The IRS Office of Taxpayer Burden Reduction (TBR) has been working on ways to reduce the burden associated with correcting information previously reported on various types of employment tax returns. Currently, employers use one form (Form 941c) to correct the amounts they previously reported on Forms 941, 943, 944, and 945. Form 941c is not a stand-alone tax return. Presently, filers must attach Form 941c to their current employment tax return when making adjustments, or to Form 843 when claiming a refund of overpaid employment taxes.

Form 941c is complex and does not correspond directly to any employment tax return. Consequently, taxpayers often make mistakes completing and filing it, resulting in processing errors and delays. Additionally, because the taxpayer files Form 941c with the current employment tax return when making an adjustment, the IRS adjusts the tax for the current tax period but adjusts the wages for the calendar year being corrected. This makes it difficult for employers and the IRS to track taxpayers’ account activity.

The IRS has unveiled a prototype form that will improve the way employers correct errors on previously filed employment tax returns, beginning in 2009. It recently published a draft version of new Form 941X (“Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund”) for public review.

After finalizing the new Form 941X, the IRS will continue developing additional forms for the remaining returns in the employment tax series. The entire set of forms will be available in early 2009 for use in correcting errors on employment tax returns discovered on or after Jan. 1, 2009.

KEY POINT. Each stand-alone form will correspond to, and relate line-by-line with, the employment tax return it is correcting. For example, an employer who discovers an underpayment or overpayment error on a previously filed Form 941 will use Form 941X to make a correction. Since the Form 941X is a stand-alone form, the employer will be able to file Form 941X when an error is discovered, rather than having to wait to file it at the end of the quarter with the next employment tax return.

The IRS will also revise Form 941 and other employment tax returns for the 2009 tax year to eliminate prior period adjustment lines no longer needed after the implementation of the new forms.

Tip. Form 941X will be used to make adjustments and claim refunds. If an employer is correcting an overpayment for a Form 941, the employer will be able to either make an adjustment or claim a refund. If an adjustment is made the amount of the overpayment will be applied as a credit to the quarter in which the Form 941X is filed. Employers correcting underpayments of employment taxes that result in a balance due, can pay using EFTPS, credit card, or send a check along with Form 941X. The IRS will make both the tax and wage corrections to the actual tax period being corrected, resulting in a more accurate record.

This article first appeared in Church Finance Today, August 2008.