Update on Form 941x Processing Delays
Every year, the IRS Tax Advocate issues a report to Congress with a summary of the ten most serious problems encountered by taxpayers and makes administrative and legislative recommendations to mitigate those problems. This year’s report contained information on the 941X and the delays in processing this form.
- As of December 15, the IRS reported it had 2.8 million unprocessed Forms 941 and about 427,000 Forms 941-X that cannot be processed until the related Forms 941 are processed.
- The number of Form 941-X filed in 2021 more than doubled as compared to 2020.
- 402,000 of the 427,000 Form 941-X forms have yet to be processed by the IRS, because the original 941 has yet to be processed.
- The IRS has yet to issue guidance to process the 2.4 million Form 941’s, which in turn prevents the 941-X forms from being processed.
You are also encouraged to join our member forum discussion group on the ERTC to engage with fellow members. For more information contact Thom Stohler.
NAPEO Letters on ERTC
Resources from NAPEO members:
- Form for clients to report ERTC
The ERTC was created by the CARES Act in March. It was extended and modified by the Consolidated Appropriations Act of 2021. Here’s how that law modified the ERTC.
- Repeals the provision denying the ERTC to employers receiving a PPP loan. Instead, mechanisms would be created to prevent the same wages from being used for both PPP loan forgiveness and the ERTC.
- Extends the ERTC to apply to wages paid before July 1, 2021 (instead of January 1, 2021).
- Increases the credit percentage from 50 percent to 70 percent of applicable wages.
- Increases the per-employee limitation on applicable wages from $10,000 total to $10,000 per calendar quarter. In combination with the increased credit percentage, this would increase the maximum credit per employee from $5,000 to $7,000 per quarter (up to $14,000 for the first two quarters in 2021).
- The following language was added to the ERTC provisions that specifically addresses PEOs:
Any forms, instructions, regulations, or guidance described in paragraph (2) shall require the customer to be responsible for the accounting of the credit and for any liability for improperly claimed credits and shall require the certified professional employer organization or other third-party payor to accurately report such tax credits based on the information provided by the customer. [Emphasis added.]
It is not clear whether this provision applies retroactively or just to new credits taken in 2021.
- Makes the ERTC available if the business experienced a decline of at least 20 percent in gross receipts (instead of a 50 percent decline) as compared to the same calendar quarter in the prior year.
- Modifies the small employer definition of qualified wages to apply to employers that have 500 or fewer employees (instead of 100 of fewer employees).
The ERTC was modified again in March 2021 by the American Rescue Plan Act, which, among other changes, added the ERTC to the Internal Revenue Code (§ 3134) and extended it to Q3 and Q4 2021. As noted above, The Infrastructure Investment and Jobs Act (IIJA), which was signed into law on November 15, 2021, retroactively terminated the ERTC one quarter early for most employers so that the ERTC is generally not available with respect to wages paid on or after October 1, 2021. Employers that meet the definition of “recovery startup business” in Code § 3134, as amended by the IIJA, continue to be eligible to claim the ERTC for wages paid through December 31, 2021.
Employers that are no longer eligible for the ERTC in Q4 2021 but that (1) received an advance payment of the ERTC for Q4 using Form 7200 and/or (2) reduced their payroll tax deposits earlier in Q4 in anticipation of claiming the ERTC for Q4 should review the guidance in Notice 2021-65 (see link above) for information regarding repayment of those amounts.
The Infrastructure Investment and Jobs Act (Public Law 117-58) contains a provision that ends the Employee Retention Tax Credit (ERTC) at the end of the third quarter of 2021. Most employers should not claim any ERTC on the Form 941 for Q4 2021, with one exception for a “recovery startup business.” Employers that meet that definition could still claim the ERTC for Q4 2021 (if otherwise eligible).
Employers may continue to claim the ERTC for Q1-Q3 2021 if they are eligible.