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What not to do when claiming employer tax credits

Posted on December 4, 2020

As CPAs working with a lot of small-to-medium-sized businesses, we see first-hand how many complicated hoops employers must jump through when claiming employer tax credits.

It’s good to know in advance what common mistakes to avoid when it comes to filing Form 941, Employer’s Quarterly Federal Tax Return. Below, Teipen CPAs weigh-in on how to claim an employer tax credit while avoiding the 5 most common Form 941 filing mistakes:

  • First, we always recommend hiring a reputable tax preparer, whether that means a certified public accountant, enrolled agent, or other knowledgeable tax professional. Seasoned professionals know how to avoid errors that can result in a processing delay, or worse, a balance due notice, which could require filing an amended return.
  • Second, report advances requested instead of the advance payments of credits received. If the employer hasn’t received the advance payment of credit they requested, it should not be reported on his/her 941.
  • Third, be consistent with reconciling advance payment of the credit requested and received. If an employer has received his/her advance requested payment, it must be reconciled on Form 941 in the following ways:

– By reporting the advance payments received on line 13f

– Claiming the credits they’re eligible for on lines 11b, 11c, 13c and 13d.

Form 7200 is used to request the advance payment of employer credit– not                          to claim the credit.

  • Fourth, if employer receives an advance payment of credit, but doesn’t report it on Form 941, they may receive a balance due notice. Then what? If a taxpayer receives a balance due notice, they will need to file an amended return using Form 941-X to report their advance payments and claim their eligible credits.
  • Lastly, employers using third-party payers or reporting agents must tell those agents if they requested and received an advance payment of credit. These third-party payers and reporting agents should also ask employers if they requested and received an advance payment of credit using Form 7200, Advance Payment of Employer Credits Due to COVID-19.

Need more info?

Feel free to contact us with any questions, or go to IRS.gov:
 Form and Instructions for 7200Coronavirus tax reliefEmployer creditsCOVID-19-Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQs