IRS Issues New Version of Amended Form 941 Return

There is now a January 2011 version of Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund, and the Form 941-X instructions, on the IRS website. The form was last revised in September 2010.

Unreported tips. A new line has been added to Form 941-X (Part 3, line 11) to report any FICA tax corrections to the amounts reported on Form 941, line 7c (for quarters ending before 2011), or line 5e (for quarters ending after 2010), from an IRS “Section 3121(q) Notice and Demand” letter.

Daniel Lauer, Program Manager for the IRS National Tip Compliance Program, discussed the “Section 3121(q) Notice and Demand” letter during the May 12 payroll industry conference call. He pointed out that an employer will not have to report anything on this line of Form 941 (or Form 941-X) unless the employer has been contacted by the IRS about unreported tip income. Lauer said that this usually happens in three situations: (1) The IRS has conducted an audit of the employer and found that the employer failed to report some tips. (2) The IRS has uncovered some unreported tips using a new tip compliance program that it launched last year. (3) An IRS audit of an employee uncovered some unreported tips that the employer also failed to report.

A “Section 3121(q) Notice and Demand” letter instructs the employer to include the FICA taxes shown in the notice and demand letter on the employer's next Form 941. Lauer said that an employer will not be subject to any interest charges or deposit penalties if it properly reports the taxes as instructed in the notice and demand letter, and remits the tax due with its Form 941, or if it timely makes a deposit in accordance with the instructions in the letter. The letter will be issued well before the end of the quarter. The deposit needs to be made before the end of the quarter to avoid penalties. Corrections to the amounts reported on Form 941 are reported on Form 941-X.

Payroll tax exemption in the HIRE Act. The new version of Form 941-X notes that the lines for the payroll tax exemption in the HIRE Act (Part 3, lines 12a-12c) should only be completed for corrections to quarters ending after March 31, 2010, and before Jan. 1, 2011, since the payroll tax exemption in the HIRE Act can no longer be claimed after Dec. 31, 2010.

Advance earned income credit. The new version of Form 941-X also notes that corrections to the advance earned income credit (Part 3, line 18) should only be made for quarters ending before Jan. 1, 2011, since the advance earned income credit was repealed beginning in 2011.