How to Amend Form 941 for Employee Retention Credit (ERC)

As a small business owner, you may be eligible for the Employee Retention Credit (ERC) to help offset the impact to your business from the COVID-19 pandemic. However, navigating the process of claiming this credit can be confusing, especially when it comes to amending Form 941.

In this blog post, we will guide you through the process of amending Form 941 to claim the ERC and provide you with the information you need to ensure that your claim is accurate and approved. Whether you’re a first-time claimant or have already claimed the credit, this post will provide you with the most up-to-date information on the ERC and how to claim it correctly through Form 941.

Understanding the Employee Retention Credit

The Employee Retention Credit was created in March 2020 under the CARES Act. This initiative was an incentive for employers to retain employees on payroll during the Coronavirus Pandemic. The tax credit is available to employers whose business was more than nominally impacted by governmental shutdowns or whose profits suffered a significant decline due to the COVID-19 pandemic.

To apply for the credit, eligible employees must submit their qualified wages paid, including any applicable health care costs, when they submit their 941-X form to the Internal Revenue Service tax office. Eligible employers must file Form 941-X for each calendar quarter in which they wish to claim the employee retention credit.

What are Qualified Wages?

Qualified wages are wages paid to an employee after March 12, 2020, and before January 1, 2021. The amount of the credit is 50% of qualified wages paid by the employer to employees during the covered period, limited to the first $10,000 in wages paid during the year for 2020 and per quarter for 2021.

The definition of qualified wages for 2020 changes slightly depending on how many employees depend on how many employees a business employed in 2019. For an eligible employer that averaged more than 100 full-time employees in 2019, qualified wages are the wages paid to an employee for time that the employee is not providing services due to either a significant decline in gross receipts or a full or partial shutdown because of a government-mandated shutdown. For eligible employers with less than 100 full-time employees, qualified wages are the wages paid to any employee under the same circumstances. However, it is imperative that these expenses were paid after March 12, 2020, and before January 1, 2022, as this is the period covered by the laws related to the Employee Retention Tax Credit.

It is also important to note that wages used to obtain Paycheck Protection Program (PPP) loan forgiveness can not also be used as qualified wages for the Employee Retention Credit.

Who’s Eligible for the Employee Retention Credit?

There are two main eligibility requirements that employers must meet to receive the tax credit. The first is a significant decline in gross receipts or total revenue without subtracting any costs or expenses. In most cases, the eligibility determination is based on the data from 2019 because it precedes the effects of the COVID-19 pandemic and lockdown, which officially began in March 2020.

Businesses that experienced the following may be eligible to receive the Employee Retention Credit:

  • Total revenues for quarters in 2020 must be at least 50% lower when compared to the same quarter in 2019
  • Total revenues for quarters in 2021 must be at least 20% lower when compared to the same quarter in 2019

Note: that they may be eligible for one calendar quarter but not the other calendar quarter, in the same calendar year.

Businesses that employ 500 or less full-time workers could be eligible for the ERC whether the company, business, or shop was forced to close under a government-mandated shutdown order or was able to stay open under a partial shutdown order.

Eligible companies can either be for-profit organizations or tax-exempt organizations such as a non-profit. Apart from this, they must meet one of the following conditions in 2020:

  • Operations are fully or partially suspended due to government restrictions on working, travel, commerce, and meetings
  • There is at least 50% less in the gross receipts of your business than in the same calendar quarter in 2019
  • Recovery startup businesses” with yearly gross sales of $1 million or less that launched after February 15, 2020

Companies must meet one of the following conditions to be considered eligible in 2021:

  • Operations are totally or partially suspended due to government restrictions on working, travel, commerce, and meetings
  • There is at least 20% less in the gross receipts of your business than in the same calendar quarter in 2019
  • “Recovery startup businesses” with yearly gross sales of $1 million or less that launch after February 15, 2020

With that, companies that recovered from a significant decline in gross receipts and did not take the tax credit previously are still eligible to do this in 2023 even though the program has ended. Companies around the United States have three years after they filed their payroll taxes to review the wages paid and salaries earned after March 12, 2020.

What is Form 941-X?

Form 941-X is an IRS form used to make corrections to Form 941. This form must be completed and submitted by employers who wish to make corrections to their Form 941 submission.

To complete Form 941-X, employers will need to provide information on their federal income tax withholding, employment taxes, and taxable Medicare wages.

Once the form is completed, it must be submitted to the IRS along with a detailed explanation of the errors being corrected.

Corrections made on Form 941-X can be made for any quarter in the current year or any of the three previous years. This form cannot be filed electronically and may take a while to process. Employers with questions about Form 941-X can contact the IRS directly or speak with one of our tax specialists.

Why Should You Amend Form 941

Form 941-X can be used to amend tax returns and make any necessary corrections. For example, if you decide to file for the Employee Retention Credit for eligible quarters in 2020 and 2021, you can complete Form 941-X to correct those returns and get your money back.

Submit a separate Form 941-X for each Form 941 that needs to be corrected 

You must submit Form 941-X within three years of the filing deadline for your original Form 941. You can submit Form 941-X to edit any of the following:

  • Taxable Medicare wages
  • Taxable Medicare tips
  • Taxable Social Security tips
  • Employment Taxes
  • Federal employment taxes
  • Payroll tax credit election
  • Wages, tips, and compensation
  • Income tax withheld from wages, tips, and compensation
  • Taxable wages and tips associated with Additional Medicare Tax withholding

We can help!

If you are unsure about how to file a 941-X amendment for the ERC, or if you need assistance preparing and submitting your application, we recommend working with one of our experienced tax professionals. Here at Stenson Tamaddon, our tax specialists can guide you through the process. We can also answer any questions you may have along the way, so you can feel confident about the accuracy and completeness of your amendment. With our help, you can feel confident about your 941-X amendment and the accuracy of your company’s reporting. Don’t miss out on potential savings – schedule a meeting with a tax specialist now.