How to Amend Tax Return for ERC Credit

The Employee Retention Credit (ERC) helped businesses retain employees during the COVID-19 pandemic. Many businesses initially overlooked their eligibility or faced complexities in claiming this refundable payroll tax credit. Employers are now seeking to retroactively claim the ERC by amending previously filed tax returns. This process allows businesses to access financial support for qualified wages paid in 2020 and 2021. This article guides you through the steps involved in amending your tax return to claim the ERC, from understanding eligibility to post-submission considerations.

Determining Eligibility and Required Information

To claim the Employee Retention Credit, businesses must determine their eligibility for the relevant periods. For 2020, eligibility required either a full or partial suspension of operations due to a government order limiting commerce, travel, or group meetings, or a more than 50% reduction in gross receipts in a calendar quarter compared to the same quarter in 2019. For 2021, the gross receipts test was a more than 20% decline in a calendar quarter compared to the same quarter in 2019, or the immediately preceding quarter in 2020 compared to 2019. While businesses could receive both Paycheck Protection Program (PPP) loans and ERC, the same wages cannot be used for both.

Once eligibility is established, gather financial and payroll records. You will need comprehensive payroll data, including gross wages paid and qualified health plan expenses for each employee during the qualifying quarters. Gross receipts data for 2019, 2020, and 2021 is also needed to demonstrate the required decline in revenue. If qualifying under a government order, documentation of the specific orders and how they impacted your operations is required.

Calculating the credit involves applying specific percentages and per-employee limits for each year. For 2020, the credit is 50% of qualified wages, up to $10,000 in wages per employee for the entire year, resulting in a maximum credit of $5,000 per employee. For 2021, the credit is 70% of qualified wages, up to $10,000 in wages per employee per quarter, allowing for a maximum credit of $7,000 per employee per quarter, or up to $21,000 for the first three quarters of 2021.

The definition of “qualified wages” varies based on the number of full-time employees a business had in 2019. For small employers (100 or fewer full-time employees in 2019 for 2020, or 500 or fewer for 2021), all wages paid to employees can be qualified wages, regardless of whether employees were providing services. For large employers (more than 100 full-time employees in 2019 for 2020, or more than 500 for 2021), qualified wages are limited to those paid to employees who were not providing services due to the suspension or decline in gross receipts.

Preparing Your Amended Tax Form

After determining eligibility and calculating the credit, prepare the amended tax form. Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, is used to amend previously filed quarterly payroll tax returns for the Employee Retention Credit. This form allows businesses to correct errors or make adjustments to employment taxes, including claiming refundable credits like the ERC. Obtain Form 941-X and its instructions directly from the IRS website.

When completing Form 941-X, file a separate form for each quarter you are amending. Enter your employer information, including your Employer Identification Number (EIN), business name, and address. Indicate the specific quarter and year being corrected in the “Return You’re Correcting” section. For most ERC claims, check Box 2 in Part 1, indicating you are correcting a previously filed return, and select Box 5d in Part 2.

Report the qualified wages and calculated ERC amount. Enter qualified wages for the Employee Retention Credit on Line 30 of Form 941-X, and any qualified health plan expenses allocable to the ERC on Line 31a. The total ERC is broken down into a nonrefundable portion (Line 18a) and a refundable portion (Line 26a). These amounts are calculated using worksheets provided in the Form 941-X instructions.

The ERC affects other tax liabilities; for example, you must reduce your wage deduction on your income tax return by the credit amount. Provide an explanation for the amendment, such as “Amending return to apply for ERC Credits,” in Part 4, Line 43.

Submitting Your Amended Return

Once Form 941-X is completed, submit your amended return. Form 941-X cannot be e-filed and must be submitted via mail. Pay attention to mailing instructions to ensure your submission reaches the correct IRS processing center.

The mailing address for Form 941-X varies by business location. For example, businesses in certain states may mail forms to Cincinnati, OH 45999-0005, while others send them to Ogden, UT 84201-0005. Verify the current mailing address on the IRS website based on your entity type and location to avoid delays. If using a private delivery service, a specific street address in Ogden, UT 84201, is provided by the IRS.

To ensure proof of submission, use mailing methods that offer tracking and delivery confirmation. Certified Mail with Return Receipt Requested through the U.S. Postal Service is a recommended method, providing a postmarked receipt and proof of delivery. This protection helps if there are disputes regarding timely receipt of your documents by the IRS. While private carriers like FedEx or UPS may offer tracking, not all IRS addresses accept deliveries from them, causing complications.

Along with the completed Form 941-X, include all supporting documentation. This includes worksheets used to calculate qualified wages and credit amounts, and documentation proving eligibility, such as gross receipts data or government orders. Assembled packages help ensure smoother processing for your amended return.

Post-Submission Considerations

After submitting your amended tax return for the Employee Retention Credit, manage expectations regarding processing times. The IRS advises that amended returns can take between 8 to 12 weeks to process, though some ERC claims may extend to 16 weeks or longer. These timeframes can fluctuate based on the volume of submissions and the complexity of your return.

To inquire about the status of your submitted amended return, utilize the IRS “Where’s My Amended Return?” online tool on the IRS website. This tool allows you to check the status for the current tax year and up to three prior years by providing your Social Security Number, date of birth, and ZIP code. The tool updates once a day. For further clarification or if online access is an issue, contact the IRS directly via their dedicated phone line for amended returns.

The IRS may issue notices or request additional information following your submission. These inquiries might seek clarification on the documentation provided or require further substantiation of your eligibility or calculations. Promptly and accurately respond to any IRS correspondence to avoid further delays in processing your claim.

Maintain thorough records throughout this process. Keep copies of your original tax return, the completed Form 941-X, all supporting documentation used for eligibility and calculation, and proof of submission (such as certified mail receipts). Organized record-keeping is important for future reference, potential IRS audits, or any subsequent adjustments. The IRS recommends retaining tax records for at least three years from the date you filed your original return or two years from the date you paid the tax, whichever is later.