Form 941-X Updated for COVID-19 Corrections

Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, has been significantly revised. The revised Form 941-X allows employers to correct COVID-19 related employment tax credits and other tax relief related to COVID-19.

Further Revisions Expected for Correction of Third Quarter Returns

The first revision of Form 941-X to reflect COVID-19 tax relief occurred in July. Taxpayers should use the July 2020 revision of Form 941-X to correct the second quarter 2020 Forms 941, as well as forms filed for earlier quarters. The IRS will revise Form 941 for the third quarter of 2020.  The IRS also expects to release a further revised Form 941-X in October. Taxpayers should use the Form 941-X October revision to make corrections to third quarter 2020 Forms 941.

Additions to Form 941-X

Employers file Form 941-X to amend Form 941, Employer’s Quarterly Federal Tax Return. Generally, employers use Form 941 to report income tax on wages subject to withholding, FICA tax (Social Security tax, Medicare tax, and Additional Medicare tax), and FUTA tax (federal unemployment tax). For federal income tax withheld and FICA tax, employers generally file Form 941 each quarter.

Comment: Form 941-X is also used to make corrections to Form 941-SS, Employer’s Quarterly Federal Tax Return—American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands.

The revised form adds lines to allow employers to report corrections to the following COVID-19 relief items reported on Form 941:

  • the credit for qualified sick and family leave wages;
  • the employee retention credit; and
  • deferred amount of employer share of social security taxes.           

Compliance Tip: Taxpayers correcting a quarter that began before April 1, 2020, should leave the new lines blank.

Credit for Qualified Sick and Family Leave Wages

The Families First Coronavirus Response Act (FFCRA) provides businesses with tax credits to cover certain costs of providing employees with required paid sick leave and expanded family and medical leave for reasons related to COVID-19, from April 1, 2020, through December 31, 2020.

Eligible employers may claim tax credits for qualified leave wages paid to employees on leave due to paid sick leave or expanded family and medical leave for reasons related to COVID-19 for leave taken beginning on April 1, 2020, and ending on December 31, 2020.

Eligible employers will claim the credits on their federal employment tax returns (e.g., Form 941), but they can benefit more quickly from the credits by reducing their federal employment tax deposits.

Corrections to amounts reported on Form 941, lines 5a(i), 5a(ii), 11b, 13c, 19, and 20, for the credit for qualified sick and family leave wages are reported on Form 941-X, lines 9, 10, 17, 25, 28, and 29, respectively.

Employee Retention Credit

 The Employee Retention Credit is a fully refundable tax credit for eligible employers equal to 50 percent of qualified wages (including allocable qualified health plan expenses) paid to employees. This credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021.

Amounts reported on Form 941, lines 11c, 13d, 21, and 22, for the employee retention credit are reported on Form 941-X, lines 18, 26, 30, and 31, respectively. Corrections to Form 941, lines 24 and 25, are reported on Form 941-X, lines 33 and 34, respectively; these lines are only used for the second quarter of 2020.

Worksheet Required for Certain Computations

If the employer claimed the Credit for Qualified Sick and Family Leave wages and/or the Employee Retention Credit on its original Form 941 for the quarter, and made corrections on Form 941-X for the quarter to amounts used to determine these credits, the employer must recompute the credit amount(s) using Worksheet 1 of the Instructions to Form 941-X. The employer also needs to use the worksheet to determine the amount of a credit if claiming it for the first time on Form 941-X.

COBRA Credit Removed

The COBRA premium assistance credit lines have been removed from Form 941-X. The COBRA premium assistance credit was available to an employer for premiums paid on behalf of employees who were involuntarily terminated from employment between September 1, 2008, and May 31, 2010. A taxpayer that needs to correct a previously claimed COBRA premium assistance credit for a quarter in which the statute of limitations on corrections hasn’t expired, can file the April 2017 revision of Form 941-X and make the corrections on lines 20a and 20b.

By Robert Recchia, J.D., M.B.A., C.P.A.

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