IRS Clarifies Form 941-X Instructions for Correcting Certain AMT Withholding Errors

Author: Rena Pirsos, XpertHR Legal Editor

December 5, 2014

The IRS has posted a document to its website clarifying the instructions for line 11 of Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund. The clarifications explain how an employer should correct various types of errors relating to withholding of Additional Medicare Tax (AMT).

The IRS notes that an employer cannot correct the AMT withheld for a prior-year nonadministrative error on Form 941-X. Instead, the affected employee must report the correct tax on his or her personal income tax return.

The IRS provides an example of each type of correction, and intends to include the clarifications in the next revision of the Form 941-X instructions.

Permissible Corrections

In general, an employer may correct errors to AMT withholding only if the employer discovered the errors in the same calendar year that it paid the related wages and tips to employees. However, an employer may correct administrative errors - errors in AMT withholding for prior years if the amount reported on Form 941, line 5d, column 2 does not agree with the amount the employer actually withheld from an employee's pay. An employer may also correct errors to AMT withholding for prior years if Internal Revenue Code (IRC) § 3509's reduced rates apply; if they do apply, the employer should follow the Form 941-X, line 17 instructions.

IRC § 3509 permits the use of reduced rates for income tax withholding and the employee's share of FICA (Social Security and Medicare) tax if an employer failed to withhold employment taxes from a worker's wages because it misclassified the worker as a non-employee (i.e., an independent contractor) rather than an employee. The provision does not relieve the employer from paying its share of FICA and FUTA (federal unemployment insurance) taxes.

Prior-Year Nonadministrative Errors

If a prior-year error was nonadministrative (i.e., an employer failed to withhold AMT when required), an employer may correct only the wages and tips subject to AMT withholding that were originally reported on Form 941, line 5d, column 1, or previously corrected on Form 941-X. An employer cannot correct the tax reported on line 5d, column 2.

An employer must enter the total corrected amount in column 1. In column 2, the employer must enter the amount it originally reported or the amount as previously corrected. The employer also must enter in column 3 the difference between columns 1 and 2.

The column 3 amount should not be multiplied by .009 (the 0.9% AMT rate), and column 4 should be left blank. The employer must explain the reasons for the correction on line 23.

Errors Discovered in Same Calendar Year or Prior-Year Administrative Errors

If an employer is correcting the taxable wages and tips subject to AMT withholding that it reported on Form 941, line 5d, column 1, the employer should enter the total corrected amount in column 1. The employer should enter in column 2 the amount it originally reported or the amount as previously corrected. The difference between columns 1 and 2 should be entered in column 3. Finally, the employer should multiply the column 3 amount by .009 (the 0.9% AMT rate) and enter the result in column 4.

Combination of Prior-Year Administrative, Nonadministrative Errors

If an employer is reporting both administrative errors and nonadministrative errors for the same quarter of a prior year, it must enter the total corrected amount in column 1. The employer should also report in column 2 the amount it originally reported or the amount as previously corrected. Column 3 should include the difference between columns 1 and 2. The employer should multiply only the amount of wages and tips reported in column 3 that are related to administrative errors by .009 (the 0.9% AMT rate).

An employer should not multiply any wages and tips reported in column 3 that are related to nonadministrative errors by the .009 rate. Line 23 should be used to explain the corrections in detail. The explanation must include the reasons for the corrections and a breakdown of the amount reported in column 3 into the amounts related to administrative and nonadministrative errors.