As a small business owner, you may be eligible to receive the Employee Retention Credit (ERC) in order to mitigate the effects that the COVID-19 pandemic has had on your business.
Although this credit can be incredibly advantageous, it can also be difficult to figure out how to go about claiming it - especially when it comes to making any necessary corrections or amendments on Form 941.
Working through such an arduous and detailed process can be quite challenging for many small businesses.
In this blog post, we will provide a comprehensive guide on how to amend Form 941 in order to successfully claim the Employee Retention Credit (ERC).
We'll take you through every step of the process and provide you with all the necessary information required to ensure that your ERC claim is accurate and approved.
No matter if this is your first time or you have already applied for the Employee Retention Credit (ERC), this post will keep you informed of the most current information regarding the ERC and how to accurately submit Form 941 in order to receive it.
The Employee Retention Credit: A Quick Overview
In March 2020, the Employee Retention Credit was established as part of the CARES Act in order to provide an incentive for employers to continue paying their employees on payroll during the ongoing Coronavirus Pandemic.
This program was designed to encourage businesses to retain their staff and prevent layoffs or furloughs due to economic hardship caused by COVID-19.
The tax credit is accessible to those employers whose business was dramatically affected by the government closures or who experienced a substantial decrease in revenue as a result of the COVID-19 pandemic.
This incentive provides an opportunity for businesses that have been adversely impacted to receive some financial relief and assistance during this difficult period.
In order to be eligible for the credit, employees must submit their 941-X form along with all of their qualified wages received during the applicable period and any health care costs that they have incurred to the Internal Revenue Service (IRS) tax office.
This form is necessary in order to complete the application process and obtain approval for the requested credit.
In order to be able to take advantage of the employee retention credit, all employers who are eligible must submit Form 941-X on a quarterly basis if they wish to receive the credit for that particular quarter.
Filing this form is necessary in order for employers to obtain the employee retention credit and should be done as soon as possible during each calendar quarter.
Qualified Wages: What Are They?
Qualified wages are wages paid to an employee that occurred between March 12, 2020 and January 1, 2021. The employer is able to receive a credit of 50% of the total qualified wages given to the employee during this period, up to a maximum of $10,000 in total for 2020 and quarterly for 2021.
This amount will help towards lessening the financial burden placed on employers due to the coronavirus pandemic.
The definition of qualified wages for 2020 has been adjusted slightly, depending on the number of employees a business employed in 2019.
This variation is reflective of the varying burden that different companies have when it comes to employing staff and the duties associated with this.
The amount of qualified wages, therefore, depends on the size of the business at hand in order to reflect their individual needs and circumstances.
An employer that was eligible and averaged more than 100 full-time employees in 2019 may qualify for a reduction of wages paid to an employee during periods when services had to stop.
For eligible employers with fewer than one hundred full-time employees, qualified wages are the wages paid to any employee who is subject to similar employment conditions and requirements, regardless of their job title or duties.
These wages must be used in order to determine eligibility for certain tax credits or other financial incentives that are available exclusively to small business owners.
Who Can Get the Credit for Retaining Employees?
In order to be eligible for the tax credit, employers must meet two key qualifications. Firstly, they must demonstrate a substantial decrease in their gross receipts or total sales revenue without deducting any expenses or costs associated with doing business.
Secondly, they must satisfy additional criteria as specified by the relevant legislation. By fulfilling these requirements, businesses can take advantage of the valuable tax credits that are being offered.
In most instances, the decision of eligibility is based on information from the year 2019 as it was prior to the emergence of COVID-19 and subsequent lockdown measures that were implemented in March 2020.
This helps to ensure a fair assessment and provides an unbiased understanding of how individuals were affected by their circumstances before the pandemic began.
Businesses may be qualified to earn the Employee Retention Credit if:
- Quarterly total revenues for 2020 must be at least 50% lower than comparable quarters in 2019.
- Quarterly total revenues for 2021 must be at least 20% lower than comparable quarters in 2019.
Small businesses with 500 or fewer full-time employees could be eligible for the Employee Retention Credit (ERC) if they were required to close by a government-mandated shutdown order, or if they had to adjust their operations due to partial closure requirements. This is regardless of whether the business is a corporation, company, shop, or other type of establishment.
Eligible companies for 2020 must meet one of the following conditions in order to take advantage of applicable benefits and they can be either for-profit organizations or tax-exempt non-profit organizations. Be aware that these corporations must demonstrate a certain degree of financial stability and operational sustainability to qualify.
Businesses must fulfill one of the requirements listed below in order to be eligible in 2021:
- Government restrictions on working, traveling, conducting business, and holding meetings cause operations to be completely or partially interrupted.
- Your company's gross receipts were at least 20% lower in the same calendar quarter in 2019 than they were in the previous year.
- "Recovery starting enterprises" that begin operations after February 15, 2020 and have annual gross sales of $1 million or less
Even though the program has come to an end, businesses that have recovered from a considerable drop in gross earnings and had not availed of the tax credit prior to this are still able to take advantage of it in 2023. Therefore, companies have been given a further opportunity to benefit from this scheme.
Companies across the United States have three years from the date of filing their payroll taxes to assess and analyze the wages and salaries paid out to employees after March 12, 2020.
This provides businesses with a period of time in which they can go back through their records, examining all payments made since that specific day as part of their own internal review process.
During this allotted timeframe, employers must make sure that any discrepancies between actual wages paid and those recorded on tax documents are properly addressed and rectified.
Form 941-X: What is it?
Form 941-X is an Internal Revenue Service (IRS) form used to make any necessary corrections to a previously filed Form 941. Employers who need to amend information from their prior Form 941 filing must complete and submit this document in order for the IRS to process the amended information.
In order to fill out Form 941-X accurately, employers must supply specific details regarding their federal income tax withholding, employment taxes, and taxable Medicare wages.
This form requires detailed information about the amount of money taken out for taxes from each employee's paycheck as well as any taxable wages that are subject to Medicare. It is important that this data is provided in a timely manner to ensure compliance with the IRS rules and regulations.
Once the form is filled out, it must be sent to the Internal Revenue Service (IRS) with an exhaustive description of the mistakes being rectified. Failure to do so could result in a delay of your application or possibly even further issues.
Therefore, it is important to ensure that all necessary information and documentation is provided along with your completed form.
Corrections made on Form 941-X can be requested for any quarter within the current year, or for any of the three preceding years. Unfortunately, this form cannot be electronically submitted and therefore may take a longer period of time to process than other forms.
If employers have queries concerning Form 941-X, they can contact the Internal Revenue Service (IRS) directly or consult with one of our experienced tax experts for assistance.
Why Should Form 941 Be Modified?
Form 941-X is a form used for amending and making corrections to previously filed tax returns. It can be extremely useful if you determine that you are eligible for the Employee Retention Credit (ERC) during 2020 or 2021, as it allows you to revise your prior filing and receive a refund of any taxes paid on behalf of employees.
If you decide to claim the ERC, Form 941-X should be completed in order to ensure that your returns reflect this change and that you get back the money owed.
For every Form 941 that requires correction, submit a separate Form 941-X. Within three years of the filing deadline for your initial Form 941, you must submit Form 941-X, the form used to make changes to a previously filed Form 941.
This form can be used to edit any of the following items:
- Taxable Medicare tips
- Taxable Medicare wages
- Taxable Social Security tips
- Federal employment taxes
- Employment Taxes
- Payroll tax credit election
- Taxable compensation and tips subject to Medicare tax withholding
- Withholding of income tax from salaries, tips, and benefits
- Salary, tips, and compensation
It is important to note that once you have filed your corrected form, it cannot be changed again.
Amending Form 941
Amending 941 for employee retention credit may help you qualify for even more rebates. Having this in place can provide businesses with financial relief and incentives to keep employees on board, while also providing job security in an otherwise volatile job market. Whether or not companies take advantage of this opportunity will determine how successful it is in terms of employee retention and business continuity.
If you would like to determine your eligibility for the Employee Retention Tax Credit, fill out our simple form by clicking on the button below.