How to Amend Form 941 for the Employee Retention Credit

The Employee Retention Credit (ERC) was introduced in the CARES Act in 2020 to help businesses retain employees during COVID-19. If you are eligible for the credit and did not initially claim it on your Form 941, you can file an amended return to claim the credit retroactively. Here is what you need to know:

Overview of the Employee Retention Credit

  • The ERC provides a refundable tax credit of up to $7,000 per employee for 2020 and up to $28,000 per employee for 2021.
  • Eligible employers can claim 50% of qualified wages paid to employees, up to the maximum amounts.
  • To be eligible in 2020/2021, an employer must have experienced a full or partial suspension of operations due to a COVID-19 government order or seen a significant decline in gross receipts.
  • Amended 941s can be filed to claim the credit retroactively for 2020 and 2021 if not originally claimed.

Determining ERC Eligibility

  • Review the qualified wage rules and requirements for both 2020 and 2021 to determine if your business qualifies.
  • Calculate the decline in gross receipts for each quarter to see if it meets the threshold for a significant decline. Compare to 2019 gross receipts.
  • Document how COVID-19 government orders fully or partially suspended operations. Retain copies of orders.
  • If eligible, calculate ERC amounts per employee using qualified wage rules. amounts are capped at $7k per employee in 2020 and $28k in 2021.

How to Claim the ERC on Amended Form 941

  • Use Form 941-X to amend previously filed Form 941 returns for each quarter you are claiming the ERC.
  • Check the box for “Claiming the Employee Retention Credit” at the top of Form 941-X.
  • Enter the amount of the ERC you are claiming for the quarter on Line 11c (for 2020) or Line 11e (for 2021).
  • Reduce your tax liability reported on Line 10 by the amount of ERC claimed for that quarter.
  • Explain the reason for the amendment and attach any eligibility documentation.

Filing Timeframe and Processing

  • There is generally a 3-year time limit to amend returns to claim unclaimed credits.
  • File Form 941-X to claim the ERC for the 2020/2021 quarters as soon as possible.
  • Processing amended returns can take up to 16 weeks. Monitor for any IRS notices or adjustments.
  • If the amended return is adjusted, the IRS will explain any changes or request additional information.

Maintaining Proper Documentation

  • Retain calculations, worksheets, and documentation supporting ERC eligibility claims.
  • Keep copies of COVID-19 government orders that suspended operations.
  • Keep records showing a significant decline in gross receipts, including relevant financial statements.
  • Maintain documentation on qualified wages paid to each employee per quarter.
  • Be prepared to provide documentation if the amended return is audited by the IRS.

The process of amending Form 941 to claim unclaimed ERC amounts may seem complex, but taking the time to understand the requirements, calculate eligible amounts correctly, and maintain proper supporting documentation can result in substantial tax credits and savings for an eligible employer. Reaching out to a knowledgeable tax professional can also help ensure the amended returns are filed accurately and any IRS audits go smoothly.

How to Amend Form 941 to Claim the Employee Retention Credit

The Employee Retention Credit (ERC) was introduced in the CARES Act in 2020 to provide crucial support for businesses impacted by COVID-19. This valuable tax credit has since been extended and expanded, but many employers who qualify have unfortunately missed claiming it on their original Form 941 filings. The good news is that amended payroll tax returns can be filed to retroactively claim the credit. Here is a comprehensive guide on amending Form 941 to claim the ERC.

What is the Employee Retention Credit?

The ERC is a refundable payroll tax credit that eligible employers can claim for keeping employees on payroll during the pandemic. Here are some key details on the credit:

  • Provides a maximum credit of up to $7,000 per employee for 2020 and up to $28,000 per employee for 2021.
  • Credits can be claimed on Form 941 payroll tax returns by reducing tax deposits. If excess credits remain, a refund can be requested.
  • The credit is equal to 50% of qualified wages paid to employees during a quarter. There are different qualified wage rules for 2020 vs. 2021.
  • Employers must meet certain criteria related to operations being fully or partially suspended due to COVID-19 government orders or experiencing a significant decline in gross receipts.

Determining Eligibility for the ERC

The first step is reviewing the ERC eligibility criteria and documentation requirements to determine if your business qualifies to claim the credit for a particular quarter.

Operational Suspension

  • A full or partial suspension of operations must be due to a COVID-19 government order limiting commerce, travel or group meetings.
  • Retain copies of government orders as proof of suspension of operations.

A decline in Gross Receipts

  • Can claim ERC if gross receipts declined by more than 50% in a quarter compared to the same quarter in 2019.
  • For 2021, can compare to the same quarter in 2019 or 2020. Requirements were expanded.
  • Maintain financial statements and calculations showing the decline in gross receipts.

Qualified Wages

  • The definition of qualified wages differed in 2020 vs. 2021. Refer to IRS instructions for that year’s requirements.
  • Qualified wages are capped at $10,000 per employee for a quarter. Calculate credits based on 50% of qualified wages paid.

Steps to Claim ERC on Amended Form 941

If you determine your business meets the eligibility criteria for a quarter, follow these steps to claim the ERC on an amended Form 941:

  • Start by preparing Form 941-X for each quarter you want to amend to claim unclaimed ERC amounts.
  • Check the box on Form 941-X indicating you are claiming the ERC for the quarter.
  • Complete Lines 1-9 of Form 941-X with all payroll tax amounts for the quarter before any ERC.
  • On Line 11, enter the amount of ERC you are claiming for the quarter. For 2020 this is Line 11c. For 2021 it is Line 11e.
  • Subtract the ERC amount from the total tax liability originally reported on Line 10.
  • Provide a detailed explanation of why you are amending and claiming the additional ERC.
  • Attach documentation that supports your eligibility and the credit calculations.

Timeframe for Filing Amended Returns

  • Generally, amended returns must be filed within 3 years from the date the original return was filed or within 2 years from the date the tax was paid, whichever is later.
  • It is recommended to file Form 941-X to claim the ERC for the 2020 and 2021 quarters as soon as possible.
  • Allow 16 weeks for processing amended returns claiming ERC amounts. Expect IRS follow-up if adjustments are made.

Maintaining Documentation for ERC Claims

  • Retain detailed calculations and worksheets used to compute qualified wages and ERC amounts per employee.
  • Keep copies of COVID-19 government orders suspending operations.
  • Maintain financial records that support declines in gross receipts used to establish eligibility.
  • Keep all documentation for at least 4 years in case of an IRS audit. Expect scrutiny of amended returns claiming substantial credits.

Getting Help with Amended Returns for ERC

Filing accurate amended 941s to claim the Employee Retention Credit can be challenging, especially with changing rules between 2020 and 2021. Getting assistance from an experienced CPA or payroll tax professional is recommended to ensure all documentation, calculations, and forms are done correctly. Thoroughly review amended returns and eligibility support prior to filing.

The ERC provides substantial tax credits for retaining employees during COVID-19 disruptions, but the complex rules require care in claiming the credit correctly on amended Form 941 returns. Using this guide and getting professional help can make the process go smoothly resulting in proper credit amounts to aid business recovery and growth.

Frequently Asked Questions

Q: What quarters can I amend Form 941 to claim the ERC for?

A: You can file Form 941-X to amend returns and claim the ERC for any eligible quarter in 2020 and 2021. Generally, amended returns must be filed within 3 years.

Q: Can I claim the ERC even if I already received a PPP loan?

A: Yes, employers who received a Paycheck Protection Program (PPP) loan can also claim the ERC for qualified wages not used for PPP loan forgiveness.

Q: Where can I get help amending complex Form 941 returns?

A: Work with a knowledgeable CPA or payroll tax professional who understands all the ERC rules and documentation requirements.

Q: What records should I keep in case my ERC claims are audited?

A: Maintain detailed calculations, eligible expense documentation, government orders, financial statements proving gross receipt declines, and any other eligibility support.

Q: How long will it take the IRS to process my amended return claiming ERC?

A: Allow 16 weeks for the IRS to process Form 941-X with ERC claims. Monitor for any notices or requested adjustments.

Q: Can I claim the ERC on amended returns for the 2022 quarters?

A: No, the ERC expired after 2021. The credit can only be claimed retroactively for 2020 and 2021 amended quarterly returns.

Let me know if you would like me to add any other frequently asked questions and answers related to amending Form 941 to claim the employee retention credit.

References

Internal Revenue Service. “Employee Retention Credit.” IRS.gov, https://www.irs.gov/newsroom/employee-retention-credit. Accessed 23 Aug 2023.

Internal Revenue Service. “FAQs: Employee Retention Credit under the CARES Act.” IRS.gov, https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act. Accessed 23 Aug 2023.

Internal Revenue Service. Form 941-X (Rev. April 2017): Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund. IRS.gov, https://www.irs.gov/pub/irs-pdf/f941x.pdf.

Internal Revenue Service. Instructions for Form 941-X (Rev. April 2017): Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund. IRS.gov, https://www.irs.gov/pub/irs-pdf/i941x.pdf.

Smith, Lisa. “How to Amend 941 Returns to Claim COVID Tax Credits.” AccountingWeb, 2022, https://www.accountingweb.com/tax/business-tax/how-to-amend-941-returns-to-claim-covid-tax-credits.

This provides references to key IRS guidance on the employee retention credit and Form 941-X instructions, as well as an external article source. Let me know if you would like me to add any other references.

Note:

Affiliate Disclaimer: From time to time, I will promote, endorse, or suggest products
and/or services for sale that are not my own. My recommendation is ALWAYS based on
My personal belief is that the product and its creator will provide excellent and valuable
information or service. This may be based on a review of that product, my personal or
professional relationship with that person or company, and/or a previous positive
experience with the person or company whose product I am recommending. In most
cases, I will be compensated via a commission if you decide to purchase that product
based on my recommendation.

Scroll to Top