Claiming the Employee Retention Tax Credit Using Form 941-X

You determined that your company is eligible for the employee retention credit (“ERC”) and you have calculated the 2020 ERC based on the qualified wages and qualified health plan expenses.  So how do I claim the credit and submit the appropriate paperwork to the IRS if you already filed Form 941? The answer is you need to file an amended 941 or Form 941-X. The details below will provide you with a high-level overview of the necessary line items that need to be completed as well as some tips to be aware of.

Preparing Form 941-X:

1. 1. Use a separate Form 941-X for each Form 941 that you are correcting.  Complete the company information on each page, the “Return You’re Correcting” information in the upper right corner and enter the date you discovered the errors.
   2. To claim the Employee Retention Credit as a refund on Form 941-X:
      
      a. Check Part 1, Box 2
      
      b. Check Part 2, Box 5d
   3. The total amount of the ERC is represented as a negative amount on Line 18 - Nonrefundable Portion and Line 26 – Refundable Portion.
      
      a. Worksheet 1 (included in the instructions to Form 941) is used to calculate the Nonrefundable Portion and Refundable Portion of the ERC.
      
      b. The Nonrefundable Portion of the ERC (as calculated on Worksheet 1) is the amount that applies against the Employer’s 6.2% share of Social Security tax.  
      
      c. The balance remaining is considered the Refundable Portion.
      
      d. Keep in mind, the total ERC is fully refundable using Form 941-X because the Employer’s 6.2% share of Social Security tax was paid with the original Form 941 when filed.
   4. Qualified wages for the employee retention credit are reported on Form 941-X, Line 30.  Qualified health plan expenses allocable to the employee retention credit are reported on Form 941-X, Line 31.  The sum of Line 30 and Line 31 multiplied by the credit percentage of either 50% (2020) or 70% (2021) should equal the total ERC presented on Lines 18 and 26 (not considering other factors).
   5. Line 37 should be used to describe the events that caused the overreported amounts (your eligibility for the credit). Your explanations should provide a significant amount of detail and should include the following elements:
      
      a. Form 941-X line number(s) affected.
      
      b. Date you discovered the error.
      
      c. Difference (amount of the error).
      
      d. Cause of the error.

Other Items to Consider:

1. 1. Generally, you may correct overreported taxes (claim the ERC) on a previously filed Form 941 if you file Form 941-X within 3 years of the date Form 941 was filed or 2 years from the date you paid the tax reported on Form 941, whichever is later.
   2. We also suggest that you check with your payroll provider (if you use one) before you file Form 941-X.

The example above represents a simplified example of how to claim the ERC using Form 941-X.  There are many other factors to consider. To learn more about how the ERC applies to your company's specific circumstances, please reach out to your Meaden & Moore representative.

Based on revisions to the Form 941-X dated April 2022, numerous questions from clients, and our experience in applying for the employee retention credit (“ERC”), we are updating this the blog post with the most common questions that we have received and some answers to help you navigate the Form 941-X when claiming the employee retention credit.

1. How is the employee retention credit is presented on Form 941-X?
   
   The employee retention credit is presented on Line 18a and Line 26a of the April 2022 revised Form 941-X. The amount to be credited or refunded to you needs to be presented as a negative number in Column 4. A positive balance in Column 4 represents an amount that you owe.
2. How do I calculate the Nonrefundable Portion and Refundable Portion of the employee retention credit ?
   
   The employee retention credit nonrefundable and refundable amounts need to be calculated by following the worksheets that are included on page 28 and page 30 of the Form 941-X instructions.
   
   Worksheet 2 is used for qualified wages paid after March 12, 2020 and before July 1, 2021. The Nonrefundable Portion of the employee retention credit for this period is based on social security wages. The balance of the employee retention credit is considered the Refundable Portion.
   
   Worksheet 4 is used for qualified wages paid after June 30, 2021 and before January 1, 2022. The Nonrefundable Portion of the employee retention credit for this period is based on Medicare wages. The balance of the employee retention credit is considered the Refundable Portion.
   
   These worksheets are not filed with the IRS but should be retained as support.
   
   Both the nonrefundable and refundable amounts of the employee retention credit will be refunded to you so do not be confused by the wording “nonrefundable”.
3. How long do I have to apply for the employee retention credit?
   
   You may claim the employee retention credit using Form 941-X within 3 years of the date the original Form 941 was filed or 2 years from the date you paid the tax reported on Form 941, whichever is later.
4. How long does it take to get my employee retention credit check from the IRS?
   
   The answer is “I do not know.”. It seems like the larger the employee retention credit, the longer it takes theto IRS to review and approve the credit.
   
   But keep in mind that the IRS will pay you interest on the employee retention credit that is owed to you.
   
   You can also execute a Power of Attorney with your CPA firm. The CPA firm can then call the IRS’ “Our Practitioner Priority Service” support line at 1-800-860-4259 to check on the status of your employee retention credit.