How to Claim 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 I 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. 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 the 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. 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 the specific circumstances of your Company, please reach out to your Meaden & Moore representative.