Step 1: Predetermine how and when you qualify for the ERC

The ERC treats 2020 as a whole entity, while 2021 is looked at quarter by quarter. This means you must examine each quarter of 2021 individually, and submit a 941-X payroll tax amendment for each quarter in which you qualify. The 2020 ERC, however, is qualified only once for the complete year. If you qualify in any quarter of 2020, you would be able to receive the full amount available, and would not need to file for any other quarter.

To qualify for the ERC, your company must meet BOTH of the following requirements:

1. Your company must have been below the employee count threshold in 2020, or in any quarters of 2021.

• For 2020, only companies below 100 employees will qualify.*
• For 2021, companies below 500 employees qualify.*

*Only full-time employees working an average of 130 hours per month or more must be counted towards this total.

2. Did you pay wages to W-2 employees during those quarters?

• Only wages paid to W-2 employees count as qualified payroll expenses.
• You can claim $10,000 per employee, of which you will be reimbursed 50% for 2020, and/or 70% for 2021.

Your company must also meet at least one of the following qualifications:

EITHER

• For 2020, did you see a 50% decline in annualized gross receipts in any specific quarter, when compared to the same quarter of 2019?
• For 2021, did you see a 20% decline in annualized gross receipts in any specific quarter, when compared to the same quarter of 2019?

*Your company does not have to meet the declined income requirement for both years to qualify. 2020 is treated as a yearly qualification, meaning your annual income must have declined by the specified amount. 2021 is treated on a quarterly basis, meaning you can qualify by annualized income from a single quarter (divide the given quarter’s income by 3, then multiply by 12).

OR

• Did you have a pandemic-related government mandate significantly impact your business operations in the specific quarter you are claiming?

Some common reasons to qualify include social distancing mandates, limited capacity orders, and reduced operating hours. The government order must have impacted your business operations by more than 10%.

Step 2: Gather documents for each quarter in which you qualify

You need the following documents to calculate your ERC claim:

• 941 payroll tax forms for each quarter of 2020 & 2021
• Profit and Loss sheets for each quarter of 2019, 2020, & 2021
• Payroll summary reports for 2020 & 2021
• Monthly healthcare statements if applicable (these are considered a payroll cost)
• If applicable, all Payroll Protection Program documents, including forgiveness application

Step 3: How to calculate your ERC claim for each qualifying quarter

Examine your payroll summary report for each quarter in which you qualify. Look at each W-2 employee individually, tallying up each worker’s wages. Do not include wages paid to the majority of business owners and their family members — these wages do not qualify for the ERC. Determine which (and when) employee wages were paid with PPP, and subtract that amount from each employee’s total.

For each employee who was paid less than $10,000 in wages in a particular quarter, you can add on any employer-paid healthcare costs, which the IRS counts as payroll costs. At this point, you should have a set of wage costs representing each W-2 employee in your company.

Then, multiply each employee’s total by 0.5 for quarters in 2020 and/or 0.7 for quarters in 2021.

Finally, add those adjusted employee totals together. This is your ERC claim total and, if calculated correctly, reflects your final ERC refund amount for the particular quarter.

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Step 4: How to fill IRS Form 941-X for each ERC qualifying quarter

First, fill out your unique business information at the top of IRS Form 941-X. Be sure to indicate which quarter and year you are amending in the top right-hand corner of page one. Also, follow the official IRS instructions on the 941-X.

Part 1: Check option 2 to claim a refund or abatement.

Part 2:

1. Check option 3 to certify your filing of supplementary payroll tax forms.
2. Check all options that apply to your specific payroll tax status.

Part 3:

1. Find the original wage amounts for fields 6 through 40 that you filed in Form 941 and enter those amounts in Column 2.
2. Enter your total corrected amounts in Column 1 using the adjusted employee totals you calculated in step 3. Pay close attention to fields 18a, 26a, 30, 31a, and 33a, as these have to do with the ERC.
3. Subtract Column 2 from Column 1 and enter the difference in Column 3.
4. Multiply the Column 3 values by the amounts specified to the right of Column 3 (or follow the alternative instructions specified there), and enter the product in Column 4.

Part 4: In field 43, provide a detailed description of how you determined your corrections

Part 5: Sign and print your name. If you are a paid preparer, fill out the section titled “Paid Preparer Use Only.”

Do not submit form 941-X to the IRS without guidance from an ERC specialist. Miscalculating your ERC refund amount can lead to potential consequences for your business.

As you can see from the instructions, amending your payroll tax return with IRS form 941-X can be quite complicated. Should you have any questions or require assistance from a professional ERC provider, do not hesitate to contact Omega Accounting Solutions.

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