to COVID-19.
ERC Qualifying Criteria
To be eligible for the Employee Retention Credit (ERC), small to medium-sized business owners must meet specific criteria, which include:
1. Experiencing a significant decline in gross receipts during any calendar quarter of 2020 or 2021 compared to the same calendar year or quarter as in 2019
2. Operating a trade or business in a calendar quarter that is either fully or partially suspended due to government orders related to COVID-19
3. Being a private sector employer or tax-exempt organization operating during calendar quarters within the qualifying period
4. Not claiming wages for other COVID-19 relief programs, such as Paycheck Protection Program (PPP) loans or Work Opportunity Tax Credits, for the same employees
5. Calculating qualified wages according to specified guidelines, including factors like the size of your business and the number of full-time employees
By meeting these criteria, eligible employers can benefit from the ERC by receiving credit toward their payroll taxes and retaining valuable employees during challenging times.
How To Claim The ERC on Form 941 / 941-X
To claim the Employee Retention Credit (ERC) as reported on Form 941 below, follow the step-by-step instructions provided in this section and ensure accurate reporting for eligibility.
Step-by-Step Instructions For Claiming The ERC
To help small to medium-sized business owners take full advantage of the Employee Retention Credit (ERC), follow these step-by-step instructions for claiming the valuable payroll tax credit:
1. Assess your eligibility: Determine if your business qualifies for the ERC by reviewing the qualifying criteria, such as experiencing a significant decline in gross receipts or having business operations fully or partially suspended due to governmental orders related to COVID-19.
2. Calculate qualified wages: Based on the eligible period (wages paid after March 12th, 2020, and before July 1st, 2021), determine the total amount of qualified wages and health plan expenses you paid to each employee.
3. Refer to Form 941 Instructions: Carefully read the IRS Form 941 instructions and utilize provided worksheets to properly calculate and report ERC figures, ensuring accurate reporting.
4. Claim the credit on Form 941: On line 11c of Form 941, report your calculated credit amount for each quarter within which you meet eligibility requirements.
5. Complete Form 941 x line(s) 941-X if necessary: If amending a previously filed Form 941 x line is required to claim or correct errors in figures related to ERC eligibility or amounts claimed, complete and file a Form 941 x line(s) 941-X using updated April 2022 instructions.
6. Determine refundability of credits: Consider whether credit refund claims any portion of your claimed ERC is non-refundable; this portion can be used as a general business credit against other tax liabilities you may have.
7. File electronically when possible: For greater accuracy and efficiency, opt for filing your completed Form(s) 941-X electronically.
8. Retain supporting documentation: Keep essential records detailing calculations and documents supporting your eligibility for the ERC in case of future audits.
9. Monitor regulation changes: Stay informed about any updates or changes related to ERC guidelines so that necessary amendments can be made promptly whenever required.
10. Seek professional advice: If you have specific concerns or questions related to claiming the ERC or amending Form (s) 941, consult with a qualified payroll professional, tax advisor, or the IRS for assistance.
Importance Of Accurate Reporting
Accurate reporting is crucial when claiming the Employee Retention Credit (ERC) on Form 941. This ensures that employers receive the correct amount of refundable credit portion of the claim amount and avoid penalties for incorrect filing.
It’s important to track qualifying wages and determine which periods they apply to so that eligible employer employees can be identified for the credit.
For example, if an employer mistakenly includes ineligible wages’ overreported tax amount or miscalculates their qualified wages’ overreported tax amount, this could lead to overclaiming or underclaiming of the ERC. Additionally, failure to report accurate information promptly could result in costly penalties from the IRS.
Do I Need To Amend Form 941 To Claim The Employee Retention Credit?
Suppose you did not initially claim the Employee Retention Credit on Form 941 or claimed less than you were entitled to. In that case, it is possible to make corrections and claim the full employee retention tax credit by amending your original report on Form 941 using Form 941-X.
Overview Of Amending Form 941 / 941-X
Amending Form 941 is correcting any errors made on a previously filed quarterly payroll tax return. If you need to claim the Employee Retention Credit (ERC) for wages paid after March 12th, the same calendar quarter of 2020, and before July 1st, the third and fourth quarters of the same calendar quarter of 2021, then you may have to amend your Form 941 for that period.
You must use Form 941-X (Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund) to do this. The process involves filling out the Form with the correct information and explanations for amendments.
You should provide as much detail as possible about why you are making changes and how they impact your eligibility for claiming the ERC.
Amending For The 2020 And 2021 Tax Year with IRS Form 941x
If you did not claim the Employee Retention Credit (ERC) on your Form 941 for 2020 or 2021, don’t worry. You can still claim it by amending your return using Form 941-X. However, only amendments made before the expiration date of October 15th of the third year following the expiration date of the due date of the original Form 941 will be considered timely.
If you want to amend your 2020 Form 941 to claim your employment tax returns from the ERC, you must do so before October 15th, 2023. Similarly, suppose you want to amend for the second quarter of 2021 to claim this employee retention tax credit. In that case, it’s important that you file a corrected form and pay any additional tax owed by November 1st, as long as there were no adjustments made previously for other quarters in which they claimed their employee retention credits.
It’s important to remember that claiming the ERC is complex, and businesses should seek professional advice from payroll accountants or tax professionals when filing an amended return with IRS Form X-941.
Eligibility Requirements For Claiming The ERC with 941 Form
To be eligible for the Employee Retention Credit, a business must meet certain criteria, including:
1. Business operations: The business must continue to operate during the applicable calendar quarter or must have temporarily suspended operations due to orders from a governmental authority related to COVID-19.
2. Significant decline in gross receipts: For 2020, the business must have experienced a significant decline in gross receipts, defined as a 50% or more decline compared to the same quarter in 2019. For 2021, the decline threshold is reduced to 20%.
3. Qualifying wages: The business can only claim the credit for qualified wages paid after March 12th, 2020, and before July 1st, 2021.
4. Employment status: Businesses with fewer than 500 employees are eligible for the credit regardless of whether their employees are actively providing services.
5. PPP loans: Employers who received Payment Protection Program (PPP) loans may still be eligible for the ERC but cannot include wages paid with PPP loan proceeds.
It’s important to note that additional eligibility requirements for certain types of employers and special circumstances related to government entities and tax-exempt organizations should be reviewed carefully before claiming the ERC.
How To Amend Form 941
Learn how to amend Form 941 by filing Form 941-X, which includes step-by-step instructions for providing the correct information and explaining amendments.
Instructions For Filing Form 941-X
To claim the Employee Retention Credit (ERC) by amending Form 941, you must file Form 941-X. Here are the steps to follow when filing amended Form 941-X:
1. Obtain a copy of Form 941: You will need information from the original Form to amend it correctly.
2. Complete a new Form 941: You must complete and attach a new Form 941 for each quarter you are amending.
3. Include requested information on Line 22 of the amended payroll tax return below: You must include your full payroll tax return due period, “Amended Return,” and any additional information IRS requests in this section for each quarter you are not amending payroll tax returns.
4. Complete the lines regarding qualified wages: Each quarter should be calculated based on qualified wages paid during that period and credit applied in that same quarter.
5. File electronically or manually: You can file electronically using e-file providers or file manually by mailing it in with an explanation of adjustments made.
It is important to provide a detailed explanation of why you are amending your returns when filing Form 941-X. Ensure all numbers and calculations are correct, and keep copies of all amended forms and supporting documentation for your records.
By following these instructions, small to medium-sized business owners can successfully amend their payroll tax returns to claim the ERC on Form 941-X.
Providing Correct Information And Explanations For Amendments
When making amendments to Form 941, providing accurate and detailed information about the changes is important. This includes providing a clear and detailed explanation of why the amendment is necessary and correcting any errors in reporting wages or other details related to the Employee Retention Credit (ERC).
To ensure accuracy when amending Form 941, small to medium-sized business owners should consult with payroll accountants or tax professionals familiar with the requirements of claiming the ERC.
They can guide eligibility criteria and help calculate qualified wages paid during specific periods. Additionally, keeping detailed records of all payments made during these periods will make it easier to provide accurate information when filing an amended return.
Common Mistakes To Avoid When Amending Form 941
Avoid making calculation errors or omitting eligible employees when amending Form 941 for the Employee Retention Credit, ensure timely filing of amended returns, and seek professional consultation to avoid costly mistakes.
Calculation Errors And Eligible Employee Omissions
When amending Form 941 to claim the Employee Retention Credit (ERC), it is important to avoid calculation errors and eligible employee omissions. Here are some correct errors and some tips on how to avoid these mistakes:
1. Double-check your calculations: Before submitting a Form 941, review your calculations carefully to ensure they are accurate. If you have any doubts, consult with a qualified tax professional.
2. Verify eligible employees: Ensure you include all eligible employees when calculating the ERC. Eligible employees include those employed by the employer during the period for which the credit is being claimed and who meet other eligibility criteria.
3. Keep detailed records: To avoid errors and omissions, keep detailed records of payroll and employment data used to calculate the ERC. This includes information about eligible wages, employee hours worked, and payroll taxes paid.
4. Understand IRS guidance: The IRS guides calculating and claiming the ERC. Follow this guide carefully to ensure that your amended return is accurate.
By avoiding calculation errors and eligible employee omissions, small to medium-sized business owners can help ensure they receive the full benefits of the ERC while minimizing their exposure to potential penalties or audits.
Timely Filing Of Amended Returns
Amending Form 941 to claim the Employee Retention Credit is a process that requires careful attention to timing. Filing any amended returns as soon as possible is critical so you don’t miss out on potential refunds or credits.
The IRS generally allows taxpayers up to three years from the original income tax return date to amend payroll and federal income tax withholding and filings.
For example, suppose your business incorrectly reported qualified wages paid for a specific quarter and only realized this after filing Form 941. In that case, you should plan on amending that report on Form 941 within a reasonable timeframe.
Waiting too long could lead to interest and penalty charges for late payment of taxes owed, which no business owner wants.
Seeking Professional Consultation
It is always important to seek professional consultation regarding employment taxes and financial matters, especially with the complex nature of claiming the Employee Retention Credit (ERC).
Hiring a payroll accountant or tax professional can help ensure that your business has accurately claimed eligible and taxable wages and filed the necessary paperwork.
Professional consultation can also provide valuable insights into maximizing the benefits of the ERC while minimizing potential risks. For instance, an expert may suggest filing electronically rather than through mail for faster processing and more efficient communication with the IRS.
Filing 941 Document Electronically
It is possible to file Form 941-X electronically, which provides a convenient and efficient option for eligible employers.
Explanation Of The Electronic Filing Option For 941-X
Business owners can file Form 941-X electronically, which is faster and more efficient than mailing the Form. To not file form 941 x- electronically, business owners should use tax preparation software or a third-party provider approved by the IRS.
Electronic filing allows quicker processing of amended returns and reduces the likelihood of transcription errors. Business owners can also receive confirmation that their return has been received and processed through the electronic filing system.
Additionally, electronic filing provides secure transmission of sensitive information such as employee social security numbers and wages paid.
Benefits Of Filing 941 Electronically
Filing Form 941 electronically benefits small to medium-sized business owners. Here are some of those benefits:
1. Faster processing time: Filing electronically allows the IRS to process your amended return faster, resulting in quicker credit approval.
2. Reduced errors: Electronic filing reduces the likelihood of errors, as the software catches common mistakes, such as missing or incorrect social security numbers and other relevant data.
3. Simplified tracking: With an electronic system, you can track the status of your amended tax return and receive notifications when it is accepted or rejected.
4. Convenience: Electronic filing eliminates the need for paper forms and trips to the post office, saving you valuable time and money.
5. Increased accuracy: Using electronic filing software to submit your amended return, you can ensure that all necessary fields are filled out correctly and accurately.
By taking advantage of these benefits, businesses can streamline their process for claiming the ERC and increase their chances of receiving the tax credit as soon as possible.
Unfortunately, with claiming the Employee Retention Tax Credit, the 941x forms must be postal mailed into the IRS.
Other Considerations When Claiming The Employee Retention Credit
Other considerations when claiming the Employee Retention Credit include
- properly documenting eligibility for the credit,
- managing the impact of the credit on future payroll tax returns and filings, and
- understanding how it interacts with other COVID-19 relief programs like the Paycheck Protection Program.
Interaction With Other COVID-19 Relief Programs
It’s important to note that the Employee Retention Credit (ERC) interacts with other COVID-19 relief programs. For example, if you received a Paycheck Protection Program (PPP) loan, you may still be eligible for the ERC.
Additionally, if you claimed an ERC in a previous quarter but then received forgiveness on your PPP loan and included those wages in your forgiveness application, you must amend your employment tax return to reverse any ERC previously claimed on those wages.
Overall, it’s important to consult with a qualified professional or research thoroughly before claiming multiple COVID-19 relief programs, as they often have overlapping rules and limitations.
Documenting Eligibility For The Credit
To claim the Employee Retention Credit (ERC), it’s essential to maintain proper documentation to prove eligibility for the credit. It’s crucial to keep accurate records of employee wages and relevant business activities, such as full or partial shutdowns due to COVID-19.
Documenting eligibility for ERC is vital because the IRS can audit tax returns up to three years after filing. Inaccurate information or a lack of documentation could result in penalties or legal issues.
Managing The Impact Of The Credit On Future Tax Filings
It is important for small to medium-sized business owners to consider the impact of claiming the Employee Retention Credit (ERC) on future tax filings. While receiving this credit can provide increased liquidity and reduced tax liability, it may affect other tax programs or credits the government offers.
For example, if a business receives loan forgiveness under the Paycheck Protection Program (PPP), it cannot claim both PPP loan forgiveness and an ERC in the same taxable period.
Additionally, claiming certain COVID-19 relief programs may affect eligibility for other tax credits, such as Work Opportunity Tax Credits or Empowerment Zone Credits. It is crucial to properly document eligibility for these credits and maintain thorough records in case of an audit.
Benefits of Claiming The Employee Retention Credit with 941
Claiming the Employee Retention Credit can offer increased liquidity, reduce federal income tax withholding and liability, and help retain valuable employees.
Increased Liquidity And Reduced Tax Liability
By claiming the Employee Retention Credit (ERC), small to medium-sized business owners can benefit from increased liquidity and reduced federal income tax liability. The ERC provides a credit against certain payroll taxes for eligible employers who experienced a significant decline in revenue or were fully or partially suspended due to the COVID-19 pandemic.
For example, if an eligible employer paid $10,000 of qualified wages during a calendar quarter and claimed the maximum ERC of 70%, they would receive a credit of $7,000 on their next payroll tax return.
Overall, small to medium-sized business owners should consider claiming the ERC for its financial benefits and as part of their commitment to retaining valuable employees during these challenging times.
Retention Of Valuable Employees
Claiming a payroll tax form for the Employee Retention Credit (ERC) can effectively retain valuable employees during these uncertain times. By claiming this payroll tax form for the employee retention tax credit, small to medium-sized business owners can receive a refundable portion of qualified wages paid to eligible employees after March 12th, 2020.
Retaining key personnel is critical for any business’s success, particularly in today’s competitive job market. The ERC provides much-needed financial relief that allows employers to remain operational while offering incentives for workers to stay on board.
Refundable credits also provide cash flow benefits for other expenses such as rent or capital investments.
Conclusion and Summary: Do I Need To Amend IRS Form 941 To Claim the Employee Retention Tax Credit?
If you are an eligible employer and have not yet claimed the Employee Retention Credit (ERC), it is possible to do so by amending Form 941 with form 941-X. This payroll tax credit can provide valuable relief during these challenging times while encouraging businesses to retain employees.
However, following the step-by-step guide carefully when filing amended returns and avoiding common errors that may delay or disqualify your refund claim is important. Seeking professional consultation and documenting eligibility for the credit can also help manage the impact of ERC on future tax filings.
Good news. There is still time to file! The employee retention tax credit can still be claimed retroactively and there is still time to file, even in 2023, 2024, and 2025 for the past tax years.
Employee Retention Tax Credit (ERC / ERTC) Help: Claim Up To a $26,000 Refund 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, without you having to pay an excessive percentage of your hard earned ERC refund.
DLA doesn’t charge a percent like many companies do. Our flat fee structure is fair and reasonable based on the amount of work involved. Keep More of Your Refund™
Depending on eligibility, business owners can receive up to $26,000 to $33,000 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 IRS 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.
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.™
- 941-X: 18b. Nonrefundable Portion of Credit for Qualified Sick and Family Leave Wages for Leave Taken After March 31, 2021, and Before October 1, 2021, Form Instructions (updated 2024) - May 1, 2024
- 941-X: 18a. Nonrefundable Portion of Employee Retention Credit, Form Instructions (2024 updates) - April 30, 2024
- 941-X: 17. Nonrefundable Portion of Credit for Qualified Sick and Family Leave Wages for Leave Taken After March 31, 2020, and Before April 1, 2021, Form Instructions (revised 2024) - April 29, 2024