Even the best of us can make a mistake on a quarterly Form 941 (or on a Form W-2, which often creates an error on the 941). The IRS has introduced a new form for correcting the dollar amounts on a previously filed 941: Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.
The American Payroll Association offers the following guidance in your first step on the form: choosing the correct process. Remember, the 941-X is a stand-alone amendment to a Form 941 from a previous quarter. Near the top of the form, you’ll indicate which quarter and year you are correcting.
For each correctable line on the 941, there is a corresponding line on Form 941-X. You’ll indicate the corrected amount (i.e., what you would have reported had the error not occurred), the originally reported amount, and the difference. There are also “X” forms for each of Forms 943, 944, 945, and CT-1.
Adjusted return or “Claim”, after filling in your identifying information, you are asked to select your process. “Adjusted employment tax return:”
If you owe money to IRS, you will make a payment as you file Form 941-X.
If the IRS owes you money, you’ll include the amount in the “Total deposits” (line 11) on your current quarter’s 941. However, you won’t have to attach the 941-X to that 941.
“Claim:” If the IRS owes you money, it will issue a refund of the amount it owes you. Or, if IRS had sent you a balance due notice for that same quarter, it will apply the amount against that balance.
Crucial timing for an “adjusted return”, If the IRS owes you money and you want to use the adjusted return process (applying the amount as a deposit on a Form 941), IRS advises you to file the 941-X in the first two months of a quarter. This will give IRS enough time to process the 941-X and post the credit before you file the 941. For example, if in December 2009 you discover IRS owes you money, and you want to use the adjusted return process, you should wait until January 2010 to file Form 941-X and record the credit as a “deposit” on the 941 for the first quarter of 2010.
Corrections in both directions for one quarter, If, for one quarter, you owe money to IRS (e.g., income tax withholding), and IRS owes you money (e.g., social security tax), it’s a little more complicated.
> Use the adjusted return process if the net of the corrections is that you owe IRS, or if the net result is that IRS owes you and you want to apply the credit to your next 941. (Interestingly, you cannot “claim” a refund, even if the net result is that IRS owes you.)
> Or, file two separate Forms 941-X. Use the adjust-ed return process for the amount you owe IRS (and make a payment). Use the claim process for the amount IRS owes you (and IRS will send a refund). Be sure to also see the new expanded instructions for this form, which include lots of examples.