Common errors to avoid when claiming tax credits
Posted December 1, 2020
If you are like many employers who are filing Form 941, Employer's Quarterly Federal Tax Return and are claiming an employer tax credit, you should read the instructions carefully and take your time when completing the form to avoid mistakes.
Using a reputable tax preparer including certified public accountants, enrolled agents or other knowledgeable tax professionals can also help avoid errors. Mistakes can result in a processing delay or a balance due notice, which could mean a delay or require filing an amended return.
Here are some common mistakes to avoid when completing Form 941:
- Reporting advances requested instead of the advance payments of credits received. If you haven't received the advance payment of credit you requested, it should not be reported on your 941.
- Incorrectly reconciling the advance payment of the credit requested and received. If you have received the advance payment requested, you must reconcile it on Form 941 by reporting the advance payments received on line 13f and claiming the credits you’re eligible for on lines 11b, 11c, 13c and 13d.
- Form 7200, Advance Payment of Employer Credits Due to COVID-19, is used to request the advance payment of employer credit. It is not used to claim the credit.
- If you receive an advance payment of credit, but don't report it on Form 941, you may receive a balance due notice.
- If you receive a balance due notice, you will need to file an amended return using Form 941-X to report the advance payments and claim your eligible credits.
- If you use third-party payers or reporting agents, you must tell your third-party payer or agent you requested and received an advance payment of credit. These third-party payers and reporting agents should also ask you if you requested and received an advance payment of credit using Form 7200.
You may be one of many businesses that have been severely impacted by coronavirus (COVID-19) and will qualify for two new employer tax credits — the Credit for Sick and Family Leave and the Employee Retention Credit.
You may request tax credits for paid leave you provided under the Families First Coronavirus Response Act (FFCRA) between April 1, 2020 and December 31, 2020. The refundable credit is applied against certain employment taxes on wages paid to all employees. You may reduce federal employment tax deposits in anticipation of the credit. You may also request an advance of the paid sick and family leave credits for any amounts not covered by the reduction in deposits. The advanced payments will be issued by paper check to employers.
You may also be eligible to claim the employee retention credit, a refundable tax credit equal to 50 percent of up to $10,000 in qualified wages (including health plan expenses), paid after March 12, 2020 and before January 1, 2021. Your business is eligible if your operations have been partially or fully suspended due to governmental orders due to COVID-19 or if it has a significant decline in gross receipts compared to 2019.
This article was written by Darlene Clabault of J. J. Keller & Associates, Inc.