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Use Form 941-X to Correct Payroll Tax Errors

correct payroll tax mistakesDid you know the IRS has a special form you can use to report errors or changes to quarterly payroll tax reports for your business?

It’s the 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. The IRS has updated this form and the instructions that go with it. Changes to the form include a new line to report Social Security and Medicare taxes due on unreported tips, as well as lines to make corrections regarding the HIRE Act payroll tax exemption and the advance earned income credit. Here’s a quick look at the changes:

Unreported tips. The IRS added a new line (Part 3, line 11) for employers to correct amounts reported on Form 941, line 7c (for quarters ending before 2011), or line 5e (for quarters ending after 2010). You may have to complete the 941-X if you receive an IRS “Section 3121(q) Notice and Demand” letter. The most common reasons for receiving this letter are:

  1. The IRS conducted an audit and found that you failed to report some tips.
  2. The IRS uncovered unreported tips using a new tip compliance program launched last year.
  3. An IRS audit of an employee uncovered unreported tips that you also failed to report.

Here are other changes to 941-X that may affect you:

Payroll tax exemption in the HIRE Act. You can make corrections to the payroll tax exemption using Form 941-X. Only complete lines (Part 3, lines 12a-12c) to correct quarters ending after March 31, 2010, and before Jan. 1 , 2011. You can no longer claim the payroll tax exemption that was part of the HIRE Act for periods after Dec. 31, 2010. For more specifics on the HIRE Act, read our previous article “HIRE Act Forces IRS to Revise Forms and Instructions for W-2, W3, W3c.”

Advance earned income credit. Form 941-X also provides a place to make corrections to the advanced earned income credit. Only make corrections in Part 3, line 18 for quarters ending before Jan. 1, 2011. The advance portion of the earned income credit program was repealed beginning in 2011. For more information, read our article “Payroll Managers: Note Changes to 2011 Form 941.”

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