Did you make a mistake on IRS Form 941? Find out how to correct Form 941 errors.
Correcting Form 941 for COVID-19-Related Tax Credits
An employee retention credit (ERC) is available to eligible employers for keeping employees on their payroll.
Legislation in December 2020 extended this tax credit through to June 30, 2021—meaning that the ERC can be claimed in the first and second quarters of 2021. The credit was expanded again in March 2021 with the passage of the American Rescue Plan Act, extending it through the end of 2021.
The employer uses Form 941 to report qualified wages for this credit. Employers can also use Form 941 to report qualified wages for employee sick leave and family medical leave credits. The same legislation that extended the ERC also extended sick leave and family leave credits through Dec. 31, 2021.
Form 941 has been changed for 2020 to include line items relating to this tax credit.
Make sure you are using the correct version of Form 941 and Form 941-X. The most recent revisions of these forms, dated March 2021 (Form 941) or October 2020 (Form 941-X), include line items for recording income for the employee retention credit, the sick leave/family leave credits, and other COVID-19-related tax credits.
What Is Form 941?
Internal Revenue Service (IRS) Form 941 is the Employer's Quarterly Federal Tax Return. It must be filed each quarter by employers to report on income taxes and FICA taxes—Social Security and Medicare—that have been withheld from employees' pay. It also reports FICA taxes payable by the employer.
Form 941 is not a payment form. It documents information you need to give the IRS about your payroll tax liabilities and payments. The form includes:
- The total amounts withheld from employee pay for both FICA taxes and federal income taxes for the previous quarter
- The amounts payable by the employer for its share of FICA taxes
- Amounts already deposited for these payroll taxes from the previous quarter
Form 941 must be submitted to the Internal Revenue Service within 30 days after the end of each quarter.
Use Form 941-X to Correct Form 941 Errors
The form you must use to correct Form 941 errors is Form 941-X. If you compare Form 941 with Form 941-X, you'll see that much of Form 941-X is a copy of the original form. That's because the IRS designed it that way. This form is a series of "X" forms the IRS has created to report adjustments to most employment tax forms, including Form 941.
What You Can Correct With Form 941-X
You can use Form 941-X to correct:
- Wages, tips, and other compensation, and income tax withheld from these payments
- Taxable social security wages
- Taxable social security tips
- Taxable Medicare wages and tips
- Taxable wages and tips subject to Additional Medicare tax withholding
- Qualified small business payroll tax credit for increasing research activities
- Credits for COBRA premium assistance payment (COBRA premium assistance payments are getting phased out, but you can correct a previous claim by using the 2017 revision of Form 941-X)
The IRS defines two different types of errors, and when you can correct them depends on the type.
- Administrative errors are errors of transposition (mixing up numbers) or math errors involving inaccurate reporting of an amount withheld. If you want to correct just an administrative error, you can do it any time, unless it results in underreported tax or over-reported tax.
- You can only correct federal withholding errors if you discover them in the same calendar year you paid the wages. You can correct federal income tax withholding only if you were also repaid or reimbursed.
When Is Form 941-X Due?
The due date for filing Form 941-X depends on when you discover an error and if you underreported or over-reported tax.
If you over-reported tax, you can make an interest-free adjustment on a future quarterly 941 form or you can file a claim for refund or abatement. Use Form 843, Claim for Refund and Request for Abatement. The process is different, depending on when you file you file Form 941-X.
If you underreported tax, you must file Form 941-X and pay the amount due by the due date of the specific Form 941 after you discover the error. For example, if Form 941 was due on April 30 (for the first quarter) and you find the error on June 30 (in the second quarter) of that year, you must file Form 941-X and pay the amount due by July 31, the due date for a second-quarter Form 941.
The process you use for underreported and overreported amounts is complicated. Use the table "Which process should you use?" on Form 941-X for more details.
How Should I File Form 941-X?
You can mail in your Form 941-X. The mailing address depends on where your business is located. Use this list on "Where to File your Taxes" (for Form 941-X) to get the correct location.
Form 941X Overview
Form 941X has five parts.
Part 1 asks if this form is for an adjusted return or for a claim. You can't check both.
Part 2 asks some questions about why you're filing this form and to find out more about whether you are claiming a refund or adjustment.
Part 3 includes copies the original 941 form and asks you to correct the sections that were done incorrectly. You must include the total corrected amount, the previously reported amount, and the difference. Be sure to check your math as you complete this section.
Part 4 asks for a detailed explanation of why you are making these corrections.
Part 5 requires your signature and the signature of a paid preparer if you used one.
More on Form 941-X
You can only use the form for one quarter. If you are reporting errors for more than one quarter, you must use a separate form for each.
If your error affected employee withholding, you must obtain written consent from each affected employee. You'll have to certify this statement:
"I have a written statement from each employee stating that he or she has not claimed (or the claim was rejected) and will not claim a refund or credit for the over-collection."
If you cannot get written consent from each employee, you can only make changes in the employer portion.
You must include a detailed explanation of how you determined your corrections.
This article is intended to give you a general overview of this form, but it's not intended to be tax or legal advice. Form 941-X is complicated, and every tax situation is different. Get help with this form from your tax professional or a payroll service. You can also call the IRS Business and Specialty Tax Line at 1-800-829-4933, Monday-Friday from 7 a.m. to 7 p.m. local time.