Employers filing employment tax returns and claiming an employer tax credit should read the instructions for Form 941 and carefully complete the form to avoid mistakes.
Using a reputable tax preparer including a certified public accountant, enrolled agent or other knowledgeable tax professional can also help avoid errors. Mistakes can result in a processing delay or a balance due notice, which could mean additional delays or require filing an amended return.
Here are some important things employers should remember when preparing tax returns or claiming credits.
- Ensure line 1 on Form 94X returns is accurate.
- Refer to the line 1 instructions for details on entering the number of employees.
- Report advanced credits received, not the requested payment of credits.
- If an employer hasn’t received the advance payment of credit they requested, the employer should not report it on Form 941.
- Use Form 7200 to request the advance payment of a credit only, not for reporting the credit.
- Employers use this form to request the advance payment of employer credit. It is not used to claim the credit. An employer must claim the credit on the applicable employment tax return, typically Form 941.
- If an employer has received the advance payment requested, they must reconcile it on Form 941 by reporting the advance payments received and claiming the credits for which they’re eligible.
- If an employer receives an advance payment of a credit but doesn’t claim a corresponding credit on their employment tax return, they may receive a balance due notice.
- If an employer filed an employment tax return and did not report a credit they were otherwise entitled to, they will need to file an amended return using Form 941-X to claim those eligible credits.
- Inform third-party payers or reporting agents
- Employers using third-party payers or reporting agents must tell their third-party payer or agent they requested and received an advance payment of credit.
- Third-party payers, including reporting agents, should also ask employers if they requested and received an advance payment of credit using Form 7200, Advance Payment of Employer Credits Due to COVID-19 before filing Form 941.
- Use fractions of cents line correctly
- The fractions of cents line should be used for fractions of cents, due to rounding, relating to the employee share of Social Security and Medicare taxes.
- Only claim credits they are entitled to and they shouldn’t exceed limitations
- Before employers claim any credits on their employment tax return, they should review IRS guidance and the FAQs at IRS.gov to make sure: they are eligible to claim the credit; they are completing the forms and claiming the credits correctly; and they don’t claim a credit that exceeds the limits.
- Complete amended tax returns
- If an employer is amending an employment tax return to claim a credit, they must complete all the lines associated with that credit. For example, if they are amending a return to claim additional employee retention credit, they must complete the lines that relate to qualified wages for the that credit and qualified health plan expenses allocable to those wages, if applicable.