Understanding the Form 941-X


Emptech's founder, Jeff Aleixo


Jeffrey Aleixo

Form 941-X Payroll Tax Compliance

During the COVID-19 crisis, Form 941 was revised as new relief bills have offered opportunities for employers to qualify for credits and deferral of employment taxes. If employers make mistakes when filing Form 941, they can use Form 941-X to report them.

Due to changes introduced to Form 941, the Internal Revenue Service released the final version of the Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. The Form 941-X generally follows the changes to Form 941 released in June.

What Is Form 941-X?

In case employers notice errors on Form 941, Employer’s Quarterly Federal Tax Return, they need to correct them as soon as possible. To do this they can simply file Form 941-X with the correct information. Form 941-X can be used to report changes regarding:

  • Wages, tips, and other compensation,
  • Income tax withheld from wages, tips, and other compensation,
  • Taxable social security wages,
  • Taxable social security tips,
  • Taxable Medicare wages and tips,
  • Taxable wages and tips subject to Additional Medicare Tax withholding,
  • Deferred amount of the employer share of social security tax,
  • Qualified small business payroll tax credit for increasing research activities,
  • Amounts reported on Form 941 for the credit for qualified sick and family leave wages, including adjustments to Form 941, and
  • Amounts reported on Form 941 for the employee retention credit.
Use this comprehensive guide to understand collecting, filing, and remitting payroll taxes and ensure compliance with federal and state regulations.

The revised Form 941-X

The revised Form 941 and Form 941-X include significant changes needed to report the payroll tax credits offered under the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which became effective in March. These include the employee retention credit, paid family leave, and sick leave credits, and the employer FICA deferral. 

The availability of the revised Form 941-X provides relief to employers who were unable to take the employee retention credit by retaining the applicable employment taxes during pay cycles in the second quarter or by asking for a refund under Form 941 or Form 7200. Therefore, employers can now request the credits from late March and all of the second quarter as a refund on Form 941-X. 

The IRS notes that employers with employee retention credits or FFCRA paid leave credits arising in the first quarter should amend the Form 941-X for Q1 to make changes. All credits related to the FFCRA and CARES Act payroll tax credits for the end of Q1 and for Q2 should be claimed on the Q2 Form 941. Any changes to the credits should be made on the revised Form 941-X. 

Form 941-X, released in September 2020, includes five pages compared to the previous three pages. Some of the changes the form includes are:

  • Line 9 – qualified sick leave wages,
  • Line 10 – qualified family leave wages,
  • Line 17 – the non-refundable portion of the credit for qualified sick- and family-leave wages,
  • Line 18 – the non-refundable portion of employee retention credit,
  • Line 24 – the deferred amount of the employer share of social security tax,
  • Line 25 – the refundable portion of the credit for qualified sick- and family-leave wages,
  • Line 26 – the refundable portion of employee retention credit,
  • Line 28 – qualified health plan expenses allocable to qualified sick-leave wages,
  • Line 29 – qualified health plan expenses allocable to qualified family-leave wages,
  • Line 30 – qualified wages for the employee retention credit,
  • Line 31 – qualified health plan wages reported on Form 941, Line 21,
  • Line 32 – credit from Form 5884-C for Q2 where this form is used for the Work Opportunity Tax Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans,
  • Line 33 – qualified wages paid March 13 to March 31, 2020, for the employee retention credit, and
  • Line 34 – qualified health plan expenses allocable to wages reported of Form 941, used to correct the second-quarter 2020 filing of Form 941.

Form 941-X instructions include a Worksheet that can be used to help report the Q1 and Q2 employee retention credits or FFCRA credits. The revised Form should not be used to claim credits related to the CARES Act or FFCRA for the third quarter of 2020. Such refunds arising out of qualified wages paid in Q3 can be filed on Form 941 Q3 or on Form 7200.

The further-revised version of Form 941-X whose draft was released in October, has one line whose function was adjusted, one line whose alphanumeric designation was changed, and one line that was added.

Learn about the changes to payroll tax introduced with the CARES Act, and find out what benefits you can get from payroll tax deferral and payroll tax credit.

Staying Compliant with the IRS Requirements

To avoid costly mistakes with the IRS, it is necessary that employers understand when to use different forms, what information to include, who is exempt from using them, and more. In addition to this, they are obliged to file Form 941-X as soon as they find any errors on Form 941 in order to prevent any unwanted penalties from the IRS.

Furthermore, it is critical to follow the latest developments and legislation affecting payroll taxes, especially those introduced in response to the COVID-19 pandemic. In order to solve these challenges successfully and prevent potential penalties for errors, employers can outsource payroll tax management. Such an approach allows them to streamline business operations, assure meeting filing deadlines and deposit requirements, and stay compliant with the latest legislation updates.

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