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Correcting 941 for missing ERC (Retention Credit)

Eric Updated by Eric

SIMPLEST PROCEDURE for Correcting 941 for Missing ERC (Retention Credit)

Form 941-X

What Programs are needed?

Payroll System’s Payroll Corrector Program includes the Form 941-X.  

However, to import 941 data easily (to Columns 1 & 2 of the 941-X), requires the 941 data to be present in Payroll System’s 941/940 program (often called “After the Fact” or “Live Payroll”).

 If the user does not already own the 941/940 Payroll System Program,

2020 and 2021 Payroll System (941/940) can be purchased for an additional $50 per year.  (Note: 2021 Payroll System can be purchased online; 2020 can only be purchased by calling Customer Service at 800-343-1157). 

OVERVIEW

If the employer did not include Retention Credit Wages (“ERC”) on their original 941, and they wish to amend/correct the 941 to include Retention Credit Wages via 941-X in Payroll System’s Payroll Corrector Program, the following is a simple procedure.

Note: This procedure assumes the user did NOT utilize the Payroll Column (C19-RC) in the Payroll Grid during the Quarter.

To begin, it is assumed your 941 as originally filed has already been created and saved in Payroll System. If not, you will need to create it.  We will use a 2021 example since this is the most common year for ERC corrections.

Note that we cannot give any tax advice as to whether your ERC wages qualify, how they might be effected by any PPP loan forgiveness, or as to any statute of limitations on filing the 941-X.  The filer is always responsible for all content on forms submitted, and we always recommend overviewing the results before filing. 

 Step-by-Step Procedure

  1. If the Original 941 does not already exist in Payroll System 2021, you will need to create it and Save (with a recognizable name, like “941 2nd Qtr Original”).
  2. Open the (already saved) Original 941.  From MENU items above, select File> “Save File As”—and give this copy a title which includes the word CORRECTED (such as “941 2nd Qtr CORRECTED”):
    Ignore the “New File” option. 
  3. It is assumed that this 941 has all the Original 941 figures, which did not include ERC wages.
    1. Page down to page 3 of 941, and (usually on Line 21), you will enter the Qualified ERC wages manually on the Line entitled, “Qualified Wages for the Employee Retention Credit”. 
    2. If you have any related, qualified health insurance expenses to add on the line just below, keep in mind that the $10,000 wage limit (per employee) INCLUDES any health insurance cost.
  4. The program module will COMPUTE the Retention Credit for you (you’ll notice that the balance due or refund amount will have changed on the 941).  Be sure to SAVE this corrected version.  Note: it is only for IMPORT to Column 1 of the 941-X; you will not file this “Corrected” 941.
  5. If you wish to view the Covid Worksheet, with the Corrected 941 still open (or upon opening it), the Covid Worksheet can be found, examined and printed, if desired.  From the MENU items above, select: Schedule/Attachments >“Covid-19 Credit Worksheet”:
    Neither the COVID-19 Credit Worksheet, nor the Corrected 941 we’ve just created and saved, are to be attached to the 941-X.  They are only for your own records.
    Any Covid-19 Worksheet could be chosen, and then Page Up or Down (within the Worksheets) to find the appropriate Worksheet. But for the 1st Qtr 2021, only one Worksheet was utilized, and in the example above, Worksheet 2 is for ERC for the 2nd Qtr of 2021, and Worksheet 4 is for the 3rd or 4th Qtr’s ERC.
  6. After saving your Corrected 941, close it and open Form 941-X:
  7. On the 941-X, select “New File”, and give it a title that makes sense to you. Then on the first page of the 941-X, you must fill-in or checkbox “941”, the Quarter and the Year (before figures will import).
  8. Before filing, you also will need to complete any other information required on the 941-X manually (particularly on the first and last pages of Form 941-X).
  9. To Import figures, Page down to Page 2 of 941-X.  From Menu items above, select: Import>”Import Column 1 (from 2021; proceed to see options)”
  10. From pop-ups, choose Form 941, then the name of the CORRECTED file you created, and indicate whether or not you need to amend Schedule B (for Semi-Monthly or Next-Day depositors).  Your Corrected 941 figures should now show in the first column of the 941-X.
  11. Again from the Menu item above, select: Import >”Import Column 2 (from Originally reported Form 941)”.
  12. From pop-ups, choose Form 941, the correct “Rev” number (explained), and then the name of the ORIGINAL file you created.  Both columns should now be imported.
  13. Review the results, and again be sure to fill out any other required entries on the 941-X, including explanation of your changes.
When you PRINT the 941-X, lines where there were no changes between columns 1 & 2 will not print.  That is to be expected.

The 941-X is presently only a Mail-In form.  The mailing address may be found in the IRS 941-X instructions. You might also find the mailing address by utilizing Payroll System’s, “Cover Letter” module (after selecting Form 941-X at the top of the 2nd page of Cover Letter module)— But since corrections are often for a prior year, addresses should be verified by checking the most current IRS 941-X version instructions. Also be sure to check instructions if a special mailing address might apply (such as for an exempt organization, PDS mailing, etc). We’re aware of no 941-X mailing address changes since 2020/2021 as of this writing.

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