The Covid-19 pandemic brought changes to nearly every facet of life for Americans, from schools to staying home, even if and how you could work. So, it probably won’t be a surprise that it also is impacting tax filings for both personal and business taxes.
Many businesses accepted the Employee Retention Tax Credit (ERC) to keep employees on the payroll and must now account for it using either Form 941 or Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.
What are Form 941 and Form 941-X and when would you use them? Read on to learn more.
What Is the Employee Retention Credit?
As the pandemic raged on and impacted businesses, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act.
As part of the relief offered to businesses through the CARES Act, businesses were offered the Employee Retention Credit (ERC) which provides businesses with a refundable payroll tax credit.
This refundable payroll tax credit can be claimed by businesses that paid payroll to keep employees getting a paycheck whether they were working or not during the pandemic.
The goal was to help businesses keep valuable employees even if they weren’t able to work during pandemic shutdowns. At the same time, it kept employees out of unemployment during this time.
Learn more about the ERC program erctoday.com here.
What Is Form 941-X?
To understand Form 941-X, you need to know about Form 941. Form 941 is the form employers use on their federal tax returns to report the income taxes and payroll taxes withheld from employees’ wages.
Form 941 is also used to report wages, reported tips, employer and employee shares of Social Security and Medicare taxes, and qualified small-business payroll tax credit for increasing research activities.
So, why does this matter in relation to Form 941-X? The IRS will always want you to report either errors in your reporting or necessary corrections to them. Form 241-X is used to report corrections to:
- Employee wages
- Income tax withheld from wages
- Taxable social security wages
- Taxable social security tips
- Taxable Medicare wages and tips
- Taxable wages and tips subject to Medicare Tax withholdings
Form 941-X has also become important because of the ERC and payments made from the CARES Act.
How Is the 941-X Form Different?
Form 941-X and the IRS instructions that go with it were revised by the IRS for this tax season to allow for the correction of COVID-19-related employment tax credits.
The revised Form 941-X has added spots on the form to report:
- Paid qualified sick and family leave wages
- Employee retention credit
- COBRA premium assistance tax credit
The IRS has provided 5 additional worksheets to help calculate additional tax credits. The first worksheet which was from the original Form 941-X directions has also had revisions.
All these worksheets must be filled out to file. If you have a third-party tax service file for you, they must fill this out for you.
If there’s a spot on the revised form that doesn’t apply to you, leave it blank.
Be Prepared This Tax Season
To understand Form 941-X, you must also understand the employee retention credit and Form 941 too. Use Form 941-X to make the necessary corrections from Form 941 with the IRS.
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