The American Institute of Professional Bookkeepers VOLUME 2: Issue 9

How to correct Form 941 errors

As the national association for bookkeepers, we want our members to be up to date, so each month we brief them on the latest changes in recordkeeping, reporting, bookkeeping and payroll in The General Ledger newsletter (www.aipb.org/general_ledger.html). Members who need more can call our free member telephone AnswerLine for personal answers to bookkeeping questions.

At this time of year, we remind members how to correct 941 errors.

To correct current year FITW overpayments:

  1. Complete the 941, Line 7f, in the quarter when you find the error.
  2. Complete and attach a 941c.
  3. Reduce current quarter deposit liabilities by overpayment amount, or obtain a refund by filing an 843 with the 941 and 941c.

To correct current year Social Security and Medicare overpayments:

  1. Complete the 941, Line 7e, in the quarter when you come across the error.
  2. Complete and attach a 941c.
  3. Reduce current quarter deposit liabilities by overpayment amount, or obtain a refund by filing an 843 with the 941 and 941c.

To correct prior year FITW overpayments caused by administrative errors:

An administrative error is one that does not affect the W-2. For example, you would be entitled to an abatement if you overpaid FITW in a prior year, showed the correct FITW on the W-2, but deposited too much tax.

  1. Complete Form 941, Line 7f, in the quarter when you come across the error.
  2. Reduce current quarter deposit liabilities by overpayment amount, or obtain a refund by filing an 843 with the 941 and 941c.

To correct prior year Social Security or Medicare tax overpayments:

Obtain from employees a signed affidavit stating that the overpayment was refunded and that no overpayment claim has been or will be made on the employee's 1040. If there was no Soc. Sec. or Medicare overpayment, no affidavit is needed. After you have obtained the signed affidavits—or if you did not give a refund:

  1. Complete Form 941, Line 7e, in the quarter when you come across the error.
  2. Reduce current quarter deposit by overpayment amount, or obtain a refund by filing an 843 with the 941 and 941c.

Summary of steps for correcting 941 underpayment errors

To correct current or prior year FITW underpayments:

  1. Complete Form 941, Line 7f, in the quarter when you come across the error.
  2. Complete and attach a 941c.
  3. Increase current quarter deposit liabilities by underpayment amount; deposit full amount in the quarter the error is found.

To correct current or prior year Social Security or Medicare underpayments:

  1. Complete Form 941, Line 7e, in the quarter when you come across the error.
  2. Complete and attach a 941c.
  3. Increase current quarter deposit liabilities by underpayment amount; deposit full amount in the quarter the error is found.

Important: Taxes unpaid by the last payment date accrue interest at the fed short-term rate + 3% + 941 failure-to-file penalties. [IRC §6601; IRS Reg. §301.6601-1; IRS Prop. Reg. §301.6601-1] However, if corrections are made according to the instructions, interest charges are waived. Although penalty charges will still apply, generally they are waived upon a request for abatement. Employees usually pay underwithheld amounts on their 1040. If they do not, the employer may be liable for unpaid amounts. But the employer may obtain a credit if the employee certifies he/she paid the tax when filing his/her 1040. [26 CFR 31.3403-1]

But this is just a small example of the practical tips and latest news you get as a member. For example, if you join now, here is just a sampling of what you will get in your February issue of The General Ledger:

 

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