If employers handle withholding of income taxes, Social Security tax, or Medicare tax from employees’ paychecks, or if they are required to pay the employer’s portion of Social Security or Medicare tax, they are familiar with using IRS Form 941 to report those taxes. Another form employers need to understand is Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, used to correct errors on a previously filed Form 941. In addition to this, Form 941-X is used to file for certain tax credits an organization may be entitled to.
What Is Form 941-X Used For?
Employers need to file Form 941-X if they discover an error on a previously filed Form 941 and report changes regarding:
- Wages, tips, and other compensation;
- Income tax withheld from wages, tips, and other compensation;
- Taxable Social Security wages;
- Taxable Social Security tips;
- Taxable Medicare wages and tips;
- Taxable wages and tips subject to Additional Medicare Tax withholding;
- Deferred amount of the employer share of Social Security tax;
- Deferred amount of the employee share of Social Security tax;
- Qualified small business payroll tax Credit for Increasing Research Activities;
- Amounts reported on Form 941 for the Credit for Qualified Sick and Family Leave wages for leave taken after March 31, 2020, and before April 1, 2021;
- Amounts reported on Form 941 for the Credit for Qualified Sick and Family Leave wages for leave taken after March 31, 2021, and before October 1, 2021;
- Amounts reported on Form 941 for the Employee Retention Credit, including adjustments to Form 941; and
- Amounts reported on Form 941 for the COBRA Premium Assistance Credit, for periods of coverage beginning on or after April 1, 2021, through periods of coverage beginning on or before September 30, 2021, including adjustments to Form 941.
When employers discover an error on a previously filed Form 941, they must correct that error using Form 941-X, filing a separate Form 941-X for each Form 941 they are correcting. In case employers did not previously file Form 941 because they mistakenly treated employees as nonemployees, they may have to file Form 941-X with Form 941.
Also, if employers are filing Form 941-X for underreported taxes, they must make a tax payment when they file the form. When reporting overreported taxes, they can claim either a refund or an abatement for the next return.
IRS Form 941-X for Underreported Taxes?
The due date for filing Form 941-X depends on an employer’s underreported or overreported tax.
For underreported taxes, they can submit a Form 941 correction and pay taxes by the due date for the quarter when they discovered the error. The due dates for filing Form 941-X for underreported taxes are:
- April 30 for errors discovered in Q1;
- July 31 for errors discovered in Q2;
- October 31 for errors discovered in Q3; and
- January 31 for errors discovered in Q4.
Typically, correcting an underreported amount will not result in penalties or interest as long as employers:
- File Form 941-X by the due date;
- Pay the amount they owe by the time they file;
- Enter the date when they discovered the error; and
- Explain corrections in detail.
For overreported taxes, employers can submit Form 941-X within three years from the date they filed the incorrect Form 941, or within two years from the date they paid the tax reported on Form 941, whichever is later.
Employers can either apply the overpaid taxes as a credit to Form 941 or claim a refund. To apply the overpaid taxes as a credit to Form 941, it is necessary to file Form 941-X as soon as they discover the error, but at least 90 days before the period of limitations expires. If employers want to claim a refund for the overpaid taxes, it is necessary to file Form 941-X any time before the period of limitations expires.
Form 941-X and the Employee Retention Credit
The Employee Retention Credit (ERC) was established under the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act, providing a refundable tax credit to businesses affected by government orders or shutdowns related to the COVID-19 pandemic.
The deadline to file an ERC claim varies, and employers can only file using Form 941-X. A separate 941-X must be filed for each calendar quarter for which ERC is being claimed.
Meeting Form 941-X Requirements
While it may be complicated to define when to use different IRS forms, the information to include, and who is exempt from using them, employers need to meet Form 941-X requirements and file as soon as they find any errors on Form 941 to prevent penalties from the IRS. Furthermore, it is critical to follow the latest developments and legislation affecting payroll taxes, especially those introduced in response to the COVID-19 pandemic.
Accurately managing different IRS payroll forms is essential for maintaining compliance, and if there are signs of negligence, employers can face serious fines and potential legal troubles.
Ensuring that employers use up-to-date IRS payroll forms, such as Form 941-X, may require a significant investment of time and effort. To solve this challenge and limit the potential for penalties, employers can outsource payroll tax management. This allows them to streamline business operations, stay on top of filing deadlines and improve the accuracy of payment while staying compliant with the latest legislation updates.