Form 941 is the form used by employers to declare Social Security and Medicare income and taxes withheld from employee wages, as well as the employer's share. Employers who are eligible for the Employee Retention Credit (ERC) must keep records that justify where the funds were used. To apply for the ERC, employers must file a modified Form 941X for the quarters they worked as an eligible employer. The choice of the payroll tax credit must be made on the due date of the originally filed income tax return (including extensions).Since the creation of the ERTC program, several laws have come into force that influence how credit can be requested.
The total tax reported in the “Total Liability for the Quarter” line of Annex B (Form 94) must match the corrected tax (Form 941, line 12), combined with any corrections entered in Form 941-X, line 2, for the quarter, minus previous reductions and interest-free tax assessments. An eligible employer can apply for the ERC on any qualifying salary that is not counted as a payroll cost to obtain PPP loan forgiveness. To correctly show the increase in credit as a reduction in your tax balance, enter the positive number in column 3 as a negative number in column 4.Loan recipients who qualify for the credit can get it now by reducing the amount of commercial tax deposits they must make. The IRS is now processing millions of payroll tax returns due to changes in COVID-19 safety regulations and the high volume of requests for reimbursement of the ERC. Employers cannot file Form 941-X to reduce federal income tax withheld because they actually withheld federal income tax from wages.
If employers overreported payroll taxes and request a refund or a reduction in the amount of overstated tax, they must use the claim process. Eligible businesses can use IRS Form 7200 to reduce their required federal payroll tax payments to the amount of their projected credit and request an advance on their expected credit if it exceeds their reduced federal hiring tax payments. Employers who obtain a small business interruption credit under the authorized CARES Act are not eligible to receive the ERC. If employers applied for the ERC on their original Form 941 for the quarter and make any corrections on Form 941-X for that quarter to amounts used to calculate this credit, they must recalculate their amount of credit using spreadsheet 4.If employers didn't check the box on line 18b of their originally filed Form 941 but are now applying for ERC as a recovering startup, they must check the box on line 31b.