21.7.2 Employment and Railroad Tax Returns

Manual Transmittal

August 17, 2016

Purpose

(1) This transmits revised IRM 21.7.2, Business Tax Returns and Non-Master File Accounts, Employment and Railroad Tax Returns.

Material Changes

(1) This IRM was revised to reflect the following changes:

SUBSECTION CHANGE
IRM 21.7.2 Editorial changes made throughout.
IPU 15U1832 issued 12-21-2015 IRM 21.7.2.3.3(2) Updated table to add social security wage limit for 2016 and deleted information for 2006.
IRM 21.7.2.3.5 Deleted detailed information on obsolete e-filing system.
IRM 21.7.2.4.3 Deleted detailed information on obsolete Advanced Earned Income Tax Credit (AEITC) and directed employees to research archived IRM versions if information on previous handling is needed.
IPU 16U0142 issued 01-20-2016 IRM 21.7.2.4.4.1(1) Clarified that the contact discussed is to be via telephone.
IPU 15U1539 issued 10-19-2015 IRM 21.7.2.4.6.4.2 Deleted note after (3) with regards to Indian Fishing Claims which referred to an obsolete SERP Alert. Added new (4) with content previously contained in the deleted note described above along with claim routing information.
IPU 16U0872 issued 05-05-2016 IRM 21.7.2.4.6.4.2(4) Revised name and IDRS number for case transfers.
IRM 21.7.2.4.6.5(1) Updated dates throughout table.
IRM 21.7.2.4.6.6 Clarified TC 971 AC 002 input in several processing scenarios discussed.
IPU 15U1539 issued 10-19-2015 IRM 21.7.2.4.6.6(4) Added note to edit certain returns to avoid unpostable conditions.
IRM 21.7.2.4.8.1(3) Removed bullet with threshold information for older years and inserted bullet with threshold information for current year.
IRM 21.7.2.4.9.1(1) Inserted sentence identifying calendar years displayed in the Form 944 Cache.
IPU 16U0985 issued 05-26-2016 IRM 21.7.2.4.9.3(2) Updated to account for change in title of cross referenced IRM 21.7.2.4.9.3.4.
IPU 16U0985 issued 05-26-2016 IRM 21.7.2.4.9.3.4 Revised title. Revised content throughout to provide additional detail on the handling of certain unpostable returns by BMF Entity Unpostables and to clarify AM’s role and handling of letter responses discussed.
IRM 21.7.2.4.9.4 Added new (4) with information on Line 1, Form 944 adjustments.
IRM 21.7.2.4.10.3(1) Deleted outdated tax rate information.
IRM 21.7.2.5.2(2) Replaced detailed instructions with direction to refer to the appropriate Form 94XX processing instructions.
IRM 21.7.2.5.4(6) Added note with IRN usage for this adjustments issue on Form 944 and Form 943 accounts.
IRM 21.7.2.5.6 Updated dates in tables in (4) and (5).
IPU 15U1832 issued 12-21-2015 IRM 21.7.2.5.11.1(3) Clarified that the claims discussed are processed by International teams at the Ogden campus.
IPU 15U1832 issued 12-21-2015 IRM 21.7.2.5.11.2(3) Clarified in Note that the claims discussed are processed by International teams at the Ogden campus.
IRM 21.7.2.5.13 Deleted outdated content.
IRM 21.7.2.5.13.1 Deleted outdated content and updated current handling information.
IPU 15U1539 issued 10-19-2015 IRM 21.7.2.5.20(10) Replaced bullet list containing three external links to HIRE Act information with a single link. The two external links which were eliminated are available as cross-links on the remaining linked web page.
IRM 21.7.2.5.20 Deleted (10) as externally linked information is no longer available for this increasingly rare claims issue.
IPU 16U0495 issued 03-10-2016 IRM 21.7.2.5.22 Revised text in (1) and (3) to account for legislative extension of credit eligibility periods. In (4), corrected link to related information on the irs.gov website.
IPU 15U1832 issued 12-21-2015 IRM 21.7.2.5.22(6) Revised name and IDRS number for case transfers.
IPU 16U0495 issued 03-10-2016 IRM 21.7.2.5.22.1(2) Revised to account for legislative extension of credit eligibility periods.
IPU 16U0142 issued 01-20-2016 IRM 21.7.2.5.23 Revised throughout to account for legislative impact of Consolidated Appropriations Act of 2015.
IPU 16U0142 issued 01-20-2016 IRM 21.7.2.5.23.1 Moved note following (4) to (3).
IPU 16U0142 issued 01-20-2016 IRM 21.7.2.5.23.2 Moved note following (4) to (3). Changed tense of language throughout from present to past.
IPU 16U0142 issued 01-20-2016 IRM 21.7.2.5.23.3 New subsection added with description of guidance provided to employers in Notice 2016-6 for applying retroactive transit benefit parity for tax year 2015.
IPU 15U1539 issued 10-19-2015 IRM 21.7.2.5.26(2) Added caution regarding maximum of four address lines which will print on BMF computer generated notices.
IPU 15U1539 issued 10-19-2015 IRM 21.7.2.5.27(3) Revised routing information per TEGE.
IPU 16U0872 issued 05-05-2016 IRM 21.7.2.5.28 Added new subsection with preliminary information on the new qualified small business payroll tax credit for increasing research activities.
IPU 16U0142 issued 01-20-2016 IRM 21.7.2.6.4.1(2) Revised internal fax numbers.
IPU 15U1832 issued 12-21-2015 IRM 21.7.2.6.4.2(3) Updated table to add Tier I wage limit for 2016 and deleted information for 2006.
IPU 15U1832 issued 12-21-2015 IRM 21.7.2.6.4.2(8) Updated table to add Tier II rates and wage limit for 2016 and deleted information for 2006.

Effect on Other Documents

IRM dated September 18, 2015 (effective October 1, 2015) is superseded. This IRM also incorporates the following IRM Procedural Updates (IPUs) — 15U1537 (dated October 19, 2015), 15U1832 (dated December 21, 2015), 16U0142 (dated January 20, 2016), 16U0495 (dated March 10, 2016), 16U0872 (dated May 5, 2016), and 16U0985 (dated May 26, 2016).

Audience

The primary users of this IRM are Wage and Investment employees. The IRM is intended for Customer Account Service issues involving employment tax returns.

Effective Date

(10-01-2016)

James P. Clifford
Director, Accounts Management
Wage and Investment Division

Employment and Railroad Tax Returns Overview

  1. This section provides general information and procedures for correcting employment tax returns and railroad retirement tax returns. Both telephone inquiries and paper correspondence can be worked using this information. Included is information for items reported on current forms:

    • Form 941, Employer's QUARTERLY Federal Tax Return

    • Form 941-X, Adjusted Employer's QUARTERLY Federal Tax Return or Claim for Refund

    • Form 943, Employer's Annual Tax Return for Agricultural Employees

    • Form 943-X, Adjusted Employer's Annual Federal Tax Return for Agricultural Employees or Claim for Refund

    • Form 944, Employer's ANNUAL Federal Tax Return

    • Form 944-X, Adjusted Employer's ANNUAL Federal Tax Return or Claim for Refund

    • Form 945, Annual Return of Withheld Federal Income Tax

    • Form 945-X, Adjusted Annual Return of Withheld Federal Income Tax or Claim for Refund

    • Form CT-1, Employer's Annual Railroad Retirement Tax Return

    • Form CT-1 X, Adjusted Employer's Annual Railroad Retirement Tax Return or Claim for Refund

    • Form CT-2, Employee Representative's Quarterly Railroad Tax Return

What Are Employment Tax Returns?

  1. Form 941, Form 943 and Form 944 are filed by employers of individuals to report:

    • The amount of federal income tax withheld from the employees’ wages

    • The employer’s and employees' shares of social security and Medicare taxes

    • The amount of Additional Medicare Tax (AdMT) withheld from employees' wages (for tax periods after December 31, 2012)

    • Certain refundable credits

    Note:

    Social security and Medicare taxes, including Additional Medicare Tax, are collectively referred to as FICA (Federal Insurance Contributions Act) taxes.

  2. Form 945, Annual Return of Withheld Federal Income Tax, is filed to report backup withholding (BUWH) and income tax withheld from non-payroll items, such as:

    • Pensions

    • Annuities

    • IRA's (Individual Retirement Accounts)

    • Gambling winnings

  3. Form CT-1, Employer's Annual Railroad Retirement Tax Return, is filed to report both the employer's and employees' shares of Railroad Retirement Tax Act (RRTA) tax including Additional Medicare Tax (AdMT) withheld from employees' wages (for tax periods after December 31, 2012).

  4. Forms 94XX are used by employers to correct errors discovered on or after January 1, 2009. These forms include Form 941-X, Form 943-X, Form 944-X, Form 945-X and Form CT-1X.

    Note:

    These "X" forms replaced Form 941c, Supporting Statement to Correct Information and Form 843, Claim for Refund or Request for Abatement, for employers.

Employment Tax Returns Research

  1. This section contains general research information applicable to employment taxes. Additional form and issue specific research information and procedures are contained throughout IRM 21.7.2.

  2. Refer to the appropriate reference material to research technical issues.

  3. Prior versions of this IRM may be researched on SERP as needed for obsolete procedures and issues. Prior year versions of IRM 21.7.2 not retained on SERP may be researched on the IRS Publishing site.

Employment Tax Publications

  1. See Publication 51(Circular A), Agricultural Employer’s Tax Guide, for information on agricultural employees, including types of agricultural work subject to social security and Medicare taxes.

  2. See Publication 15(Circular E), Employer’s Tax Guide, Publication 15-A, Employer’s Supplemental Tax Guide, and Publication 15-B, Employer's Tax Guide to Fringe Benefits, for classes of employment and types of payments subject to social security and Medicare taxes.

  3. See Publication 926, Household Employer's Tax Guide, for information on household employment taxes.

  4. See Publication 80, (Circular SS), Federal Tax Guide for Employers in the U.S. Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands which summarizes responsibilities to collect, pay and report social security and Medicare taxes for employers whose principal place of business is in - or who have employees who are subject to income tax withholding for - the U.S. Virgin Islands, Guam, American Samoa, or the Commonwealth of the Northern Mariana Islands.

Income Tax Withholding (Employment Tax Returns)

  1. The amount of income tax withheld from wages is based on the following information shown on Form W-4, Employee’s Withholding Allowance Certificate:

    • Marital Status

    • Number of allowances to be used in computing the income tax withheld

    • Any additional amount the employee requests to be withheld

    • Exempt status

  2. With certain exceptions (such as household employment wages), all wages which are subject to FICA tax are also generally subject to income tax withholding. An employer is not required to withhold federal income tax from wages paid to a household employee. An employer should withhold federal income tax only if the household employee asks the employer to withhold it and the employer agrees. (See IRM 21.7.4.4.1.11, Social Security Domestic Employment Reform Act and BMF Schedules H .)

  3. When unable to determine the proper tax correction on employment tax returns, see IRM 21.7.2.4.6.3.2, Withholding Tax Adjustment When Unable to Determine Proper Tax Correction.

FICA Taxes (including Additional Medicare Tax)

  1. The taxes under the Federal Insurance Contributions Act (FICA) are social security taxes and Medicare taxes (including Additional Medicare Tax).

  2. Social security taxes are withheld at a combined tax rate of 12.4% (6.2% contributed by the employer and 6.2% contributed by the employee) except as modified by legislation for particular tax years (2010, 2011, and 2012) as described in (3), (4), and (5) below. However, social security taxes are withheld from wages and tips only up to a wage limit. The table below shows the social security wage limits from year to year.

    Year Maximum Amount of Wages
    2007 97,500
    2008 102,000
    2009 — 2011 106,800
    2012 110,100
    2013 113,700
    2014 117,000
    2015 — 2016 118,500
  3. Section 101 of the Hiring Incentives to Restore Employment (HIRE) Act, enacted March 18, 2010, created a payroll tax exemption for the employer's share of social security taxes on wages paid to certain previously unemployed workers from March 19, 2010 through December 31, 2010. The employee's 6.2% share of social security tax (figured up to the wage limit), and the employer and employee's shares of Medicare tax still applied to all wages. See IRM 21.7.2.5.20, HIRE — Payroll Tax Exemption, for more information.

  4. Section 601 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reduced the employee tax rate for social security taxes from 6.2% to 4.2% for wages paid January 1, 2011 through December 31, 2011. The employer's social security tax rate remained 6.2% and the employer and employee Medicare tax rates remained unchanged. Due to late passage of the legislation, employers may have had difficulty in promptly implementing the reduced employee social security tax rate. Employers were instructed to implement the new 4.2% employee social security tax rate as soon as possible but not later than January 31, 2011. Employers were further instructed to correct any over withholding of social security taxes on a subsequent pay period but not later than March 31, 2011. Employment tax returns for calendar year 2011 reflected a combined employer/employee social security tax rate of 10.4% (the reduced employee tax rate of 4.2% plus the unchanged employer tax rate of 6.2%) and no special adjustment procedures were needed to account for the tax rate reduction.

  5. Section 101 of the Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extended the two percentage point payroll tax cut for employees discussed in (4) above through February 29, 2012. Subsequently, Section 1001 of the Middle Class Tax Relief and Job Creation Act of 2012 further extended the two percentage point payroll tax cut for employees discussed in (4) above through December 31, 2012. Employment tax returns for calendar year 2012 reflected a combined employer/employee tax rate of 10.4%.

  6. Medicare taxes are withheld on all wages and tips. There is no wage limit for Medicare taxes. The combined tax rate is 2.9% (1.45% contributed by employer and 1.45% contributed by employee).

  7. Due to expiration of the reduced employee social security tax rates described in (4) and (5) above, the employee tax rate for social security for 2013 (and thereafter) reverted to 6.2%. Notice 1036 (Rev. January 2013) provided that employers were to implement the 6.2% employee social security tax rate as soon as possible, but not later than February 15, 2013. After implementing the 6.2% rate, employers were to make an adjustment in a subsequent pay period to correct any underwithholding of social security tax as soon as possible, but not later than March 31, 2013.

  8. See IRM 21.7.2.5.23, IRC Section 132(f) Transportation Benefit Exclusion, for information regarding exclusion of qualified transit benefits from income.

  9. An Additional Medicare Tax (AdMT) is effective for tax periods beginning after December 31, 2012:

    • The AdMT tax rate is 0.9%.

    • Employers are required to withhold AdMT at the 0.9% tax rate from wages and tips paid to an employee in excess of $200,000 for a calendar year beginning with the payroll period in which the threshold is exceeded and continuing each pay period until the end of the calendar year.

    • AdMT is in addition to the 1.45% Medicare tax rate withheld from employee wages and tips.

    • AdMT is only imposed on the employee. There is no employer share of AdMT.

    • Amounts of AdMT withheld by the employer will be included on the employee's Form W-2.

    • While employers will begin withholding the AdMT as soon as wages paid to an employee exceed the $200,000 threshold, the final amount owed or refunded will be calculated as part of the individual's income tax return. Employers may not increase or decrease amounts of AdMT withheld from wages/tips paid to an employee based on an employee’s expectation that they will owe more or less tax when filing their individual income tax return. Employees who expect to owe more AdMT than is withheld from their wages should make estimated tax payments and/or use Form W-4, Employee's Withholding Allowance Certificate, to request additional income tax withholding which will be applied against taxes shown on their individual tax return, including any AdMT liability.

    • New lines were added to 2013 (and subsequent) employment tax returns for the purpose of reporting amounts of AdMT withheld by employers.

    • IRN 074 was validated for Form 941, Form 943, and Form 944 to record adjustments to Taxable Wages & tips subject to Additional Medicare Tax withholding.

    • IRN 112 is to be used to record adjustments to Additional Medicare Tax (along with other FICA tax corrections).

    • Although employers are required to calculate, withhold and report Additional Medicare Tax in a manner similar to other FICA taxes, the tax treatment closely follows income tax withholding procedures. AdMT cannot be corrected after the close of a tax year unless the issue constitutes an administrative error, IRC Section 3509 rates are being applied, or as the result of an Examination. This is true even if AdMT was erroneously withheld. See IRM 21.7.2.4.6.3, Income Tax Withholding, Backup Withholding, and Additional Medicare Tax Adjustments, IRM 21.7.2.4.6.3.1, Administrative Errors, and IRM 21.7.2.5.4, IRC Section 3509, for more information.

    • Information on AdMT is found throughout this IRM, in Publication 15, and instructions for employment tax forms. Additional information, including a "questions and answers" link to Frequently Asked Questions (FAQs), may also be found on the IRS website under the “Additional Medicare Tax” topic heading at: Understanding Employment Taxes.

Individuals Employed by Parent or Spouse
  1. FICA must be paid on services performed by:

    • A child who is 18 or older employed by a parent in the course of the parent’s business.

    • A spouse in the course of the employer spouse's trade or business.

    • A child who is 21 or older employed by a parent, whether or not in the course of the parent's business.

    Note:

    For federal tax purposes, the term “spouse” includes an individual married to a person of the same sex if the individuals are lawfully married under state laws. See IRM 21.7.2.5.24, DOMA (United States v. Windsor) Related Employment Tax Claims, for more information.

Employees Receiving or Paid Tips
  1. Employees must report to their employer all cash, check, and debit and credit card tips received each month if their total tips for any 1 month from any one employer equals or exceeds $20. The report to the employer is due by the 10th of the month following receipt of the tips.

    Note:

    See Publication 531, Reporting Tip Income, and Publication 1244, Employee's Daily Record of Tips and Report of Tips to Employer. Publication 1244 includes Form 4070, Employee’s Report of Tips to Employer, and Form 4070A, Employee's Daily Record of Tips, which may be used for reporting purposes (substitute reporting forms are acceptable).

  2. Employers must withhold income tax and the employee share of FICA taxes (or railroad retirement tax) on tips reported by employees from any non-tip wages or other funds made available by the employee for this purpose. Tips are also subject to Additional Medicare Tax, if, in combination with other wages or compensation paid by the employer, the total exceeds the $200,000 withholding threshold. Employers must also pay the employer portion of FICA on all tips reported to them by employees.

  3. Some employees may not have sufficient additional wages available to cover their share of the FICA tax on tips. In this case, adjustments to the portion uncollected from the employee must be reported on line 9, Form 941 or line 6, Form 944. The employer is still liable for the employer portion of FICA on the tips reported. The employer is not required to have supporting documentation for this reduction in tax. Also, employers must enter the amount of uncollected social security tax and Medicare tax (but not uncollected Additional Medicare Tax) on Form W-2, box 12, with codes “A” and “B”.

    Note:

    Employers do not withhold income tax or the employee share of FICA from allocated tips. Allocated tips are not reported on Form 941. Rather, allocated tips must be added to income on the employee's tax return (unless the employee has a daily tip record or other credible evidence that shows they did not receive the allocated tips shown on Form W-2).

Reporting FICA to SSA
  1. FICA information, including Additional Medicare Tax (AdMT) for calendar years beginning after December 31, 2012, is reported directly to the Social Security Administration (SSA) at the end of the year by the employer on Form W-3 along with Copy A of all Forms W-2 (or on the equivalent electronically filed forms).

Agents — Filing Forms W-2
  1. An employer may request that the IRS authorize an agent under IRC Section 3504 (Section 3504 Authorized Agent) to withhold, report and pay Federal employment taxes on behalf of the employer by filing a Form 2678, Employer/Payer Appointment of Agent. See IRM 21.7.2.3.7, Section 3504 Agents, for more information on agents.

  2. The 3504 Authorized Agent can act as an agent for two or more employers, or can be an employer and act as an agent for another employer. If either situation applies, the agent has special reporting procedures on Form W-2.

    • The agent is instructed to enter its EIN in box b of Form W-2.

    • The agent files separate Forms W-2 reflecting the wages paid by each employer. However, each Form W-2 will have the agent’s EIN in box b.

    • In box c of Forms W-2, the agent should enter its name and address and "agent for" .

    • Even though the agent’s EIN is shown in box b of Form W-2, the Forms W-2 are considered as being issued from separate employers and the employee may be eligible for a refund of excess social security and/or Tier 1 railroad retirement taxes.

    • In addition, the employer’s EIN should be entered in box h of Form W-3.

Deposits

  1. Taxpayers who file Form 941, Form 943, Form 944, or Form 945 are required to pay the tax on these returns by making Federal Tax Deposits (FTD's) if the liability equals or exceeds a designated threshold amount during the tax period for which the return is filed. See the table below for the applicable thresholds:

    FTD Liability Thresholds
    Form Tax Period Ending Dollar Threshold
    941 201003 and subsequent $2,500

    Exception:

    See (2) below.

    941 200103 through 200912 $2,500
    943 200112 and subsequent $2,500
    944 200612 and subsequent $2,500
    945 200112 and subsequent $2,500

    Note:

    See IRM 20.1.4.6, De Minimis Exception to Deposit Requirements, if information is needed for deposit thresholds for years prior to those shown above. Also see IRM 21.7.2.6.5.4, Form CT-1 Deposits, for deposit requirements for railroad retirement taxes reported on Form CT-1.

  2. Beginning January 2010, employers who file Form 941 are not required to make deposits during a quarter if all the following requirements are met:

    • Their total tax liability for either the current quarter or the prior quarter is less than $2,500, and

    • They did not incur a $100,000 next-day deposit obligation during the current quarter, and

    • They fully pay the amount due with a timely filed return for the current quarter.

  3. All federal tax deposits are required to be made by means of Electronic Funds Transfer (EFT). See IRM 20.1.4.2.1, Electronic Funds Transfer (EFT), for more information.

    Note:

    Prior to January 1, 2011, many employers were permitted to make their federal tax deposits at an authorized financial institution accompanied by an FTD coupon.

  4. Penalties are imposed if deposits are made late, not made in sufficient amounts, made directly to the IRS (e.g. sending a check with a tax return or paying by credit card), or not made using EFT. See IRM 20.1.4, Failure to Deposit Penalty, for more information.

  5. Input Computer Condition Code "J" if you are reprocessing a document and no FTD penalty is to be assessed. Edit the "J" in the bottom middle margin of the return. Do not "J" code the re-input document, unless IDRS is unable to correctly figure the penalty, or if reasonable cause is being allowed.

  6. Research IDRS to determine if a CP 194, CP 207, or CP 207L was generated whenever tax or periodic liability information is being adjusted. If so, coordinate with the FTD Penalty Function, if necessary, to prevent erroneous FTD penalty assessments.

  7. For more information on deposits and penalties, see:

    • Publication 15(Circular E), Employer's Tax Guide

    • Publication 51(Circular A), Agricultural Employer's Tax Guide

    • IRM 20.1.4, Failure to Deposit Penalty

  8. Balance due payments for Form 941, Form 943, Form 945 (including balances that are up to ten years past due) and Form 944 (including two prior years) can be made over the phone or by internet using a credit card. These payments can be made through one of several authorized third-party service providers who will obtain card authorization during the transaction and provide a confirmation number as proof of payment. Taxpayers currently required to make FTD's, must still make deposits via EFT. FTD's cannot be paid by credit card. For specific information on business payments made by credit card, see IRM 21.2.1.48.5, Credit or Debit Card Payments (Pay by Phone or Internet).

    Note:

    Adjusted return payments may be made by credit card for the Form 941-X, Form 943-X, Form 944-X and Form 945-X (includes current year and two prior years).

Electronic Filing (e-File) for Employment Tax Returns

  1. See IRM 3.42.4 , IRS e-file for Business Tax Returns for detailed information on electronic filing methods for business tax returns including employment tax returns.

  2. As of January 2016, electronically filed employment tax returns are filed exclusively through Modernized e-File (MeF).

  3. The following employment tax returns can be filed via MeF:

    MeF Employment Tax Forms and Schedules
    Parent Form Attachment to Parent Form
    Form 940/Form 940-PR Schedule A (Form 940)
    Schedule R (Form 940)
    Form 941/Form 941-SS/Form 941-PR Schedule B (Form 941)
    Anexo B (Formulario 941-PR)
    Schedule D (Form 941)
    Schedule R (Form 941)
    Form 943/Form 943-PR Form 943-A
    Form 944 Form 945-A
    Form 945 Form 945-A
  4. Previous e-file programs which are now obsolete for employment tax returns include:

    • 941 TeleFile — Obsolete after the second quarter of 2005.

    • 941 e-file Program (Legacy) — Obsolete as of November 13, 2006.

    • Employment Tax e-file System — Obsolete as of December 1, 2015.

  5. See IRM 3.42.4.4.2.1, Researching e-file BMF Identification Codes, if Filing Location Code (FLC), Document Code, or other coding information is needed for electronically filed employment tax returns.

Reporting Agents File (RAF)

  1. The Reporting Agent File (RAF) is a database of taxpayers who have contracted with a Reporting Agent to perform certain actions on their behalf with regards to filing employment tax returns and/or paying taxes. The taxpayer signs Form 8655, Reporting Agent Authorization, (or a Service approved substitute form) which authorizes the Reporting Agent to take all or some of the following actions on behalf of their client:

    • File their Form 940 and Form 941 (and/or Form 944) electronically.

    • Make EFTPS (Electronic Federal Tax Payment System) deposits and payments for them.

    • File other forms on paper or electronically.

    • Receive notices/correspondence and to discuss matters with the IRS associated with the tax returns/tax payments they made.

    Note:

    Prior to January 1, 2014, Forms 945 and Form 943 could not be filed electronically, but the reporting agent may have the authority to file the return on paper for the taxpayer. The reporting agent also has the authority to file amended forms on paper for any form they filed electronically for the taxpayer.

  2. See IRM 21.3.9, Processing Reporting Agents File Authorizations, and IRM 21.1.3.5, Reporting Agents File (RAF) and Form 8655, Reporting Agent Authorization, for more information.

Section 3504 Agents

  1. An employer may request that the IRS authorize an agent under IRC Section 3504 (Section 3504 Authorized Agent) to withhold, report and pay Federal employment taxes on its behalf. All provisions of law applicable to an employer apply jointly to both the agent and the employer. For example, a corporation may request that the IRS authorize another entity to handle its Federal employment tax obligations. For claims for refund of employment taxes made by the agent, treat the agent as an employer for purposes of employment tax deposits and payments made by the agent.

    Note:

    Agents cannot obtain refunds of taxes paid for periods for which the agent was not authorized and therefore the taxes were paid under the employer's (or another agent's) EIN.

  2. To request approval to act as a Section 3504 Authorized Agent for an employer, the agent files Form 2678, Employer/Payer Appointment of Agent, with the IRS.

    Note:

    Processing information may be found in IRM 3.13.2.16, Form 2678, Employer/Payer Appointment of Agent.

  3. Specific rules apply to a Section 3504 Authorized Agent acting on behalf of individuals who hire persons to provide home care services (home care service recipients). See IRM 21.7.2.4.11.3, Household Employment Taxes and Section 3504 Agents, for more information.

  4. Under Treasury Regulations Section 31.3504-2, effective for wages paid after March 31, 2014, the IRS may designate a payer to perform acts of an employer (Section 3504 Designated Agent). A Section 3504 Designated Agent does not file Form 2678 with the IRS. Instead, the IRS may designate a payer as agent on behalf of an employer if the payer enters into a service agreement with the employer. All provisions of law applicable to an employer apply to both the Section 3504 Designated Agent and the employer.

    Example:

    A corporation enters into a service agreement to perform an employer’s Federal employment tax obligations, including the payment of wages and filing of employment tax returns but does not file a Form 2678 to become a Section 3504 Authorized Agent. The IRS may designate the corporation to perform acts of employer.

    Note:

    A service agreement is an agreement between the payer and its client/employer in which the payer: 1) asserts it is the employer of individuals performing services for the client; 2) pays wages to the individuals that perform services for the client; and 3) assumes responsibility to withhold, report and pay Federal employment taxes with respect to the wages it pays to the individuals that perform services for the client.

  5. For claims for refund of employment taxes made by a Section 3504 Authorized Agent or Section 3504 Designated Agent, treat the agent as an employer for purposes of employment tax deposits and payments made by the agent. However, Section 3504 Authorized Agents and Section 3504 Designated Agents cannot obtain refunds of taxes paid for periods for which the agent was not authorized.

Voluntary Classification Settlement Program (VCSP)

  1. The Voluntary Classification Settlement Program (VCSP) is a voluntary program described in Announcement 2011-64 (updated in Announcement 2012-45) that provides an opportunity for taxpayers to reclassify their workers as employees for employment tax purposes for future tax periods with partial relief from federal employment taxes.

  2. To participate in this voluntary program, the taxpayer must meet certain eligibility requirements, apply to participate in the VCSP by filing Form 8952, Application for Voluntary Classification Settlement Program (VCSP), and enter into a closing agreement with the IRS.

    • Form 8952 includes a computation by the taxpayer of the settlement amount which is based in part on IRC 3509 tax rates. However this amount is not a tax and will not be assessed on any tax account.

    • The Instructions for Form 8952 caution the taxpayer against submitting payment with Form 8952. The amount determined to be due under VCSP is to be paid with their signed closing agreement and that will take place after their application for participation in the VCSP is considered and accepted. Payments received from taxpayers accepted in the VCSP are not payments of tax and will not be posted to any tax account.

  3. Additional information, including Frequently Asked Questions (FAQs), may be found on the IRS website at: Voluntary Classification Settlement Program.

  4. Telephone assistors should not attempt to assist callers with questions regarding this program. Instead, direct any caller making inquiries regarding the VCSP to the IRS website information which may be located by searching for “Voluntary Classification Settlement Program” or "VCSP" on irs.gov.

Employment Tax Returns Procedures

  1. This section contains procedures for working common employment tax issues.

Item Reference Numbers (IRN's) and Credit Reference Numbers (CRN's) — Employment Taxes

  1. Use Item Reference Numbers (IRN's) to adjust tax, wages, and Credit Reference Numbers (CRN's) to adjust applicable credits on employment tax returns.

  2. The current valid reference numbers for Form 941 adjustments are listed in the table below. Except where noted, the reference numbers also apply to Form 944 accounts.

    Item Reference Number Explanation
    111 Total income tax withheld
    004 Taxable social security wages
    005 Taxable social security tips
    073 Taxable Medicare wages & tips
    074 Taxable Wages & tips subject to Additional Medicare Tax withholding (valid for Forms 941/943/944 for tax periods beginning after December 31, 2012)
    112 Total social security and Medicare tax (including Additional Medicare Tax for tax periods beginning after December 31, 2012)
    114 Section 3121(q) Notice and Demand - Tax due on unreported tips

    Caution:

    IRN 114 is only valid for Forms 941 and only for tax periods 201103 and subsequent.

    104 Special rates for federal income tax (IRC Section 3509)
    105 Special rates for social security, Medicare tax, and Additional Medicare Tax (IRC Section 3509)
    106 Current quarter's fractions of cents (Form 941)/Current year's adjustments (Form 944)
    107 Current quarter's sick pay (N/A for Form 944)
    108 Current quarter's adjustment for tips and group life insurance (N/A for Form 944)
    113 Total adjustments

    Reminder:

    IRN 113 must equal the sum of any IRN 104 through 108 changes (IRNs 104 through 110 for adjustments to returns 200812 and prior)

    CREDIT REFERENCE NUMBER (CRN)
    299 COBRA premium assistance payments.

    Caution:

    CRN 299 is only valid for tax periods after 200812.

    290 Work Opportunity Credit for qualified tax-exempt organizations hiring qualified veterans.

    Caution:

    This credit is only allowed during the processing of Forms 5884-C. See IRM 21.7.2.5.22, Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans

    for more information.

    Reminder:

    When adjusting an account, research any Computer Condition Codes (CCC "E" or "S" ) which may indicate a taxpayer's intent to receive a refund or credit elect. See Section 3 of Document 6209, IRS Processing Codes and Information.

  3. The following is noted with regards to previous IRN usage with Form 941 (and Form 944 where applicable):

    • See archived versions of this IRM if information is needed on IRN usage for returns posting prior to 2005.

    • IRN 109 (Current year's income tax withholding (Form 941)/Prior year's income tax withholding (Form 944)) and IRN 110 (Prior quarter's social security and Medicare taxes (Form 941)/Prior year's social security and Medicare taxes (Form 944)) are not valid for tax periods after 200812.

    • Lines for HIRE Act related adjustment items have been removed from the current Form 94XX versions. See IRM 21.7.2.5.20.1, Adjusting the Account — HIRE if information is needed regarding adjustments for HIRE Act items on tax year 2010 (only).

    • AEITC was legislatively eliminated for tax periods after 201012. Lines for this adjustment item have been removed from current Form 94XX versions. See IRM 21.7.2.4.3, Advance Earned Income Tax Credit (AEITC) — Form 941, Form 943, Form 944, and Schedule H, if information is needed regarding adjustments for AEITC on tax periods 201012 and earlier.

    • IRN 072 (Tips deemed to be wages (IRC Section 3121 (q))) should not be used for tax periods after 201012.

  4. See the following references for IRNs and CRNs applicable to other employment tax forms discussed in this IRM:

    • For Form 943, see (3) and (4) in IRM 21.7.2.4.8.3.

    • For Form 945, see (6) in IRM 21.7.2.4.10.

    • For Form CT-1, see IRM 21.7.2.6.5.1.

TC 29X / Item Reference Number (IRN) Valid Adjustment Formulas — Employment Taxes
  1. For Forms 941 posting after 2004 and through the 200912 tax period (and Forms 944 through the 200912 tax period), any 29X adjustment amount must equal the sum of IRNs 111, 112, and 113.

    Note:

    IRN 113 must equal the sum of IRNs 104 through 110.

  2. For 2010 Forms 941 and Forms 944, any 29X adjustment amount must equal the sum of IRNs 111, 112, 116, and 113.

    Note:

    IRN 113 must equal the sum of IRNs 104 through 110.

  3. For Forms 941 and Forms 944 after the 201012 tax period, any 29X adjustment amount must equal the sum of IRNs 111, 112, 114, and 113.

    Note:

    IRN 113 must equal the sum of IRNs 104 through 110.

  4. For all Forms 943 other than for tax period 201012 any 29X adjustment amount must equal the sum of IRNs 003 and 007.

  5. For 2010 Forms 943, any 29X adjustment amount must equal the sum of IRNs 003, 007, and 116.

  6. For all Forms 945, regardless of tax period, any 29X adjustment amount must equal the sum of IRNs 003 and 008.

IRN 184/109 — Income Tax Withholding Adjustments
  1. For Forms 941 posting after 2004 and through the 200812 tax period (and Forms 944 through the 200812 tax period), IRN 109 was used with IRN 113 to record withholding corrections for prior quarter errors and prior year administrative errors in conjunction with Form 941c.

  2. For Forms 941 and Forms 944 filed for tax periods after 200812, IRN 109 ceased to be valid because it was no longer permitted for employers to make corrections on current tax returns for prior tax period errors via line adjustments due to the introduction of Forms 94XX.

  3. For Form 943 filed through the 200812 tax period, IRN 184 was used to record withholding corrections for prior year administrative errors in conjunction with Form 941c.

  4. For Forms 943 filed for tax periods after 200812, it is no longer permitted for employers to make withholding corrections on current tax returns for prior year administrative errors via line adjustments due to the introduction of Forms 94XX. So, IRN 184 can no longer be used for that purpose.

  5. For Form 945 filed through the 200812 tax period, IRN 184 was used to record withholding corrections for prior year administrative errors in conjunction with Form 941c.

  6. For Forms 945 filed for tax periods after 200812, it is no longer permitted for employers to make withholding corrections on current tax returns for prior year administrative errors via line adjustments due to the introduction of Forms 94XX. So, IRN 184 can no longer be used for that purpose.

IRN 185/110 — FICA Tax Adjustments
  1. For Forms 941 posting after 2004 and through the 200812 tax period (and Forms 944 through the 200812 tax period), IRN 110 was used with IRN 113 to record corrections to social security and Medicare taxes for prior quarter errors in conjunction with Form 941c. Also with IRN 113, IRN 106 was used for fractions of cents and IRN 107 was used for third party sick pay adjustments.

  2. For Forms 941 and Forms 944 filed for tax periods after 200812, IRN 110 ceased to be valid (except for adjustments related to federal agency wage payments as discussed in IRM 21.7.2.5.7.2.1, Return Posted (TC 150), Account Not in TDA (Taxpayer Delinquent Account) Status (Wage Payments Made by Federal Agencies)) because it was no longer permitted for employers to make corrections to social security and Medicare taxes on current tax returns for prior tax period errors via line adjustments due to the introduction of Forms 94XX. IRNs 106 and 107 remain valid (with IRN 113) for fractions of cents and third party sick pay adjustments.

  3. For Forms 943 filed through the 200812 tax period, IRN 185 was used to record corrections to social security and Medicare taxes for prior quarter errors (in conjunction with Form 941c), for fractions of cents, and for third party sick pay adjustments.

  4. For Forms 943 filed for tax periods after 200812, it was no longer permitted for employers to make corrections to social security and Medicare taxes on current tax returns for prior tax period errors via line adjustments due to the introduction of Forms 94XX. So, IRN 185 can no longer be used for that purpose. However, IRN 185 remains valid for Forms 943 to record adjustments for third party sick pay and for fractions of cents.

IRN's Do Not Equal TC 150
  1. If IRN amounts do not equal the TC 150 on an employment tax account, process as below:

    1. Input TC 290 .00 and correct the IRN amounts to agree with the posted TC 150. Use the appropriate Hold Code (usually Hold Code 4) with the adjustment to prevent any incorrect notices from being issued or to hold credit as needed.

    2. Input any corrections necessary to complete required account actions with a second adjustment using a post delay code of one cycle.

    Example:

    An employer files a Form 941-X reflecting a FICA tax decrease of $500 for the second quarter of 2015. The TC 150 posted for $1,000.00 (all FICA tax) but the FICA reference line posted as $1,040.00. First, input a TC 290 .00 with a $40.00 decrease to IRN 112 and Hold Code 4. Then, on a second adjustment, input a $500 decrease with TC 291 and IRN 112 along with a post delay code of one cycle.

    Exception:

    Adjustments can be made without correcting the IRN(s) if the total of the IRN's are ≡ ≡ ≡ ≡ ≡ ≡ of the posted TC 150 or if the ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ of the posted amount (unpostable check is bypassed). However, the IRN's must equal the TC 29X input on IDRS.

    Example:

    The TC 150 for a Form 941 posted as $39.00 (all FICA tax) and the FICA posted as $35.00. The taxpayer has filed a Form 941-X reducing the tax to zero. Input a TC 291 for $39.00 with IRN 112 for a $39.00 decrease.

Sick Pay

  1. Generally, sick pay is any amount paid under a plan to an employee-participant because of the employee's temporary absence from work due to disability, sickness, or injury. Sick pay may be paid by the employer or by a third party, such as an insurance company.

  2. Generally, sick pay is subject to:

    • FICA taxes or railroad retirement taxes (including Additional Medicare Tax to the extent wages/tips (or RRTA compensation) paid to an employee exceed $200,000 for a calendar year beginning after December 31, 2012)

    • Federal unemployment taxes

    • Income tax withholding (unless paid by a third party who is not the employer's agent)

  3. Employers include total sick pay in taxable social security and Medicare wages (as well as wages/tips subject to Additional Medicare Tax when appropriate) paid on Form 941, on Form 944, or (rarely) on Form 943 as appropriate:

    • If payments are made by a third party payor (e.g., an insurance company) and the third party payor transfers the liability for the employer's share of tax back to the employer as provided in the regulations, the employer reports the sick pay as wages but then deducts the employee’s share of social security and Medicare taxes paid by the third party on the appropriate adjustment line of Form 941, Form 944, or Form 943.

    • If the return is being filed by the third party payor, the third party payor reports the payments as wages but the employer’s share of social security and Medicare taxes on the sick pay is deducted on the appropriate adjustment line of Form 941, Form 944, or Form 943.

  4. See Publication 15-A, Employer's Supplemental Tax Guide, for more information on sick pay.

  5. Although sick pay can be reported on original employment tax returns, employers and reporting agents often choose to file an adjusted Form 94XX to report sick pay and the associated taxes and adjustment amounts. See the appropriate form specific processing instructions found later in this IRM when addressing a Form 94XX reporting a correction to sick pay amounts.

  6. Substantiation is not required for sick pay adjustments reported on the appropriate adjustment line of an original employment tax return or a related Form 94XX adjusted return.

  7. The appropriate Item Reference Numbers (IRNs) must be used when completing corrections to sick pay reporting:

    Form Filed Use IRNs
    Form 941 (or Form 941-X) posting in 2005 and later 004, 073, 074 (as appropriate), 112, 107 and 113
    Form 944 (or Form 944-X) 004, 073, 074 (as appropriate), 112, 106 and 113
    Form 943 (or Form 943-X) 004, 073, 074 (as appropriate), 007, and 185

    Note:

    If appropriate, also use IRNs 003 or 111 (as applicable) to record corrections to federal income tax withheld on sick pay.

  8. In some situations, employers may believe a Third Party Payor (Insurance Company) has made payment of the employer's share of FICA taxes for them and they may request the third party's payment of the employee's share to be applied to the employer's tax account. In that situation:

    • Provide the employer with Publication 15-A.

    • Explain to the employer how the Third Party Payor (Insurance Company) reports the employee's share of FICA (and any federal income tax) withheld from the employees' sick pay on their own employment tax return.

    • Explain to the employer that they remain liable to report and pay the employer's share of FICA taxes by including the wages on their employment tax return and deducting the employee's share of FICA reported and paid by Third Party Payor on the appropriate adjustment line.

Advance Earned Income Tax Credit (AEITC) — Form 941, Form 943, Form 944, and Schedule H

  1. Advance Earned Income Tax Credit (AEITC) was legislatively eliminated for tax periods after December 31, 2010. Do not allow any credit for AEITC payments for tax years after 2010.

  2. See archived files of this IRM if previous AEITC procedures need to be researched.

Loose Employment Tax Schedules

  1. Loose schedules are those that have inadvertently been detached from a return or received from taxpayers without sufficient information to indicate why they have been sent or to allow them to be associated with the proper return. These include, but are not limited to, Schedule B (Form 941), Form 945-A, Schedule D (Form 941) and Schedule R (Form 941). See the subsections which follow for guidance on handling the most common loose employment tax schedule situations.

Loose Schedule B (Form 941) or Other Record of Federal Tax Liability (ROFTL)
  1. Upon receipt of a loose Schedule B (Form 941) or other loose ROFTL (such as Form 943-A or Form 945-A):

    If And Then
    The correct tax period cannot be determined Make two attempts to contact the taxpayer by phone (if a telephone number is available) to determine the correct tax period:
    • If the correct tax period can be determined, continue to process per the instructions in the following rows of this table.

    • If unable to contact the taxpayer by phone, return the schedule and instruct the taxpayer to refile it with a newly signed copy of the related employment tax return.

    The tax return for which the loose schedule was filed has not posted Normal processing time for the original return has elapsed Return the schedule and instruct the taxpayer to refile it with a newly signed copy of the related employment tax return.
    The tax return for which the loose schedule was filed has not posted Normal processing time for the original return has not elapsed Suspend the case and allow for normal processing time. When the return posts, continue to process per the instructions in the following rows of this table.
    The tax return for which the loose schedule was filed has posted IDRS research indicates the loose schedule is a duplication or is unnecessary Treat the loose schedule as classified waste.
    The tax return for which the loose schedule was filed has posted IDRS research indicates the loose schedule changes originally reported liability data Follow procedures in IRM 20.1.4.21.2, Revised Record of Federal Tax Liability (ROFTL) Provided.
Loose Schedule D (Form 941)
  1. Schedule D (Form 941), Report of Discrepancies Caused by Acquisitions, Statutory Mergers, or Consolidations, was introduced in 2005. Refer any loose forms received in Accounts Management to the CAWR (Combined Annual Wage Reporting) unit at the Philadelphia Compliance Campus, Drop Point 4-G08.151. Refer any questions that cannot be answered on the toll-free line to CAWR on Form 4442/e-4442.

Loose Schedule R (Form 941): Allocation Schedule for Aggregate Form 941 Filers
  1. Schedule R (Form 941): Allocation Schedule for Aggregate Form 941 Filers (and continuation sheets as needed), must be completed and attached each time an aggregate Form 941 is filed by an approved agent (as defined by IRC 3504).

    Note:

    To request authorization to act as a Section 3504 Authorized Agent for an employer, Form 2678, Employer/Payer Appointment of Agent, must be filed with the Service. See IRM 21.7.2.3.7, Section 3504 Agents, IRM 21.7.2.4.11.3, Household Employment Taxes and Section 3504 Agents, and IRM 3.13.2.16, Form 2678, Employer/Payer Appointment of Agent, for more information.

  2. Schedule R (Form 941) is used to allocate the aggregate information reported on Form 941 to each client. If there are more than 15 clients, continuation pages should be completed as necessary. Schedule R (Form 941) and any continuation pages must be attached to the aggregate Form 941, when filed. When a Form 941 is processed and a Schedule R (Form 941) is attached, a Schedule R Indicator (SRI) will be posted to MF.

  3. If a taxpayer filed a Schedule R (Form 941) with their original return and needs to correct the previously filed Form 941, then a revised Schedule R (Form 941) should be submitted with the Form 941-X. However, when processing a Form 941-X for an aggregately filed Form 941 (regardless of whether a Schedule R indicator is present), ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

    Note:

    If a taxpayer is required to file a Schedule R (Form 941) and does not do so with their original return, they may submit another Form 941 with a Schedule R (Form 941) attached which may create a TRNS 193. If so, follow existing procedures in IRM 21.7.9, BMF Duplicate Filing Conditions.

  4. The chart below indicates procedures for most Schedule R inquiries:

    If And Then
    Loose Schedule R is received The original return has posted (regardless if a Schedule R indicator is present) No additional action is needed.

    Note:

    If working a CIS case, add a case note to identify what was received and close the CIS case.

    Loose Schedule R is received The original return has not posted and the original processing time for Form 941 has not elapsed Suspend loose schedule pending posting of original return.
    Loose Schedule R is received The original return has not posted and the original processing time for Form 941 has elapsed Contact taxpayer, preferably by phone, to obtain a signed copy of the original return and suspend case for 40 days.
    1. If taxpayer replies with a copy of the original return, process accordingly.

    2. If the taxpayer does not reply, reject the Schedule R back to the taxpayer requesting the original Form 941 (and accompanying Schedule R) be filed.

Form 941c (Obsolete)

  1. Form 941c was formerly used by employers to support corrections made to previously reported employment taxes.

  2. Form 941c was made obsolete with the implementation of Form 941-X, 943-X, 944-X, 945-X, and CT-1X for use in correcting errors in reporting of employment taxes. Employers must use the appropriate "X" form for correcting errors ascertained on or after January 1, 2009. See IRM 21.7.2.4.6, Adjusted Employer's Federal Tax Return or Claim for Refund, for more information.

    Note:

    Although Form 843 continues to be used for other purposes (e.g., claims for interest and penalties), it can no longer be used by employers to claim refunds of employment taxes.

  3. See the appropriate subsection of IRM 21.7.2.4.6.7, Exception Processing — Incorrect Filing, Including Forms Routed to AM from SP, for information on handling a Form 941c filed in error by a taxpayer (e.g. see IRM 21.7.2.4.6.7.3, Stand Alone Form 941c (including incorrectly filed Form 843), for handling instructions if an employer files using one of these forms instead of the required Form 94XX).

  4. See archived files of this IRM if previous Form 941c procedures need to be researched, including obsolete procedures for Math Verified Form 941c issues and handling of CP 175/875 cases (no longer generated).

Adjusted Employer's Federal Tax Return or Claim for Refund

  1. Requests for adjustments or claims for refund of previously reported employment taxes (for errors ascertained on or after January 1, 2009) must be filed on the appropriate adjusted employer's federal tax return or claim for refund. These forms include:

    • Form 941-X

    • Form 943-X

    • Form 944-X

    • Form 945-X

    • Form CT-1X

    Note:

    These forms are collectively referred to as "Forms 94XX" throughout this IRM.

    Exception:

    For errors ascertained during January 2009, employers could either make corrections using the appropriate Form 94XX or report the correction on the current return filed for the fourth quarter (or annual return) of 2008 by January 31, 2009 since the adjustment lines were on the fourth quarter 2008 Form 941.

  2. Category codes for these forms are shown in the following table.

    Form Filed Category Code
    941-X or 941-X (PR) 941X
    943-X or 943-X (PR) 943X
    944-X, 944-X (PR) or 944X (SP) 944X
    945-X 945X
    CT-1 X CT1X

    Note:

    These forms age 45 days from the IRS received date and are not subject to Policy Statement P-6-12 criteria.

  3. Previously, employers could use Form 941c to substantiate adjustment requests on current employment tax returns and use Form 843 (generally with Form 941c attached) to file claims for refund or abatement of employment taxes. Introduction of Forms 94XX had the following impact on the filing of Forms 941c and Forms 843:

    • Form 941c: Obsolete for tax periods ending after December 31, 2008. See the appropriate subsection in IRM 21.7.2.4.6.7, Exception Processing — Incorrect Filing, Including Forms Routed to AM from SP, for handling instructions if a Form 941c is received (e.g. see IRM 21.7.2.4.6.7.3, Stand Alone Form 941c (including incorrectly filed Form 843), for handling instructions if an employer files using one of these forms instead of the required Form 94XX).

    • Form 843: Employers are no longer permitted to use Form 843 to submit a claim for refund of employment taxes. Employers may still use Form 843 to request an abatement of penalties and/or interest.

      Note:

      Employees who are unable to obtain reimbursement of over withheld social security and Medicare taxes from their employer may file Form 843, Claim for Refund and Request for Abatement, to obtain a refund. See IRM 21.7.2.4.6.4.2, Excess Social Security and Medicare Tax Withheld — Employee Claims for Refund, for additional information.

  4. Procedures and requirements for use of Forms 94XX were published in Treasury Decision (T.D.) 9405 which provided revised regulations. Employers may use either a claim process or an adjustment process to make corrections:

    • The adjustment process must be used by the employer to report all corrections for underreported amounts.

    • The adjustment process may be used by the employer to report corrections for overreported amounts unless the correction request is made within 90 days of the expiration of the period of limitations on credit or refund (meaning the Refund Statute Expiration Date or RSED).

    • The claim process may be used to report corrections for overreported amounts if the employer is requesting a refund or abatement and must be used when a correction request for overreported amounts is made within 90 days of the RSED.

    Note:

    To assist taxpayers in deciding which process they should use (adjustment or claim for refund), a flowchart was developed and is part of the Forms 94XX or instructions.

  5. If the employer selects the adjustment process by checking Box 1 in Part 1 of Form 94XX, the amount of any resulting overpayment will be applied as a credit to the tax period in which the adjustment form was filed.

    Example:

    If an employer files a Form 941-X in February 2017 for an adjustment to their 201509 Form 941, the credit will be applied to their 201703 account.

    Example:

    If an employer files a Form 943-X in February 2017 for an adjustment to their 201512 Form 943, the credit will be applied to their 201712 account.

    Note:

    Overpayments arising from adjustments made under these procedures are subject to offset.

  6. If the employer selects the claim process by checking Box 2 in Part 1 of Form 94XX, the amount of any resulting overpayment will be refunded to the employer from the period being adjusted along with any allowable overpayment interest.

    Example:

    If an employer files a Form 941-X in March 2017 claiming a refund for an overpayment on their 201509 Form 941, the overpayment will be refunded from the 201509 account.

    Example:

    If an employer files a Form 943-X in March 2017 claiming a refund for an overpayment on their 201512 Form 943, the overpayment will be refunded from the 201512 account.

    Note:

    Overpayments arising from adjustments made under these procedures are subject to offset.

  7. Per the regulations, employers who are making a correction for overreported amounts within 90 days of the expiration of the period of limitations on credit or refund (RSED) on the period being corrected, must submit a claim instead of an adjustment request. See IRM 21.7.2.4.6.5, 90 Day — Claim, for more information on when to convert adjustment requests to claims and the form specific procedures found later in this IRM for handling instructions.

    Example:

    If wages were paid on June 6, 2013, and an original employment tax return reporting those wages was filed on or by July 31, 2013, and the reported taxes were timely paid, then the period of limitations for assessment or for credit or refund would expire April 15, 2017. An adjusted return reporting an overpayment must be filed by January 15, 2017, the date which is 90 days before the expiration of the period of limitations on credit or refund. In this example, if the Form 94XX requesting correction via the adjustment process was filed after January 15, 2017 , we would convert the adjustment request to a claim and inform the employer of that action.

  8. Employers who need to make corrections for both underreported and overreported amounts on the same tax period have two filing options:

    • Use the adjustment process and report both the underreported and overreported amounts on one Form 94XX. If this option is selected, the employer may net the corrections and either pay the net balance due with the Form 94XX or have the net overpayment applied to the tax period in which the correction was filed.

    • Use the adjustment process to report the correction for underreported amounts and use the claim process to report the correction for overreported amounts. In this situation, the employer must file separate Forms 94XX to report the underreported amounts and the overreported amounts. The entire underreported amount must be paid by the time they file the Form 94XX. It cannot be netted with the overreported amount reported on the separate Form 94XX. See IRM 21.7.2.4.6.9, One Form 94XX Filed but Two Forms 94XX were Required, and IRM 21.7.2.4.6.10, Processing Multiple Forms 94XX Filed for the Same Tax Period, for more information.

    Note:

    Employers making corrections for both underreported and overreported amounts on the same tax period within 90 days of the RSED must file separate Forms 94XX as discussed in the second bulleted item above. They do not have the option of filing one Form 94XX ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

  9. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  10. A set of certifications is included on Forms 94XX:

    • Employers are required to certify that they have filed, or will file, Forms W-2, or Forms W-2c, as required.

    • Employers must complete all certifications that apply to the type of return they are filing and the corrections being made.

    Exception:

    See IRM 21.7.2.5.19.2, Adjusting the Account — COBRA.

  11. Treasury regulations require the employer to explain in detail the grounds and facts relied upon to support each correction. The taxpayer is instructed to describe the events that caused the underreported or overreported wages, administrative errors or payroll errors.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  12. A TC 971 AC 010 systemically generates when any Form 94XX is scanned into the Correspondence Imaging System (CIS). The generation of this transaction code sets either a -A or an E- freeze on the tax module which must be addressed:

    • -A freeze: Released with a 29X (or 30X) adjustment. See IRM 21.5.6.4.2, -A Freeze, and the appropriate Form 94XX processing instructions found later in this IRM for more information.

    • E- freeze: Released by posting of TC 150 or TC 971 transaction. See IRM 21.5.6.4.9, E- Freeze, and IRM 21.7.2.4.6.6, Adjusted Employer's Tax Return or Claim for Refund Return Filed — No TC 150 Posted, for more information.

    Reminder:

    If a TC 971 AC 010 was not systemically posted and there is a TC 150 posted to the module, manually input a TC 971 AC 010 to set the -A freeze and post delay adjustment actions to ensure the resulting freeze is properly released.

    Note:

    Also see the fourth paragraph of IRM 21.5.3.4.2, Tax Decrease or Credit Increase, when rejecting a Form 94XX.

  13. Blocking series "20" must be used when adjusting an account as a result of a Form 941-X, 943-X, 944-X, 945-X or CT-1X being filed.

    Note:

    Blocking series 20 must also be used when adjusting accounts per instructions in IRM 21.7.2.4.6.7, Exception Processing — Incorrect Filing, Including Forms Routed to AM from SP.

    Exception:

    The appropriate blocking series must be used when a Form 94XX is being disallowing or "no considered" . See IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns, for additional information.

  14. The AM clerical function (or other campus designated function or employees) should review any Form 94XX received during the last month of a tax period to identify those that are requesting overpayments be applied to the current tax period. Processing of these Forms 94XX should be expedited to prevent the issuance of an incorrect balance due notice to the taxpayer as a result of the original return posting for the current period before the credit arising from the Form 94XX can be applied.

    Note:

    The Instructions for the "X" forms encourage employers requesting an overpayment to be credited to a current tax period using the adjustment process to file their Form 94XX prior to the last month of the current tax period.

  15. For claims involving IRC 6020(b), see IRM 21.7.9.4.1.6, Duplicate Filing Conditions Involving Returns Prepared Under IRC Section 6020(b).

Employment Tax Returns — Stand Alone Forms
  1. Employers must file the appropriate adjusted employer's federal tax return or claim for refund to request an adjustment or claim a refund of previously reported employment taxes. The following table shows which form must be filed based on the original employment tax return filed and provides a cross-reference to specific processing information.

    Return originally filed Form to File to make corrections Cross-Reference
    Form 941 or Form 941-SS Form 941-X, Adjusted Employer's QUARTERLY Federal Tax Return or Claim for Refund IRM 21.7.2.4.7.6
    Form 943 Form 943-X, Adjusted Employer's Annual Tax Return for Agricultural Employees or Claim for Refund IRM 21.7.2.4.8.3
    Form 944 and Form 944-SS Form 944-X, Adjusted Employer's ANNUAL Federal Tax Return or Claim for Refund IRM 21.7.2.4.9.4
    Form 945 Form 945-X, Adjusted Annual Return of Withheld Federal Income Tax or Claim for Refund IRM 21.7.2.4.10.1
    Form 941-PR Form 941-X (PR), Adjusted QUARTERLY Federal Tax Return or Claim for Refund (Puerto Rican Version) IRM 21.7.2.4.7.6
    Form 943-PR Form 943-X (PR), Adjusted Employer's Annual Tax Return for Agricultural Employees or Claim for Refund (Puerto Rican Version) IRM 21.7.2.4.8.3
    Form 944-PR Form 944-X (PR), Adjusted Employer's ANNUAL Federal Tax Return or Claim for Refund (Puerto Rican Version) IRM 21.7.2.4.9.4
    Form 944(SP) Form 944-X (SP), Adjusted Employer's ANNUAL Federal Tax Return or Claim for Refund (Spanish Version) IRM 21.7.2.4.9.4
    Form CT-1 Form CT-1X, Adjusted Employer's Annual Railroad Retirement Tax Return or Claim for Refund IRM 21.7.2.6.5.10

    Note:

    Form 944-PR and Form 944-SS were discontinued beginning with tax year 2012. Taxpayers who previously filed those forms now file one of the following employment tax returns: Form 944, Form 944(SP), Form 941-PR, or Form 941-SS.

  2. Taxpayers must use the applicable form that corresponds to the return type they originally filed for the tax period they are correcting.

    Example:

    Taxpayer was a Form 944 filer for 2016 but became a Form 941 filer for 2017. If the taxpayer is correcting tax period 2016, they must file a Form 944-X to make the correction, not a Form 941-X.

Interest-Free Adjustments (Employment Tax Returns)
  1. Employers who discover (ascertain) they have reported and paid less FICA tax, income tax withholding, or railroad retirement tax (RRTA) than was due on an original tax return may qualify for an interest-free tax adjustment under IRC 6205 and Regulation 26 CFR 31.6205-1 provisions. For tax periods beginning after December 31, 2012. FICA and RRTA taxes include Additional Medicare Tax (AdMT) withheld from employees' wages and compensation.

    Note:

    These interest-free adjustment rules do not apply to the employee representative tax reported on Form CT-2.

    Caution:

    Income tax withholding and Additional Medicare Tax (for tax periods beginning after December 31, 2012) can only be corrected for prior calendar years if there was an administrative error, IRC Section 3509 rates are being applied, or as the result of an Examination. See IRM 21.7.2.4.6.3.1, Administrative Errors and IRM 21.7.2.5.4, IRC Section 3509.

  2. An error is considered ascertained when the employer has sufficient knowledge of the error to be able to correct it.

  3. To qualify for an interest-free tax adjustment, the employer must file the appropriate Form 94XX reporting the correction by the due date of the tax return for the tax period in which the error was ascertained. The due date is determined based on the type of tax return the employer is correcting.

    Example:

    On August 12, 2017, an employer discovers an error with the Form 941 they filed for the201703 tax period. They must file a Form 941-X reporting the correction by October 31, 2017 in order to qualify for an interest-free tax adjustment.

    Example:

    On June 10, 2017, an employer discovers an error with the Form 943 they filed for the 201512 tax period. They must file a Form 943-X reporting the correction by January 31, 2018 in order to qualify for an interest-free tax adjustment.

    Example:

    On February 18, 2017, an employer who is currently a Form 944 filer for 2015 discovers an error on a Form 941 they filed for the 201509 tax period. They must file a Form 941-X by April 30, 2017 in order to qualify for an interest-free tax adjustment. Although they are currently a Form 944 filer, it is the original tax form which must be corrected that controls the type of adjusted form they must file and its due date. The employer in this situation cannot file a Form 944-X to make the correction and does not have until January 31, 2018 to file the adjusted tax return.

  4. Although employers have until the due date of the tax return for the tax period in which an error was ascertained to file the applicable Form 94XX reporting an underpayment adjustment, regulations require employers to pay any underpayment of tax by the time the adjusted tax return is filed. Otherwise, the correction will not qualify for a completely interest-free tax adjustment. See the table below for more information.

    If And Then
    The employer does not file the applicable Form 94XX by the due date of the tax return for the tax period in which the error was ascertained. The adjustment will be input with a TC 290 transaction. Interest will be due as per normal underpayment interest rules.
    The employer files the applicable Form 94XX by the due date of the tax return for the tax period in which the error was ascertained. Fully pays the underpayment owed by the time the Form 94XX is filed. The adjustment will be input with a TC 298 transaction. No interest will be due on the amount of the underpayment reported if it is paid by the time the Form 94XX is filed.
    The employer files the applicable Form 94XX by the due date of the tax return for the tax period in which the error was ascertained. Does not fully pay the underpayment owed by the time the Form 94XX is filed. The adjustment will be input with a TC 298 transaction. Interest will be due on the amount of the underpayment from the interest computation date to the date payment is made.
  5. When inputting a TC 298, the interest computation date is the IRS received date of the Form 94XX ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ for all errors ascertained after December 31, 2008. See archived copies of this IRM for information on how interest computation dates were determined on errors ascertained prior to January 1, 2009.

    Example:

    An employer discovers an error on February 4, 2017 and the adjustment form has an IRS received date of March 3, 2017. Enter the TC 298 with an interest computation date of March 3, 2017.

    Exception:

    If an employer files an "X" form that is received prior to the due date of the quarter being corrected, input the due date of the quarter being corrected as the interest computation date.

    Example:

    An employer files a Form 941-X (underpayment) correcting the 201703 tax period on April 20, 2017. The interest computation date input should be April 30, 2017, not April 20, 2017.

    Note:

    The computer also uses the interest computation date of the TC 298 for the FTP penalty start date if the underpayment is not paid when the Form 94XX is filed.

  6. No underpayment can be reported as an interest-free adjustment after receipt of the earlier of either:

    1. Notice and Demand for payment

    2. Notice of Determination Concerning Worker Classification Under IRC Section 7436.

Income Tax Withholding, Backup Withholding, and Additional Medicare Tax Adjustments
  1. After the end of the year, adjustments (increases or decreases) to income tax withholding, backup withholding (BUWH), or Additional Medicare Tax (AdMT) can only be made if the adjustment is due to an administrative error, IRC Section 3509 rates are being applied, or as the result of an Examination. Even if income tax, BUWH, or AdMT was erroneously withheld, it cannot be adjusted in a subsequent year. Tax erroneously withheld does not constitute an administrative error.

    Note:

    See IRM 21.7.2.4.6.3.1, Administrative Errors, and IRM 21.7.2.5.4, IRC Section 3509, for additional information.

  2. For corrections to income tax withheld, BUWH, or AdMT, the employer must:

    • Submit the applicable adjustment/claim form.

    • Check the applicable certification box(es).

    • Provide a detailed explanation for the adjustment request.

  3. Although income tax withheld and AdMT cannot be changed after the close of the calendar year except for administrative errors, IRC Section 3509 rates being applied, or Examinations, changes to "Wages, tips and other compensation" and "Taxable wages and tips subject to Additional Medicare Tax withholding" can be reported by taxpayers on Forms 94XX to account for nonadministrative errors. See the specific line instructions for those items in the appropriate Form 94XX instructions for more information (e.g. for Form 941-X, see the Line 6 and Line 11 instructions in Instructions for Form 941-X).

    • "Wages, tips and other compensation" is not an adjustable field on employment tax accounts. See IRM 21.7.2.4.7.2, Line 2, Form 941, for more information.

    • "Taxable wages and tips subject to Additional Medicare Tax withholding" is an adjustable field (IRN 074) for Form 941, Form 943, and Form 944 (but not Form CT-1). Changes reported by taxpayers to "Taxable wages and tips subject to Additional Medicare Tax withholding" on Form 941-X, Form 943-X, and Form 943-X (but not Form CT-1X) should be made by via IRN 074 corrections even if an AdMT tax change is not reported or cannot be made as discussed in this IRM section.

      Note:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. All general guidance in IRM 21.7.2.4.6, Adjusted Employer's Federal Tax Return or Claim for Refund, and form/situation specific guidance (e.g., for a tax decrease - claim for refund filed on Form 941-X, follow IRM 21.7.2.4.7.6.2, Form 941-X Tax Decrease — Claim) applies to Forms 94XX filed reporting corrections to income tax withheld, BUWH, and AdMT. However, the following table provides additional guidance on special considerations for adjustment requests for income tax withheld, BUWH, and AdMT.

    If And Then
    A Form 94XX is filed requesting an adjustment to income tax withheld or AdMT The correction is being made at IRC 3509 rates Process the adjustment as requested so long as the form is complete and processable. See IRM 21.7.2.5.4, IRC Section 3509 for processing instructions.
    A quarterly Form 941-X is filed requesting an adjustment (increase or decrease) to income tax withheld or AdMT The Form 941-X indicates the error was discovered on or before December 31 of the year for which the adjustment is requested Process the adjustment as requested so long as the form is complete and processable. Follow the general procedures in IRM 21.7.2.4.6 and the specific procedures applicable to the type of Form 94XX filed (e.g., for a tax decrease - claim for refund filed on Form 941-X, follow IRM 21.7.2.4.7.6.2) to make any necessary account corrections.
    A Form 94XX is filed requesting an adjustment (increase or decrease) to income tax withheld, BUWH, or AdMT The explanation section indicates the correction requested is for an administrative error or the taxpayer checked box 4c or 5d in the certification section (does not apply to Form 945-X) Process the adjustment as requested so long as the form is complete and processable. Follow the general procedures in IRM 21.7.2.4.6 and the specific procedures applicable to the type of Form 94XX filed (e.g., for a tax decrease - claim for refund filed on Form 941-X, follow IRM 21.7.2.4.7.6.2) to make any necessary account corrections.
    A Form 94XX is filed (after December 31 of the year for which the adjustment is requested) requesting a decrease to income tax withheld, BUWH, or AdMT The explanation section indicates the correction requested is not for an administrative error. Disallow the income tax withheld, BUWH, or AdMT portion of the claim and send Letter 105C or Letter 106C(as appropriate) per instructions in IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. The following language should be used in the disallowance letter open paragraph:
    "Amounts reported as income tax withheld, backup withholding, or Additional Medicare Tax withheld in a prior year cannot be changed unless it is to correct an administrative error, Section 3509 applies, or as the result of an examination. An administrative error occurs if the amount you entered on your tax return is not the amount you actually withheld."

    Caution:

    If the taxpayer combined tax increases with the decrease being disallowed on a single Form 94XX, all normal procedures for securing missing information (e.g. ascertained dates, revised liability schedules (if required), etc.) must be applied before adjusting the account and issuing the disallowance letter.

    A Form 94XX is filed (after December 31 of the year for which the adjustment is requested) requesting a decrease to income tax withheld, BUWH, or AdMT It cannot be determined from the explanation whether the correction requested is for an administrative error. See IRM 21.7.2.4.6 (11) for information on explanation requirements. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    A Form 94XX is filed (after December 31 of the year for which the adjustment is requested) requesting an increase to income tax withheld, BUWH, or AdMT The explanation section indicates the correction requested is not for an administrative error
    1. Process the adjustment as requested so long as the form is complete and processable. Follow the general procedures in IRM 21.7.2.4.6 and the specific procedures applicable to the type of Form 94XX filed (e.g., if filed on Form 941-X, follow IRM 21.7.2.4.7.6.3) to make any necessary account corrections.

    2. Send Letter 4384c and include the following language in the two open paragraphs:
      "We have processed your Form [specify]. However, amounts reported as income tax withheld, backup withholding, or Additional Medicare Tax withheld in a prior year cannot be changed unless it is to correct an administrative error or Section 3509 applies. An administrative error occurs if the amount you entered on your tax return is not the amount you actually withheld."
      "If the Form [specify] you filed included a correction to income tax withheld, backup withholding, or Additional Medicare Tax withheld in a prior year which was not the result of an administrative error, you may file a new Form [specify] to request a refund or credit of the tax reported in error."

    A Form 94XX is filed (after December 31 of the year for which the adjustment is requested) requesting an increase to income tax withheld, BUWH, or AdMT It cannot be determined from the explanation whether the correction requested is for an administrative error See IRM 21.7.2.4.6 (11) for information on explanation requirements. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Reminder:

    See IRM 21.7.2.4.6.3.1, Administrative Errors, for additional information when applying the guidance provided in the table above.

Administrative Errors
  1. Administrative errors are mistakes in reporting which do not change the amount of income tax, BUWH, or Additional Medicare Tax (AdMT) actually withheld from wages or payments.

    Example:

    An employer withheld income tax of $7,500 from employee wages and reported the $7,500 figure on the employees' Forms W-2. However, due to an error in addition, the employer reported $7,900 in withholding on their Forms 941 for the year. The employer files a Form 941-X seeking a refund of $400. This situation would constitute an administrative error.

    Example:

    An employer withheld income tax of $3,600 from employee wages and reported the $3,600 figure on the employees' Forms W-2. However, due to a transposition error, the employer reported $6,300 in withholding on their Forms 941 for the year. The employer files a Form 941-X seeking a tax abatement of $2,700. This situation would constitute an administrative error.

    Example:

    An employer withheld Additional Medicare Tax (AdMT) of $1,200 from employee wages and reported the $1,200 figure on the employees' Forms W-2. However, due to a transposition error, the employer reported $2,100 in AdMT on their Forms 941 for the year. The employer files a Form 941-X seeking a tax abatement of $900. This situation would constitute an administrative error.

  2. Income tax withholding, BUWH, and Additional Medicare Tax (AdMT) cannot be corrected after the close of a tax year unless the issue constitutes an administrative error, IRC Section 3509 rates are being applied (IRM 21.7.2.5.4, IRC Section 3509), or as the result of an Examination. This is true even if income tax, BUWH, or AdMT was erroneously withheld.

    Example:

    An employer withheld $3,700 in income taxes from an employee's wages instead of $3,400 due to an error in recording the number of allowances the employee could claim. The employer issued a Form W-2 to the employee showing the withholding figure of $3,700. The employer subsequently files a Form 941-X requesting a refund of the $300 erroneously withheld. This situation would not constitute an administrative error and the claim would not be allowable.

    Example:

    An employer withheld $800 in Additional Medicare Tax (AdMT) from an employee's wages instead of $600 due to an error in determining when the employee reached the $200,000 wage/tip threshold for AdMT withholding. The employer reported $800 in AdMT withholding on their Form 941 and issued a Form W-2 to the employee which reported the AdMT withheld figure of $800. The employer subsequently files a Form 941-X requesting a refund of the $200 erroneously withheld and reported on their Form 941. This situation would not constitute an administrative error and the claim would not be allowable.

  3. A situation in which income tax, BUWH, or Additional Medicare Tax (AdMT) was withheld and reported on a payment (such as a lump sum distribution) mailed to an individual who did not have the ability or legal right to receive the payment in the year the tax was withheld also constitutes an administrative error:

    1. This rule applies if a payment was returned as undeliverable in the subsequent year.

    2. Income tax, BUWH, or Additional Medicare Tax (AdMT) withheld and the payment received by the individual must both be reported in the year the individual actually receives the payment.

  4. See IRM 21.7.2.4.6.3, Income Tax Withholding, Backup Withholding, and Additional Medicare Tax Adjustments, for adjustment procedures relating to income tax withheld, backup withholding, and AdMT, including situations where wage changes can be reported for nonadministrative errors.

Withholding Tax Adjustment When Unable to Determine Proper Tax Correction
  1. In some cases, Accounts Management cannot determine the proper tax to correct, even after taxpayer contact. Rather than adjusting FICA tax, which is held in a trust account and accrues interest, adjust income tax withholding.

  2. Process as follows:

    1. Input TC 29X using IRN 003 or 111, whichever is applicable.

    2. Advise taxpayer of the action taken by phone, letter, or notice.

Social Security and Medicare Tax Adjustments
  1. Social security and Medicare tax adjustments can be made for both current and prior years providing the statute is still open.

  2. Employers making corrections to previously reported social security and Medicare taxes must file the applicable "X" form to either file an adjusted employment tax return or claim for refund.

  3. Employers are no longer permitted to use Form 843, Claim For Refund and Request for Abatement, to submit a claim for refund of employment taxes. However, employees who are unable to obtain a refund from their employer may file Form 843 to obtain a refund. See IRM 21.7.2.4.6.4.2, Excess Social Security and Medicare Tax Withheld — Employee Claims for Refund, for additional information.

  4. For a tax decrease, the employer must check the applicable certification box(es).

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Caution:

    Although employers are required to calculate, withhold and report Additional Medicare Tax (AdMT) in a manner similar to other FICA taxes, the tax treatment closely follows income tax withholding procedures. AdMT cannot be corrected after the close of a tax year unless the issue constitutes an administrative error, IRC Section 3509 rates are applied, or as the result of an Examination. This is true even if AdMT was erroneously withheld. See IRM 21.7.2.4.6.3, Income Tax Withholding, Backup Withholding, and Additional Medicare Tax Adjustments, for more information (including situations where wage changes can be reported for nonadministrative errors) as well as IRM 21.7.2.4.6.3.1, Administrative Errors, and IRM 21.7.2.5.4, IRC Section 3509.

Refund or Credit of Employer’s Portion of FICA
  1. For a refund or credit of ONLY the employer portion of FICA tax, a certification must be present on the appropriate Form 94XX indicating the employer has attempted to locate the employee(s) involved to repay or reimburse them in the amount of the overcollection, or to obtain their consent to the filing of the claim, but that the attempt was unsuccessful or the employee(s) would not provide consent.

    Reminder:

    Additional Medicare Tax (AdMT) is only imposed on the employee. There is no employer share of AdMT.

  2. If the employer has not attempted to locate the employee(s) involved, close the case as per guidance in IRM 21.5.3.4.6.3, No Consideration Procedures, and issue Letter 916C advising the employer:

    • They must send a letter to each former employee’s last known address advising them of their right to repayment.

    • For claims of overcollected FICA tax for prior years, the letter to the employee must also include a statement that if the individual wishes to be repaid, they must return a written statement to the employer stating the employee has not claimed a refund or credit of the amount of the over-collection, or, if so, such claim has been rejected, and stating the employee will not claim refund or credit of such amount on their individual income tax return.

    Note:

    Letter 916C must be sent even if phone contact was made to explain the reason the claim cannot be processed.

  3. If the employer follows the procedure described in (2) above and then files a new Form 94XX with the proper certification, the employer is entitled to an adjustment of the employer’s share (only) of FICA tax with respect to any employees that could not be found or would not provide consent. Process the claim as appropriate.

Excess Social Security and Medicare Tax Withheld — Employee Claims for Refund
  1. Treasury Regulations Section 31.6402(a)-2(b) provides that employees may file claims for refund of excess social security and Medicare tax collected in error when the employer has not repaid or reimbursed the employee, nor has the employee authorized employer to file a claim for refund. These claims will generally be filed on Form 843, Claim For Refund and Request for Abatement.

    Caution:

    The procedures in this IRM subsection do not apply to excess Additional Medicare Tax (AdMT) withheld by an employer. If a claim is received for excess AdMT, disallow the claim as per the instructions in row 6 or row 7 (as appropriate) of the table in (3) below. Instruct the claimant in the 105C disallowance letter that any excessive withholding of AdMT must be claimed on a Form 1040 or Form 1040-X with attached Form 8959, Additional Medicare Tax.

  2. Upon receipt of a claim:

    1. Review the employer’s Form 941 account for the last quarter of the year in which FICA wages were paid. If necessary, review the employee’s Form 1040 to verify claim information.

      Reminder:

      Use online research tools whenever possible. Do not request tax returns from Files unless necessary.

    2. The employee must include a statement from the employer indicating the employee has not authorized the employer to file a claim, nor had the employee been repaid or reimbursed by the employer for the amount overwithheld. Verify whether the required statement is attached to the Form 843.

  3. Continue processing the claim using the table below:

    If Then
    The claim filed by the employee involves excess FICA withheld by more than one employer The employee must claim the excess FICA withheld as a credit on their individual tax return. See IRM 21.6.3.4.2.4, Excess Social Security and RRTA Tier I Tax Credits, for more information. Return the claim to the employee using Letter 916C, Claim Incomplete for Processing; No Consideration. Instruct the employee that they must claim the excess FICA withheld by filing either a Form 1040 or Form 1040-X (depending on whether they have already filed an original tax return for the tax year in question).
    A statement from the employer is not received Return the claim to the employee using Letter 916C, Claim Incomplete for Processing; No Consideration, requesting they obtain the required statement. See (2) step 2 above.
    There is no indication the employee has contacted the employer for reimbursement of the excess FICA withheld Encourage the employee to obtain a refund from the employer.
    The employee is unable to obtain a statement from the employer The employee must make the statement to the best of their knowledge and belief.
    Note: The employee statement must include an explanation of why the employee was unable to obtain a statement from the employer.
    A claim is correctly filed with the employer’s statement attached 1. Input a TC 291 with HC 2 for the amount of the decrease using IRN 004 (and IRN 073 if appropriate) for the wage amount and IRN 112 for the tax amount on the last Form 941 tax account for the tax year involved.
    2. Prepare Form 5792, Request for IDRS Generated Refund, and compute interest from the Form 941 due date or payment date, whichever is later. Enter TC 770 for amount of allowable interest figured at non-corporate rates. See IRM 20.2.4, Overpayment Interest and IRM 20.2.12.8, Employee FICA Tax or RRTA Tax Withheld.

    Reminder:

    All procedures in IRM 21.4.4, Manual Refunds, must be followed, including input of a TC 971 Action Code 037 to cross-reference the employee's SSN.


    3. Attach a copy of the claim to the refund document and route it to the Accounting Function.
    4. Attach the employee's claim to the adjustment document.
    A claim must be disallowed 1. Input TC 290 .00 in BS 98/99 (99 if electronically filed with a TRPRT print) on the individual employee's IMF tax account for the tax period which includes the period of time for which the claim is filed.
    2. Send Letter 105C , Claim Disallowed, to the employee.
    A claim must be disallowed and the individual employee's IMF tax return has not yet posted 1. Send Letter 105C, Claim Disallowed, to the employee.
    2. Push code the claim and a copy of the denial letter using TC 930.
    3. After the tax return posts, the disallowed claim and original return is returned to the originator for input of the TC 290 for .00, BS 98/99 (99 if electronically filed with a TRPRT print).

    Reminder:

    There are no special documentation requirements for employee FICA claims related to amounts paid to same-sex spouses which are not taxable as a result of the DOMA (United States v. Windsor) decision. See IRM 21.7.2.5.24.5, DOMA (United States v. Windsor) Related FICA Claims Filed by Employees.

  4. These procedures also apply to Indian Fishing Claims citing IRC 7873 filed by individuals claiming a refund of FICA taxes on Form 843. Processing of these claims is centralized in Accounts Management (AM) at the Ogden campus. Route Indian Fishing Claims filed by individuals on Form 843 received in other operations/sites as follows:

    • Route paper cases to:
      Internal Revenue Service
      MS 6905 Attn: Ann Martin
      1973 North Rulon White Blvd
      Ogden, UT 84404

    • For cases already scanned into CIS, reassign to the Ogden Campus IDRS number 0433728787.

90 Day — Claim
  1. If a taxpayer files an adjusted employment tax return within 90 days of the expiration of the period of limitations on credit or refund (Refund Statute Expiration Date or RSED), the adjustment request must be converted to a claim for refund. In general, the RSED expires three years from when the original tax return is filed, or two years from when the tax is paid, whichever is later. For employment tax returns reporting FICA taxes and federal withholding, IRC 6513 provides for special time frames for when returns are deemed filed and payments are deemed made. Tax returns and payments received on or before April 15 of the year following the calendar year for which the tax was to be reported are deemed received on April 15 of that following year. See IRM 25.6.1, Statute of Limitations Processes and Procedures, for additional guidance on statute considerations. The following table provides examples of when to convert adjustment requests to claims when a tax return was timely filed and all tax timely paid.

    Form Tax Period Received Date of Original Return (timely) Statute Expiration Date Convert to Claim for Refund if IRS Received Date of Form 94XX is
    941 201312 01-31-2014 04-15-2017 01-15-2017 or subsequent
    943 201312 01-31-2014 04-15-2017 01-15-2017 or subsequent
    944 201312 01-31-2014 04-15-2017 01-15-2017 or subsequent
    945 201312 01-31-2014 04-15-2017 01-15-2017 or subsequent
    CT-1 201312 02-28-2014 02-28-2017 11-30-2016 or subsequent
Adjusted Employer's Tax Return or Claim for Refund Return Filed — No TC 150 Posted
  1. Occasionally, a Form 941-X, Form 943-X, Form 944-X, Form 945-X, or Form CT-1X is received for a tax period for which no original return (TC 150) is posted.

  2. In such cases, research the taxpayer's account for the missing tax return. This research should include reviewing the taxpayer's account for misapplied tax returns and unposted or rejected tax returns. If a missing return is located, take action to process or reprocess it to the proper tax account and then process the adjusted tax return as appropriate.

  3. If the missing return is not located, process as per instructions in the following table:

    If And Then
    The adjusted return was intended for another tax period for which there is a posted TC 150.
    1. Follow procedures in IRM 21.7.9.4.10.2, TC 976 Return Posted to Incorrect TIN/Tax Period, Account for Which It was Intended Contains the Original Return (TC 150), to resolve the E-freeze.

    2. Adjust the correct account as appropriate.

    An adjusted return was filed for an incorrect MFT (e.g. employer is Form 941 filer but files a Form 944-X). The adjusted return reports a tax decrease or credit increase
    1. Generate Letter 4384C to the taxpayer explaining their adjusted return cannot be processed and inform them of the proper form to be filed.

    2. Input a TC 971 AC 002 to release the E- freeze if a TC 971 AC 010 was previously input.

    An adjusted return was filed for an incorrect MFT (e.g. employer is Form 941 filer but files a Form 944-X). The adjusted return reports a tax increase or credit decrease
    1. Follow procedures in IRM 21.7.9.4.10.2, TC 976 Return Posted to Incorrect TIN/Tax Period, Account for Which It was Intended Contains the Original Return (TC 150), to resolve the E-freeze and adjust the correct account as appropriate.

    2. Generate Letter 4384C explaining that the adjustment has been made, but in the future they must file the appropriate "X" form (identify the specific form to be used) to make corrections.

    Less than 60 days have passed from the return due date for the tax period for which the adjusted return was filed
    1. Monitor for the posting of the original return through the 60th day following the return due date.

    2. If the original return posts, process the adjustment as requested on the Form 94XX as appropriate. Otherwise, continue processing per the following rows of this table.

    More than 60 days have passed since the return due date for the tax period for which the adjusted return was filed The adjusted employer's tax return is intended to be an original return (e.g. Column 2 of the Form 94XX is blank or contains zero figures)
    1. Contact the taxpayer (make two attempts to contact the taxpayer by phone if a telephone number is available) to obtain a signed copy of an original return including the corrected information along with any required schedules.

    2. Suspend the case for 40 days.

    3. Continue processing as per the table in (4) below for response and non-response cases.

    More than 60 days have passed since the return due date for the tax period for which the adjusted return was filed The adjusted employer's tax return is not intended to be an original return (e.g. Column 2 figures are not blank or zero)
    1. Contact the taxpayer (make two attempts to contact the taxpayer by phone if a telephone number is available) to obtain a signed copy of their original return along with any required schedules. Advise the taxpayer to provide proof of timely filing if that information is available.

    2. Suspend the case for 40 days.

    3. Continue processing as per the table in (4) below for response and non-response cases.

    Caution:

    When rejecting Forms 94XX, extreme care must be taken to ensure that only the material relative to the taxpayer(s) to which the correspondence is addressed is enclosed in the envelope. See IRM 21.3.3.4.25, Breaches of Personally Identifiable Information (PII) Caused by Manual Stuffing Errors, for additional information.

  4. Process response and non-response cases as per instructions in the following table:

    If And Then
    Taxpayer responds with copy of original return There is no proof of timely filing Continue processing as per the following rows of this table. However, if the copy of the return provided by the taxpayer is routed to be processed, it must be processed using the response received date as the return received date. Do not code the return to suppress penalties or interest.
    Taxpayer responds with copy of original return There is proof of timely filing Continue processing as per the following rows of this table. However, if the copy of the return provided by the taxpayer is routed to be processed, edit the return to reflect the timely received date and attach the supporting documentation.
    Taxpayer responds with copy of original return The wage and tax figures reported match the initial figures (Column 2) of the Form 94XX.
    1. Process the copy of the return provided by the taxpayer as the original return (see first two rows of this table discussing proof of timely filing) and monitor for its posting.

    2. When the original return posts, process the adjusted return as appropriate.

    Taxpayer responds with copy of original return The wage and tax figures reported match the corrected figures (Column 1) on the Form 94XX.
    1. Attach the Form 94XX to the back of the return provided by the taxpayer. Edit (in green) a line across the applicable 94XX form and notate "Do Not Detach" in the margin.

    2. Process the return provided by the taxpayer as the original return (see first two rows of this table discussing proof of timely filing).

    3. Ensure all applicable deposits are correctly applied.

    4. If a TC 971 AC 010 was previously input, input a TC 971 AC 002 to prevent a duplicate filing condition from generating when the return posts.

    Taxpayer responds with copy of original return The wage and tax figures reported don't match initial or corrected figures on Form 94XX and Form 94XX reflects a tax decrease or credit increase.
    1. Research for other unprocessed Forms 94XX for the same tax period. If not found, process the copy of the return provided by the taxpayer as the original return (see first two rows of this table discussing proof of timely filing).

    2. Reject the Form 94XX and indicate that we are processing their original return but cannot process the 94XX because the figures don't match.

    3. Input a TC 971 AC 002 to release the E- freeze if a TC 971 AC 010 was previously input.

    Taxpayer responds with copy of original return The wage and tax figures reported don't match initial or corrected figures on Form 94XX and Form 94XX reflects a tax increase or a credit decrease
    1. Research for other unprocessed Forms 94XX for the same tax period. If not found, process the copy of the return provided by the taxpayer as the original return and monitor for posting (see first two rows of this table discussing proof of timely filing).

    2. When the original return posts, assess tax (TC 290 or TC 298 as appropriate) per the figures in Column 1 or Column 4 of the Form 94XX (whichever will result in the highest recorded tax).

    3. Generate a letter to inform the taxpayer of the action taken.

    Taxpayer does not respond
    1. Prepare a "dummy" return using the corrected information from the "X" form. Do not code the return to suppress penalties or interest. On the signature line, indicate "Dummy Return - Do not correspond for signature" .

    2. Attach the Form 94XX to the back of the "dummy" return. Edit (in green) a line across the applicable 94XX form and notate "Do Not Detach" in the margin.

    3. Process the "dummy" return as the original.

    4. Ensure all applicable deposits are correctly applied.

    5. If a TC 971 AC 010 was previously input, input a TC 971 AC 002 to prevent a duplicate filing condition from generating when the "dummy" return posts.

    Note:

    Processing of the "dummy" return in this situation is not considered reprocessing. Do not attach Form 13596 when routing the "dummy" return to be processed.

    Note:

    To prevent unpostable conditions UPC 381 RC 2 and UPC 305 RC 4, edit the deposits claimed line (e.g. Line 11 for Forms 941) on returns being sent to be processed per instructions provided above to match the total credits posted to the tax module if the posted credit amount exceeds the amount claimed on the return.

    Caution:

    Before processing a copy of a missing return provided by the taxpayer, always research the account again to verify an originally filed return was not misapplied or not processed. If found, process or reprocess the original return whenever possible rather than the copy provided by the taxpayer.

    Note:

    Except as otherwise discussed in this IRM, taxpayers who have not filed an original return are not entitled to an interest free adjustment under the Regulations.

    Reminder:

    If the adjusted employment tax return was scanned into Correspondence Imaging System (CIS), the tax module will reflect an E- freeze which must be addressed prior to closing the case. For additional information on E- freezes, see IRM 21.5.6.4.9, E- Freeze.

Exception Processing — Incorrect Filing, Including Forms Routed to AM from SP
  1. The appropriate Form 94XX must be used to report corrections to previously reported employment taxes for all errors ascertained on or after January 1, 2009. However, taxpayers continue to occasionally file the incorrect return to correct errors. The guidance in the following subsections was developed to address the most common incorrect filing situations.

    Note:

    When adjusting these accounts, do not use NSI 1. See IRM 21.7.1.4.2, Notice Suppression Indicator (NSI).

    Reminder:

    When following these procedures, use blocking series (BS) 20. See IRM 21.7.2.4.6 (13) for more information.

  2. The volumes of certain types of incorrect filing situations have decreased significantly over time. Guidance for those issues has been removed from the current IRM revision. See archived files for this IRM if information is needed on the handling previously applied to:

    • Original 200812 (or prior year return) Return Received with no Form 941c

    • Form 94X (prior version) for TY2009 or later with no Form 941c

    • Electronically Filed Form 94X for TY 2009 Claiming Line Adjustments

Form 94X (2009 or subsequent revision) with Form 94XX Attached
  1. These procedures apply to Form 941-X, 943-X, 944-X, 945-X and/or CT-1X.

  2. Form 941 and Form 941-X received in Submission Processing (SP): SP will verify the adjustment on Form 941-X is not being claimed on the original Form 941.

  3. If an adjustment is taken on the original return, SP will:

    • Enter CCC "X" on the original return

    • Send CP 102 to taxpayer explaining their adjustment request is being sent to Accounts Management (AM), and

    • Prepare Form 3465 and route Form 941-X and copy of Form 941 to AM with a notation "941X to AM" and adjustment not processed.

  4. If adjustment is not taken on the original, SP will prepare Form 3465 and route Form 941-X and a copy of Form 941 to AM with a notation "941X to AM" and adjustment not processed.

  5. Once received, follow the general procedures in IRM 21.7.2.4.6, Adjusted Employer's Federal Tax Return or Claim for Refund, and the specific procedures applicable to the type of Form 94XX filed (e.g., if the 941-X received is a tax decrease - claim for refund, follow IRM 21.7.2.4.7.6.2, Form 941-X Tax Decrease — Claim) to make any necessary account corrections.

  6. Send the taxpayer Letter 4384C informing them the Form 941-X was processed but should be filed separately from their original Form 941.

Form 94X (all tax years and form versions) with Form 941c Attached
  1. These procedures apply to Form 941, 943, 944, 945 and/or CT-1.

  2. Submission Processing (SP) will no longer process employment tax returns with Form 941c attached. Instead, SP will move the Form 941c to the top and route the documents to AM.

  3. Process employment tax returns received for any tax year with Form 941c attached as follows:

    If And Then
    The Form 941 does not reflect an entry for the adjustment requested on Form 941c There is no TC 150 posted for the tax period for which the Form 941 was filed
    1. Route the Form 941 to be processed as the original tax return. Do not attach the Form 941c to the Form 941.

    2. Process the Form 941c per instructions in IRM 21.7.2.4.6.7.3, Stand Alone Form 941c (including incorrectly filed Form 843).

    The Form 941 does not reflect an entry for the adjustment requested on Form 941c There is a TC 150 posted for the tax period for which the Form 941 was filed Process the documents per instructions in IRM 21.7.2.4.6.7.4, "Amended" /"Supplemental" Form 94X with or without Form 941c.
    The Form 941 reflects an entry for the adjustment requested on Form 941c Contact the IRM author through your management chain and the site P&A Staff for guidance on handling the case.
Stand Alone Form 941c (including incorrectly filed Form 843)
  1. These procedures apply to stand alone Forms 941c and incorrectly filed Forms 843 adjusting the following forms: Form 941, 943, 944, 945 and/or CT-1.

  2. Tax increase: See the general procedures in IRM 21.7.2.4.6, Adjusted Employer's Federal Tax Return or Claim for Refund, and the specific procedures applicable to the type of Form 94XX which should have been filed (e.g., if the 941c reports a tax increase for a Form 941 account, follow IRM 21.7.2.4.7.6.3, Form 941-X Tax Increases — Adjusted Employment Tax Return). Use Blocking Series 20 for the adjustment. Send Letter 4384C (or other letter as appropriate) explaining that the adjustment indicated on Form 941c has been made, but in the future they must file the appropriate "X" form (identify the specific form to be used) to make the adjustment.

    Reminder:

    Adjust the tax period(s) on the Form 941c.

  3. Tax decrease: Reject the return using Letter 4384C and inform the taxpayer they must file the appropriate "X" form (identify the specific form to be used) to make the adjustment.. When rejecting the return, follow IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing, and (4) in IRM 21.5.1.5.6, Incomplete CIS claims, for the correct input of TC 971-270 and release of the applicable freeze code.

    Exception:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    Extreme care must be taken to ensure that only the material relative to the taxpayer(s) to which the correspondence is addressed is enclosed in the envelope. See IRM 21.3.3.4.25, Breaches of Personally Identifiable Information (PII) Caused by Manual Stuffing Errors, for additional information.

    Reminder:

    If either a -A or an E - freeze were set on the module, the freeze must be released when the case is closed. See (12) in IRM 21.7.2.4.6, Adjusted Employer's Federal Tax Return or Claim for Refund, for more information.

"Amended" /"Supplemental" Form 94X with or without Form 941c
  1. These procedures apply to Forms 941, 943, 944, 945 and/or CT-1 received on or after January 1, 2009. These forms may be marked "amended" , "supplemental" , etc. with or without Form 941c attached.

  2. Tax increase: See the general procedures in IRM 21.7.2.4.6 and the specific procedures applicable to the type of Form 94XX which should have been filed (e.g., if an amended or supplemental Form 941 is received reporting a tax increase, follow IRM 21.7.2.4.7.6.3). Use Blocking Series 20 for the adjustment. Send Letter 4384C (or other letter as appropriate) explaining that the adjustment indicated on the amended/supplemental return has been made, but in the future they must file the appropriate "X" form (identify the specific form to be used) to make the adjustment.

    Reminder:

    Adjust the tax period of the Form 941.

  3. Tax decrease:

    If Then
    The requested adjustment is for ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    1. Process the decrease as a claim using Blocking Series 20 and the appropriate Hold Code. See the general procedures in IRM 21.7.2.4.6 and the specific procedures applicable to the type of Form 94XX which should have been filed (e.g., if an amended or supplemental Form 941 reporting an under tolerance decrease, follow IRM 21.7.2.4.7.6.2).

    2. Send Letter 4384C (or other letter as appropriate) explaining that the adjustment indicated on the amended/supplemental return has been made, but in the future they must file the appropriate X form (identify the specific form to be used) to make the adjustment.

    The requested adjustment is for ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Reject the return (claim) using Letter 4384C and inform the taxpayer they must file the appropriate X form (identify the specific form to be used) to make the adjustment.

    Reminder:

    When rejecting the return, follow IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing, and (4) in IRM 21.5.1.5.6, Incomplete CIS claims, for the correct input of TC 971-270 and release of the applicable freeze code.

    Note:

    Extreme care must be taken to ensure that only the material relative to the taxpayer(s) to which the correspondence is addressed is enclosed in the envelope. See IRM 21.3.3.4.25, Breaches of Personally Identifiable Information (PII) Caused by Manual Stuffing Errors, for additional information.

Incorrect Form 94XX Version Filed
  1. Forms 941-X, 943-X and 944-X have undergone a series of successive modifications due to legislative changes. However, prior versions of Forms 941-X, 943-X and 944-X will continue to be available to the public and lines for expired or expiring tax items have been removed from newer versions of the forms. Accordingly, Accounts Management will occasionally receive adjustment requests submitted on versions of Form 94XX that do not correspond to the tax year for which the adjustment request pertains. Do not reject adjustment requests filed on prior versions of Form 94XX unless it is not possible to determine the correct adjustment action. Review page 2 of Form 94XX, Part 4 of Form 94XX, and any attachments to determine if information missing from Part 3 was provided in written form and process as follows:

    If And Then
    The missing information was provided in written form Make the requested correction using general procedures in IRM 21.7.2.4.6 , Adjusted Employer's Federal Tax Return or Claim for Refund, and per specific procedures for the form filed (e.g. Form 941-X claim filed, follow procedures in IRM 21.7.2.4.7.6.2, Form 941-X Tax Decrease — Claim).
    The missing information was not provided in written form The Form 94XX reflects tax increases or credit decreases ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , make two attempts to contact the taxpayer by phone to obtain the missing information if a telephone number is available. If the missing information is provided, make the requested correction as per the first row of this table. Otherwise, assess tax based on the available information and issue Letter 4384C to explain the missing information and action taken. Also see IRM 21.5.3.4.1, Tax Increase or Credit Decrease Processing.
    The missing information was not provided in written form The Form 94XX reflects tax decreases or credit increases ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , make two attempts to contact the taxpayer by phone to obtain the missing information if a telephone number is available. If the missing information is provided, make the requested correction as per the first row of this table. Otherwise, reject the Form 941-X using Letter 4384C and identify the missing information in the letter. Also see IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing.

    Caution:

    When rejecting Forms 94XX, extreme care must be taken to ensure that only the material relative to the taxpayer(s) to which the correspondence is addressed is enclosed in the envelope. See IRM 21.3.3.4.25, Breaches of Personally Identifiable Information (PII) Caused by Manual Stuffing Errors, for additional information.

Adjustment Credit Claimed — Refunded in Error
  1. Sometimes a taxpayer claims a credit on a current employment tax form based on a prior tax period adjustment and overpayment.

  2. For example:

    1. An adjustment was made to a prior quarter Form 941 which resulted in an overpayment.

    2. The taxpayer filed a Form 941 for the current quarter taking the overpayment as a credit.

    3. The current quarter Form 941 posted after a refund had been issued from the prior tax period.

    4. The taxpayer returned the refund check and requested it be applied to the balance due on the current tax period.

  3. The table below provides guidance for handling most situations where an employer returns a refund check issued from an employment tax account and requests reapplication of the credit:

    If And Then
    The overpayment was created by the filing of a Form 94XX (filed either as a claim or as an adjusted return) The credit is being applied to the tax period in which the Form 94XX was filed Apply the credit to the account designated by the taxpayer using a TC 830/710 as per the appropriate adjusted return procedures. For example, if Form 941-X was filed, follow the directions in Step 2 of IRM 21.7.2.4.7.6.1 (7) to determine the appropriate credit availability date.
    The overpayment was created by the filing of a Form 94XX (filed either as a claim or as an adjusted return) The credit is being applied to a tax period earlier than that in which the Form 94XX was filed Apply the credit to the account designated by the taxpayer using a TC 820/700 with the appropriate credit availability date. See IRM 21.5.8.4.3, Determining Correct Credit Transfer Format, and IRM 20.2.4.3, Availability Dates for Overpayments, for more information.
    The overpayment was created by the filing of a Form 94XX as a claim The credit is being applied to a tax period later than that in which the Form 94XX was filed
    1. Apply the credit to the account designated by the taxpayer using a TC 820/700 with the appropriate credit availability date. See IRM 21.5.8.4.3, Determining Correct Credit Transfer Format, and IRM 20.2.4.3, Availability Dates for Overpayments, for more information.

    2. Manually calculate and allow overpayment interest with a TC 770 and transfer the overpayment interest using TC 850/730 if appropriate. See IRM 20.2.4.6.1, Interest on Offsets, for more information.

    The overpayment was created by the filing of a Form 94XX as an adjusted return The credit is being applied to a tax period later than that in which the Form 94XX was filed
    1. Follow the directions in the first row of this table to apply the overpayment to the tax period in which the Form 94XX was filed except freeze the credit on the receiving module.

    2. Follow the directions in the last row of this table to apply the credit (if available) from the module the credit was applied to in Step 1 above to the account designated by the taxpayer.

    The overpayment was created by any issue other than the filing of a Form 94XX (missed credit elect, penalty abatement, simple tax overpayment, etc.) The credit is being applied to the same tax period or an earlier tax period Apply the credit to the account designated by the taxpayer using a TC 820/700 with the appropriate credit availability date. See IRM 21.5.8.4.3, Determining Correct Credit Transfer Format, and IRM 20.2.4.3, Availability Dates for Overpayments, for more information.
    The overpayment was created by any issue other than the filing of a Form 94XX (missed credit elect, penalty abatement, simple tax overpayment, etc.) The credit is being applied to the immediately following tax period for the same MFT Apply the credit using a TC 830/710. See (3) of IRM 21.5.8.4.3, Determining Correct Credit Transfer Format, for more information.
    The overpayment was created by any issue other than the filing of a Form 94XX (missed credit elect, penalty abatement, simple tax overpayment, etc.) The credit is being applied to a tax period later than that on which the overpayment exists but not to the immediately following tax period for the same MFT
    1. Apply the credit to the account designated by the taxpayer using a TC 820/700 with the appropriate credit availability date. See IRM 21.5.8.4.3, Determining Correct Credit Transfer Format, and IRM 20.2.4.3, Availability Dates for Overpayments, for more information.

    2. Manually calculate and allow overpayment interest with a TC 770 and transfer the overpayment interest using TC 850/730 if appropriate. See IRM 20.2.4.6.1, Interest on Offsets, for more information.

    Exception:

    Normal offset rules apply to overpayments addressed in the table above. If there is an outstanding balance due on a tax period earlier than that to which the taxpayer is requesting an overpayment to be applied, apply the credit to the earliest outstanding balance due(s) instead and inform the taxpayer of the action taken.

    Reminder:

    Credit must be available on the module to complete a credit transfer with a debit TC 820 or TC 830 transaction code. Otherwise, the credit transfer will unpost.

One Form 94XX Filed but Two Forms 94XX were Required
  1. Employers who need to make corrections for both underreported and overreported amounts on the same tax period cannot combine the correction requests on a single Form 94XX when either of the following applies:

    • A refund of the overreported tax is requested using the claim process.

    • Filing within 90 days of the RSED ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ .

      Reminder:

      Taxpayers may net underreported and overreported amounts on one Form 94XX when the adjustment process is selected and the Form 94XX is filed more than 90 days prior to the RSED.

  2. Process single Form 94XX filing situations where it appears two Forms 94XX were required as follows:

    If And Then
    The Form 94XX was filed more than 90 days prior to the RSED Box 2 is checked for the claim process
    1. Net the corrections reported into a single adjustment and process as an adjusted employment tax return. Consider general procedures in IRM 21.7.2.4.6, Adjusted Employer's Federal Tax Return or Claim for Refund, and process as per the appropriate specific adjusted employment tax return procedures for the type of form filed (e.g. Form 941-X reporting net increase, follow procedures in IRM 21.7.2.4.7.6.3, Form 941-X Tax Increases — Adjusted Employment Tax Return).

    2. If the net tax change is a decrease and credit will be applied to the tax period in which the Form 94XX was filed, issue Letter 4384C to inform the taxpayer we converted their claim to an adjusted employment tax return and indicate the quarter to which the credit is being applied.

    The Form 94XX was filed within 90 days of the RSED (with either Box 1 for the adjusted employment tax return process or Box 2 for the claim process checked) The ASED is within 90 days of expiring
    1. Contact the Statute function per normal procedures to initiate a manual assessment of the underreported amount before the ASED expires. See IRM 25.6.1, Statute of Limitations Processes and Procedures, for additional guidance on handling statute imminent cases.

    2. Follow procedures in IRM 21.5.3.4.3, Tax Decrease and Statute Consideration, to request a separate Form 94XX to claim the amount of the tax decrease. Inform the taxpayer that we are processing the reported tax increase but they must file a separate Form 94XX for the decrease requested as per the Form 94XX Instructions.

    3. Monitor for the posting of the increase as a manual assessment and for the taxpayer’s response to the request for a separately filed Form 94XX for the tax decrease.

    4. Complete processing of the case per (4), (5), or (6) of IRM 21.5.3.4.3 as appropriate.

    The Form 94XX was filed within 90 days of the RSED (with either Box 1 for the adjusted employment tax return process or Box 2 for the claim process checked) The ASED is expired and the net tax change reported on the Form 94XX is a decrease
    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    The Form 94XX was filed within 90 days of the RSED (with either Box 1 for the adjusted employment tax return process or Box 2 for the claim process checked) The ASED is expired and the net tax change reported on the Form 94XX is an increase Forward the Form 94XX to the Statute function as per instructions in (1) of IRM 21.5.3.4.1, Tax Increase or Credit Decrease Processing.
Processing Multiple Forms 94XX Filed for the Same Tax Period
  1. The Service often receives multiple Forms 94XX filed by taxpayers for a particular tax period. These may be filed over a period of time for different tax adjustment issues or at the same time due to the requirement to file separate Forms 94XX when using the adjustment process to report corrections for underreported amounts and the claim process to report corrections of overreported amounts.

  2. The following general guidance should be considered when processing multiple Forms 94XX cases:

    • Generally, separately filed Forms 94XX cannot be combined into a single adjustment. A separate adjustment must be input for each Form 94XX filed by the taxpayer to report corrections.

    • Separately filed Forms 94XX should generally be processed in received date order whenever possible.

    • Unless there are unusual circumstances in play, it is generally advantageous to process Forms 94XX in the order in which the taxpayer intended. This can usually be determined by reviewing the beginning and ending figures reported on the Forms 94XX.

    • Taxpayers cannot net tax on separately filed Forms 94XX reporting underreported amounts and overreported amounts to determine amounts of required payments. To avoid penalties and/or interest, the entire underreported amount must be paid by the time they file the Form 94XX. If the taxpayer does not fully pay the amount of the increase reported by the time they file the Form 94XX, any overpayment arising from the separately filed claim will be offset against the tax due but does not constitute the payment required with the Form 94XX reporting the tax increase. The amount of the tax increase not paid with the Form 94XX may be subject to an FTD penalty whether the adjustment is input as a TC 290 (see IRM 20.1.4.21.3, Amended or Supplemental (Tax Decrease or Non-Interest-Free Tax Increase)) or as a TC 298 (see IRM 20.1.4.21.5, Adjusted Returns (Forms 941-X, 943-X, 944-X, and CT-1X)). Other systemically generated penalties (FTF and/or FTP) and interest may also apply.

    • Current and expected module balances must be considered when processing multiple Form 94XX cases to ensure taxpayers do not receive incorrect refunds or balance due notices. Use hold codes as appropriate. For example, if processing a decrease which will result in an overpayment and then an increase for which no payment has been received, use Hold Code 1 on the first adjustment to hold the overpayment until the increase posts.

    Caution:

    Extreme care must be exercised to prevent barred assessments or erroneous abatements from occurring when employers file Forms 94XX reporting both underreported amounts and overreported amounts. Unique statute of limitations issues may be encountered. It may be necessary in some circumstances to have a Statute function initiate a manual assessment of the underreported amount before processing the adjustment for the overreported amount. It should be particularly noted that a Refund Statute Expiration Date (RSED) for a tax account may remain open after the Assessment Statute Expiration Date (ASED) has expired. See IRM 25.6.1, Statute of Limitations Processes and Procedures, for additional guidance on handling statute imminent cases.

Form 941, Employer’s QUARTERLY Federal Tax Return

  1. Employers who are required to withhold income tax on wages, social security tax, Medicare tax, or Additional Medicare Tax (for tax periods ending after December 31, 2012) must file Form 941 quarterly to report both the employer share and employee share of such taxes.

    Exception:

    Certain eligible taxpayers report employment taxes annually on Form 944, Employer's ANNUAL Federal Tax Return, instead of quarterly on Form 941. See IRM 21.7.2.4.9, Form 944, Employer's ANNUAL Federal Tax Return, for more information.

  2. The taxable period and due dates for Form 941 are always the same. (See below.)

    Quarter Covered Quarter Ending Due Date
    January, February, March March 31 April 30
    April, May, June June 30 July 31
    July, August, September September 30 October 31
    October, November, December December 31 January 31

    Note:

    The return due date for Form 941 is extended 10 days if timely deposits are made which full pay the amount of tax reported.

  3. Form 941 has the tax year in the title. Taxpayers must be encouraged to use the correct form to ensure proper processing.

Seasonal Employers
  1. Seasonal employers are Form 941 filers who do not report a tax liability every quarter because they do not pay wages every quarter. They are relieved from filing tax returns for the quarters in which they have no liability.

  2. Taxpayers who meet this criteria must check the seasonal employer box on Form 941 to establish or maintain this status.

  3. At least one return must be filed each year.

  4. Many seasonal employers also meet the criteria for filing Form 944, Employer's ANNUAL Federal Tax Return. However, seasonal employers not eligible to participate in the Form 944 program, or who have opted out of the Form 944 program, must continue to follow the instructions above. See IRM 21.7.2.4.9, Form 944, Employer's ANNUAL Federal Tax Return, for more information on Form 944 eligibility criteria and participation requirements.

Line 2, Form 941
  1. The amount from Line 2, Form 941, Wages, tips and other compensation, is identified on MF by the field name "TOTAL-COMP" . It is:

    • Not an adjustable field.

    • For research purposes only.

    • May be used to verify whether a taxpayer mistakenly entered this amount on Form 941-X for the purpose of computing adjustments to taxable wages.

  2. If the only change reported on a Form 941-X is to total wages and tips (line 6 of Form 941-X), then input a TC 290 $.00 with blocking series 20 to release the -A freeze. If there are other changes in addition to corrections to total wages and tips, adjust accordingly.

Multiple Quarters Filed on Form 941
  1. Sometimes an employer combines the wages for two or more quarters and reports them on a single Form 941.

    Example:

    An employer files a Form 941 for the 201412 quarter with full payment. The Form 941 includes a notation or attached statement which indicates the employer is reporting wages and tax for the entire year.

  2. Submission Processing (SP) has procedures in IRM 3.11.13.6, Unprocessable Conditions, to address this situation when identified during initial return processing.

  3. If taxpayer contact (or a referral from SP) is received identifying a multiple quarter Form 941 filing situation, process as follows:

    If And Then
    The multiple quarter Form 941 has been posted Advise the taxpayer (use the appropriate "C" letter if working paper correspondence) to take the following actions:
    1. File a correct original Form 941 for each tax period (specify in the letter) for which wages/tax was incorrectly included on the multiple quarter Form 941.

    2. File a Form 941-X to correct the tax period to which the multiple quarter Form 941 was processed (specify in the letter) and to attach a breakdown of the federal tax deposits or other payments which should be applied to the respective tax periods previously included on the multiple quarter Form 941.

    The multiple quarter Form 941 has not been posted There is no indication the multiple quarter Form 941 will post (i.e. not in ERS/Rejects or was previously deleted) Advise the taxpayer (use the appropriate "C" letter if working paper correspondence) to take the following actions:
    1. File a correct original Form 941 for each tax period (specify in the letter) for which tax was incorrectly reported on the multiple quarter Form 941.

    2. Submit a breakdown of the federal tax deposits or other payments which should be applied to the respective tax periods previously included on the multiple quarter Form 941.

    Exception:

    If the multiple quarter Form 941 includes a breakdown of the federal tax deposits or other payments which should be applied to the respective tax periods, initiate credit transfers to reapply credits as appropriate before closing the case and skip item 2) above.

    The multiple quarter Form 941 has not been posted There is an indication that the multiple quarter Form 941 will post (i.e. return is in ERS/Rejects) Monitor for posting or deletion of the return and then process as appropriate per the preceding rows in this table.
Negative Tax Liability on Form 941
  1. For errors discovered prior to January 1, 2009, taxpayers were instructed to adjust a prior period on a current period's return. Therefore, taxpayers could submit a tax return reporting a credit that reduced the net tax liability below zero. This would result in the current period's tax liability being recorded as a negative amount (i.e. the TC 150 posted with a negative figure).

  2. Current programming allows for a tax adjustment to be input to reduce an existing liability below zero. However, if the tax liability is being reduced to a negative amount, any FTD penalty must be manually adjusted. See IRM 20.1.4.23, Manual Adjustments.

    Caution:

    Do not reduce net module tax (sum of TC 150 and all TC 29X/30X transactions) to a negative amount on any tax period beginning on or after January 1, 2009.

Form 941 Discrepancy — Taxpayer Files Form 941-X
  1. A taxpayer may disagree with a notice of additional tax assessment due to an error or discrepancy on Form 941 citing any of the following as possible cause(s):

    • Transposition of figures

    • Entry made on wrong line

    • Omission of allowable adjustment

    • Error in computation of tax

    • Erroneous withholding tax or wages reported on Form 941

  2. A Form 941-X is required to correct information previously reported on Form 941 unless the taxpayer's response meets oral statement authority for BMF as described in (1) of IRM 21.7.1.4, Business Master File (BMF) /Non-Master File (NMF) Adjustment Procedures.

Form 941-X, Adjusted Employer's QUARTERLY Federal Tax Return or Claim for Refund (including Form 941-X (PR))
  1. Form 941-X (or Form 941-X (PR)) is filed to correct income tax withholding and/or FICA tax information (including Additional Medicare Tax for tax periods beginning after December 31, 2012) previously reported on Form 941 or Form 941-SS (or Form 941-PR). Taxpayers can choose to file either:

    • An adjusted employment tax return, or

    • A claim

    Note:

    If the taxpayer does not check a box in Part 1 (or checks both boxes) and the Form 941-X reflects a tax decrease, make two attempts to contact the taxpayer by phone (if a telephone number is available) to determine whether they intended to follow the adjustment process or the claim process. If unable to contact the taxpayer by phone, verify which set of certification box(es) were checked. If the taxpayer checked the adjustment certification(s) or checked both the adjustment certification(s) and the claim certification(s), process as an adjusted employment tax return. If the taxpayer checked only the claim certification(s), process as a claim for refund.

    Reminder:

    When contacting the taxpayer or authorized representative, follow taxpayer authentication guidelines in IRM 21.1.3, Operational Guidelines Overview.

  2. Taxpayers are required to certify on Form 941-X that they have filed or will file Forms W-2, or Forms W-2c, as required. They must also complete the applicable certification box based on their selection in Part 1 of Form 941-X.

    Example:

    If taxpayer checks box 1 in Part 1, then they must check the applicable certification box(es) in line 4. If taxpayer checks box 2 in Part 1, then they must check the applicable certification box(es) in line 5.

    Note:

    If the certification box checked in Part 2 is inconsistent with the process selected in Part 1, continue processing the Form 941-X based on the information provided in Part 1.

  3. Use the applicable reference numbers to adjust tax, wages, and advance earned income tax credit (AEITC) on employment tax returns. The following table shows the valid reference numbers for Form 941-X.

    Item Reference Number (IRN) Explanation
    111 Federal income tax withheld from wages, tips, and other compensation (line 7 of Form 941-X - column 4).
    004 Taxable social security wages (line 8 of Form 941-X - column 3 plus line 15 of Form 941-X - column 3).
    005 Taxable social security tips (line 9 of Form 941-X - column 3).
    073 Taxable Medicare wages and tips (line 10 of Form 941-X - column 3 plus line 16 of Form 941-X - column 3).
    074 Taxable Wages & tips subject to Additional Medicare Tax withholding (line 11 of Form 941-X - column 3 plus line 17 of Form 941-X - column 3) (valid for tax periods beginning after December 31, 2012).
    112 Total social security, Medicare tax, and (for tax periods beginning after December 31, 2012) Additional Medicare Tax.
    114 Section 3121(q) Notice and Demand — Tax due on unreported tips (line 12 of Form 941-X - column 4). Only for MFT 01 tax periods 201103 and after.
    104 Income tax withheld figured at IRC Section 3509 tax rate on Special addition to wages for federal income tax (line 14 of Form 941-X - column 4).
    105 Social security, Medicare taxes, and (for tax periods beginning after December 31, 2012) Additional Medicare taxes figured at IRC Section 3509 tax rates on Special addition to wages for social security taxes, Special addition to wages for Medicare taxes, and Special addition to wages for Additional Medicare Tax (total of lines 15, 16, and 17 from Form 941-X - column 4).
    106/107/108 Tax adjustments (line 13 of Form 941-X - column 4). See IRN 113 and Note below table.
    113 Total adjustments (total of lines 13, 14, 15, 16, and 17 of Form 941-X - column 4). See IRN 106/107/108 above and Note below table.

    Reminder:

    IRN 113 must be used when adjusting IRNs 104 through 108.

    Credit Reference Number (CRN)
    299 COBRA premium assistance payments (line 19a of Form 941-X - column 4).

    Note:

    Use Item reference numbers 106, 107, and 108 to adjust any corrections a taxpayer may have for lines 7, 8, and 9 on Form 941. If Form 941-X does not specify what is actually being corrected, use IRN 107 for total amount on line 13 - column 4. See IRM 21.7.2.4.1 for additional information on IRN's.

    Caution:

    Form 941-X is revised on a regular basis and line numbers for particular adjustment items occasionally change. However, there is no requirement for the taxpayer to use the most current version of Form 941-X. Although line numbers are provided in the table above for easy reference, employees are responsible for ensuring the proper adjustment action is taken based on the form version filed by the taxpayer.

    Note:

    Lines for HIRE Act related adjustment items have been removed from the current Form 941-X version. See IRM 21.7.2.5.20.1, Adjusting the Account — HIRE if information is needed regarding adjustments for HIRE Act items on tax year 2010 (only).

    Reminder:

    AEITC was legislatively eliminated for tax periods after 201012. Lines for this adjustment item have been removed from the current Form 941-X version. See IRM 21.7.2.4.3, Advance Earned Income Tax Credit (AEITC) — Form 941, Form 943, Form 944, and Schedule H, if information is needed regarding adjustments for AEITC on tax periods 201012 and earlier.

    Note:

    Although CRN 290 is valid for MFT 01, this credit cannot be claimed or adjusted by filing a Form 941-X. This credit is only allowed during the processing of Forms 5884-C. See IRM 21.7.2.5.22, Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, for more information.

Form 941-X Tax Decreases — Adjusted Employment Tax Return
  1. These tax decreases involve income tax withholding and/or FICA tax (including Additional Medicare Tax for tax periods beginning after December 31, 2012).

    Reminder:

    AEITC was legislatively eliminated for tax periods after 201012.

  2. Verify all required items on Form 941-X are complete, such as:

    • Name, address, and EIN

    • Type of return being corrected

    • Quarter being corrected

    • Calendar year being corrected

    • Box 1 in Part 1 is checked

    • Box 3 and the applicable certification is checked on line 4a, 4b or 4c in Part 2

    • Detailed explanation (see IRM 21.7.2.4.6 (11))

    • Signature

  3. If a certification box is not checked, make two attempts to secure the information by phone if a telephone number is available. Otherwise, follow procedures in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Use Letter 4384C to reject the claim and identify the missing information in the letter.

    Exception:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Caution:

    The individual contacted by phone must be authorized to prepare taxpayer's employment tax returns. Document the case history with the date, time, name of individual contacted, and information obtained from the individual.

  4. If a taxpayer files an adjusted employment tax return within 90 days of the expiration of the period of limitations, the adjustment must be converted to a claim for refund and the taxpayer must be notified. Take the following actions:

    1. Notate the Form 941-X with the following text: "90 day - Claim" .

    2. Process the Form 941-X per procedures in IRM 21.7.2.4.7.6.2, Form 941-X Tax Decrease — Claim, and refer to IRM 21.7.2.4.6.5, 90 Day — Claim, for additional information.

    3. Generate Letter 4384C to the taxpayer explaining the adjustment has been converted to a claim.

  5. A decrease in tax may meet examination criteria. See Exhibit 21.5.3–2 , Examination Criteria (CAT-A) — General, for additional information.

  6. Math verify adjustments to income tax, social security tax, Medicare tax, and Additional Medicare Tax (AdMT).≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  7. Process adjusted employment tax returns as follows:

    1. Input TC 291, HC 1, BS 20 and the appropriate IRN's for the amount of decrease.

      Note:

      Overpayments arising from adjustments made under these procedures are subject to offset. Omit Hold Code 1 with the adjustment and allow the computer to systemically offset the credit if it will be fully absorbed by an outstanding balance due. Otherwise, if conditions prevent the computer from completing the offset, or if only part of the credit needs to be offset, manual offsets using TC 820/TC 700 transactions will be required.

      Caution:

      For tax decreases with an unreversed FTD penalty, see (4) of IRM 20.1.4.21.5, Adjusted Returns (Forms 941-X, 943-X, 944-X, and CT-1X).

    2. Transfer the applicable overpayment using TC 830/710 to the period in which the Form 941-X was filed.

      Caution:

      To prevent either debit or credit interest from generating, use the later of the return due date of the tax period being adjusted or the availability date of the overpayment as the transaction date of the TC 830 and use the due date of the return the credit is being applied to as the transaction date of the TC 710. See IRM 21.5.8.4.3(3), Determining Correct Credit Transfer Format, for more information.

    3. If the entire credit is not available to be transferred, generate Letter 4384C to the taxpayer. Explain why the entire amount was not allowable (for example, there was a balance due on the tax period being adjusted or the credit is being offset to a balance due on another tax period).

  8. If the taxpayer's filing requirement has changed from Form 944 to Form 941 or vice versa, the credit will be transferred to the filing requirement that was active for the period in which the adjusted return was filed.

Form 941-X Tax Decrease — Claim
  1. These tax decreases involve income tax withholding, and/or FICA tax (including Additional Medicare Tax for tax periods beginning after December 31, 2012).

    Reminder:

    AEITC was legislatively eliminated for tax periods after 201012.

  2. Verify all required items on Form 941-X are complete, such as:

    • Name, address, and EIN

    • Type of return being corrected

    • Quarter being corrected

    • Calendar year being corrected

    • Box 2 in Part 1 is checked

    • Box 3 and the applicable certification is checked on line 5a, 5b, 5c or 5d in Part 2

    • Detailed explanation (see IRM 21.7.2.4.6 (11))

    • Signature

  3. If a certification box is not checked, make two attempts to secure the information by phone if a telephone number is available. Otherwise, follow procedures in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Use Letter 4384C to reject the claim and identify the missing information in the letter.

    Exception:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Caution:

    The individual contacted by phone must be authorized to prepare taxpayer's employment tax returns. Document the case history with the date, time, name of individual contacted, and information obtained from the individual.

    Exception:

    Claims filed without consent. If taxpayer has not checked a box on line 5 and states (in the explanation or in response to our contact) they are not required to obtain the consents prior to filing the claim and the claim is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , send claim CAT-A. Exam will correspond with the taxpayer to secure applicable certifications. In certain situations, taxpayers may not have repaid or reimbursed their employees or obtained their consents prior to filing a claim (Form 941-X). However, they must certify they have repaid or reimbursed their employees or obtained consents before the Service can accept the claim. See Instructions for Form 941-X for more information.

  4. A decrease in tax may meet examination criteria. See Exhibit 21.5.3–2 , Examination Criteria (CAT-A) — General, for additional information.

  5. Math verify adjustments to income tax withholding, social security tax, Medicare tax, and Additional Medicare Tax (AdMT).≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. Input TC 291, BS 20 and the appropriate IRN's for the amount of the decrease.

    Caution:

    For tax decreases with an unreversed FTD penalty, see (4) of IRM 20.1.4.21.5, Adjusted Returns (Forms 941-X, 943-X, 944-X, and CT-1X).

  7. If the entire credit is not available to be refunded to the taxpayer, generate Letter 4384C to the taxpayer. Explain why the entire amount was not available (for example, there was a balance due on the tax period being adjusted or the credit is being offset to a balance due on another tax period).

Form 941-X Tax Increases — Adjusted Employment Tax Return
  1. These tax increases involve income tax withholding and/or FICA tax (including Additional Medicare Tax for tax periods beginning after December 31, 2012).

    Reminder:

    AEITC was legislatively eliminated for tax periods after 201012.

  2. Verify all required items on Form 941-X are complete, such as:

    • Name, address, and EIN

    • Type of return being corrected

    • Quarter being corrected

    • Calendar year being corrected

    • Box 1 in Part 1 is checked

    • Box 3 is checked in Part 2

    • Detailed explanation (see IRM 21.7.2.4.6 (11))

    • Signature

    Note:

    See (3) and (4) of IRM 21.5.3.4.1, Tax Increase or Credit Decrease Processing, if the Form 941-X is missing required information. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. Check for the date the taxpayer discovered the error. If not entered on page 1, review the explanation to see if it was entered there.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , if the ascertained date is not provided and a telephone number is available, make two attempts to contact the taxpayer by phone to obtain the information. If the ascertained date cannot be obtained by phone, input the adjustment as a TC 290.

    Exception:

    If you receive a Form 941-X for the immediately preceding quarter prior to the due date for the current quarter (for example, a Form 941-X reporting a tax increase for the third quarter of 2016 received on or before January 31, 2017), it is not necessary to contact the taxpayer for an ascertained date. In that situation, input a TC 298 with the applicable interest computation date. See IRM 21.7.2.4.6.2, Interest-Free Adjustments (Employment Tax Returns), for more information.

    Reminder:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. Math verify adjustments to income tax withholding, social security tax, Medicare tax, and Additional Medicare Tax (AdMT).≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. Use the table below to make your adjustment(s).

    If Then
    The Form 941-X was filed by the ascertained date (due date of the return for the period in which the taxpayer discovered the reporting error) Input TC 298 and BS 20 with the correct interest computation date (INTCMP-DT). See IRM 21.7.2.4.6.2 and example below for additional information.
    The Form 941-X was not filed by the due date of the return for the return period in which the error was ascertained or "date you discovered errors" was blank or the date error was discovered was not furnished in Part 4 Input TC 290 with BS 20.

    Example:

    An employer discovers an error on February 3, 2017 and files a Form 941-X which is received by the IRS on March 9, 2017 for the 01/201512 tax period. The interest computation date would be March 9, 2017.

  6. Adjust the FTD penalty when using either a TC 290 (see IRM 20.1.4.21.3, Amended or Supplemental (Tax Decrease or Non-Interest-Free Tax Increase)) or a TC 298 (see IRM 20.1.4.21.5, Adjusted Returns (Forms 941-X, 943-X, 944-X, and CT-1X)).

    Note:

    See IRM 20.1.4.21.5.1, Amended ROFTL (Forms 941-X, 943-X, 944-X, 945-X, and CT-1X), when using a TC 298 or TC 290 and an amended ROFTL was provided with the adjusted return.

  7. If payment for the additional tax reported on the Form 941-X is not reflected on the tax period being adjusted, research the taxpayer's account for the missing credit and, if located, transfer the payment as appropriate.

Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees

  1. Form 943, Employer’s Annual Federal Tax Return for Agricultural Employees, must be filed to report income tax withheld and employer and employee FICA taxes (including Additional Medicare Tax for tax periods beginning after December 31, 2012) on farm workers.

  2. Agricultural employers with household employees who work in a private home on a farm operated for profit can either:

    1. File Schedule H with their Form 1040 series return and report the household employees portion of wages and taxes, or

    2. Include the wages and taxes with farm employees on Form 943.

  3. Form 943 is an annual return due on or before January 31 following the close of the calendar year.

    Exception:

    The return due date for Form 943 is extended 10 days if timely deposits are made which full pay the amount of tax reported.

  4. The Form 943 threshold for making deposits is $2,500. Taxpayers follow either semi-weekly or monthly deposit schedules determined by the Form 943 lookback period. See IRM 20.1.4, Failure to Deposit Penalty.

  5. Forms 943 are recorded on MFT 11 and the tax class is 1.

  6. See (3) of IRM 21.7.2.4.8.3, Form 943-X, Adjusted Employer's Annual Tax Return for Agricultural Employees or Claim for Refund (including Form 943-X (PR)), for valid IRN's and CRN's used to adjust Form 943 accounts. Also see (5) and (6) of IRM 21.7.2.4.1.1, TC 29X / Item Reference Number (IRN) Valid Adjustment Formulas — Employment Taxes, for valid Form 943 adjustment formulas.

Wages Subject to FICA and Income Tax Withholding
  1. All cash wages paid to farmworkers are subject to FICA (including Additional Medicare Tax to the extent wages and tips paid to an employee exceed $200,000 for a calendar year beginning after December 31, 2012) and income tax withholding during the year, if either of the two tests below are met:

    1. Cash and non-cash wages paid during the year to all farmworkers totals $2,500 or more.

    2. Annual cash wages of $150 or more are paid to a farmworker (this test is applied separately to each farm worker).

  2. Cash wages paid to a farm worker who receives less than $150 during the year are not subject to FICA and income tax withholding, even if the total paid to all employees exceeds $2,500 or more, if the farm worker:

    1. Is employed as a hand-harvest laborer

    2. Is paid piece-rates in an operation usually paid on a piece-rate basis in the region of employment

    3. Commutes daily from their permanent home to the farm, and

    4. Had been employed in agriculture less than 13 weeks in the preceding calendar year

    Note:

    Amounts paid to these farm workers, however, count toward the $2,500 or more test for determining the social security and Medicare liability regarding other farm workers.

  3. Cash wages paid to a household worker are not counted in the $2,500 test and are not subject to FICA taxes unless the worker is paid cash wages at least equal to the threshold established by the Social Security Domestic Employment Reform Act of 1994 (SSDERA) for that particular year:

    • For tax years 2016, the threshold is $2,000.

    • For tax years 2014 and 2015, the threshold was $1,900.

    • Thresholds for prior years may be found in (3) of IRM 21.7.4.4.1.11.1, Provisions of SSDERA, General Information, or in the Pub 926, Household Employer's Tax Guide, for the year in question.

  4. Foreign agricultural workers may be temporarily admitted into the United States on H-2A visas:

    • Compensation paid to H-2A agricultural workers are not subject to social security or Medicare taxes. However, compensation paid to H-2A agricultural workers is counted towards the tests discussed in (1) and (2) above.

    • Employers are not required to withhold federal income tax from compensation paid to an H-2A visa agricultural worker. However, if both the employer and employee agree, federal income tax may be withheld from compensation and those amounts would be reportable on Form 943.

    • H-2A agricultural workers are eligible to obtain a Social Security Number (SSN) from the Social Security Administration (SSA) and should provide that information to the agricultural employer. An H-2A agricultural worker who fails to provide the employer with their Taxpayer Identification Number (TIN) may be subject to backup withholding (BUWH) which would be reportable on Form 945.

    • Employers must report compensation of $600 or more paid to an H-2A agricultural worker in a calendar year for agricultural labor on Form W-2, Wage and Tax Statement.

    • Additional information may be found on the IRS website at:Foreign Agricultural Workers on H-2A Visas.

Incorrect Type of Return Filed — Forms 941 and 943
  1. Taxpayers occasionally report employment taxes related to agricultural employees on quarterly Forms 941 instead of on an annual Form 943 as required.

  2. When a taxpayer files Forms 941 for one or more quarters of a tax year but should have filed an annual Form 943, take the following actions to resolve the accounts:

    If And Then
    Taxpayer has filed Form 943 Previously reported employment taxes related to agricultural employees on Form 941 Advise the taxpayer (use the appropriate "C" letter if working paper correspondence) to file a Form 941-X for each quarter in which they incorrectly reported employment taxes related to agricultural employees on Form 941 and attach a statement detailing the amounts of any federal tax deposits or other payments which should be reapplied to their Form 943 tax account.
    Taxpayer has not yet filed Form 943 Previously reported employment taxes related to agricultural employees on Form 941 Advise the taxpayer (use the appropriate "C" letter if working paper correspondence) to take the following actions:
    1. File a Form 943 reflecting the correct tax for the year

    2. File a Form 941-X for each quarter in which they incorrectly reported employment taxes related to agricultural employees on Form 941 and attach a statement detailing the amounts of any federal tax deposits or other payments which should be reapplied to their Form 943 tax account.

Form 943-X, Adjusted Employer's Annual Tax Return for Agricultural Employees or Claim for Refund (including Form 943-X (PR))
  1. Form 943-X (or Form 943-X (PR)) is filed to correct income tax withholding and/or FICA tax information (including Additional Medicare Tax for tax periods beginning after December 31, 2012) previously reported on Form 943 or Form 943-PR. Taxpayers can choose to either file:

    • An adjusted employment tax return, or

    • A claim

    Note:

    If the taxpayer does not check a box in Part 1 (or checks both boxes) and the Form 943-X reflects a tax decrease, make two attempts to contact the taxpayer by phone (if a telephone number is available) to determine whether they intended to follow the adjustment process or the claim process. If unable to contact the taxpayer by phone, verify which set of certification box(es) were checked. If the taxpayer checked the adjustment certification(s) or checked both the adjustment certification(s) and the claim certification(s), process as an adjusted employment tax return. If the taxpayer checked only the claim certification(s), process as a claim for refund.

    Reminder:

    When contacting the taxpayer or authorized representative, follow taxpayer authentication guidelines in IRM 21.1.3, Operational Guidelines Overview.

  2. Taxpayers are required to certify on Form 943-X that they have filed or will file Forms W-2, or Forms W-2c, as required. They must also complete the applicable certification box based on their selection in Part 1 of Form 943-X.

    Example:

    If taxpayer checks box 1 in Part 1, then they must check the applicable certification box(es) in line 4. If taxpayer checks box 2 in Part 1, then they must check the applicable certification box(es) in line 5.

    Note:

    If the certification box checked in Part 2 is inconsistent with the process selected in Part 1, continue processing the Form 943-X based on the information provided in Part 1.

  3. Item Reference Numbers (IRNs) valid for Form 943-X are:

    Item Reference Number (IRN) Explanation
    004 Total wages subject to social security tax (line 6 of Form 943-X - column 3 plus line 12 of Form 943-X - column 3).
    073 Taxable Medicare wages and tips (line 7 of Form 943-X - column 3 plus line 13 of Form 943-X - column 3).
    074 Taxable Wages & tips subject to Additional Medicare Tax withholding (line 8 of Form 943-X - column 3 plus line 14 of Form 943-X - column 3). Valid for tax periods beginning after December 31, 2012.
    007 Total social security, Medicare tax, and (for tax periods beginning after December 31, 2012) Additional Medicare Tax (combined figures in column 4 of Form 943-X - lines 6, 7, 8, 12, 13, and 14).
    003 Federal income tax withheld (line 9 of Form 943-X - column 4plus line 11 of Form 943-X - column 4).
    185 Tax adjustments (line 10 of Form 943-X - column 4). For tax periods after 200812, IRN 185 is only used on Form 943 adjustments for fractions of cents and third party sick pay.
    Credit Reference Number (CRN)
    299 COBRA premium assistance payments (line 16a of Form 943-X - column 4).

    Caution:

    Form 943-X is revised on a regular basis and line numbers for particular adjustment items occasionally change. However, there is no requirement for the taxpayer to use the most current version of Form 943-X. Although line numbers are provided in the table above for easy reference, employees are responsible for ensuring the proper adjustment action is taken based on the form version filed by the taxpayer.

    Note:

    Lines for HIRE Act related adjustment items have been removed from the current Form 943-X version. See IRM 21.7.2.5.20.1, Adjusting the Account — HIRE if information is needed regarding adjustments for HIRE Act items on tax year 2010 (only).

    Reminder:

    AEITC was legislatively eliminated for tax periods after 201012. See IRM 21.7.2.4.3, Advance Earned Income Tax Credit (AEITC) — Form 941, Form 943, Form 944, and Schedule H, if information is needed regarding adjustments for AEITC on tax periods 201012 and earlier.

    Caution:

    Although CRN 290 is valid for MFT 11, this credit cannot be claimed or adjusted by filing a Form 943-X. This credit is only allowed during the processing of Forms 5884-C. See IRM 21.7.2.5.22, Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, for more information.

Form 943-X Tax Decreases — Adjusted Employment Tax Return
  1. These tax decreases involve income tax withholding and/or FICA tax (including Additional Medicare Tax for tax periods beginning after December 31, 2012).

    Reminder:

    AEITC was legislatively eliminated for tax periods after 201012.

  2. Verify all required items on Form 943-X are complete, such as:

    • Name, address, and EIN

    • Calendar year being corrected

    • Box 1 in Part 1 is checked

    • Box 3 and the applicable certification is checked on line 4a, 4b or 4c in Part 2

    • Detailed explanation (see IRM 21.7.2.4.6 (11))

    • Signature

  3. If a certification box is not checked, make two attempts to secure the information by phone if a telephone number is available. Otherwise, follow procedures in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Use Letter 4384C to reject the claim and identify the missing information in the letter.

    Exception:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Caution:

    The individual contacted by phone must be authorized to prepare taxpayer's employment tax returns. Document the case history with the date, time, name of individual contacted, and information obtained from the individual.

  4. If a taxpayer files an adjusted employment tax return within 90 days of the expiration of the period of limitations, the adjustment must be converted to a claim for refund and the taxpayer must be notified. Take the following actions:

    1. Notate the Form 943-X with the following text: "90 day - Claim" .

    2. Process the Form 943-X per procedures in IRM 21.7.2.4.8.3.2, Form 943-X Tax Decreases — Claim, and refer to IRM 21.7.2.4.6.5, 90 Day — Claim, for additional information.

    3. Generate Letter 4384C to the taxpayer explaining the adjustment has been converted to a claim.

  5. A decrease in tax may meet examination criteria. See Exhibit 21.5.3–2 , Examination Criteria (CAT-A), for additional information.

  6. Math verify adjustments to income tax withholding, social security tax, Medicare tax, and Additional Medicare Tax (AdMT).≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  7. Process adjusted employment tax returns as follows:

    1. Input TC 291, HC 1, BS 20 and the appropriate IRN's for the amount of decrease.

      Note:

      Overpayments arising from adjustments made under these procedures are subject to offset. Omit Hold Code 1 with the adjustment and allow the computer to systemically offset the credit if it will be fully absorbed by an outstanding balance due. Otherwise, if conditions prevent the computer from completing the offset, or if only part of the credit needs to be offset, manual offsets using TC 820/TC 700 transactions will be required.

      Caution:

      For tax decreases with an unreversed FTD penalty, see (4) of IRM 20.1.4.21.5, Adjusted Returns (Forms 941-X, 943-X, 944-X, and CT-1X).

    2. Transfer the applicable overpayment using TC 830/710 to the period in which the Form 943-X was filed.

      Caution:

      To prevent either debit or credit interest from generating, use the later of the return due date of the tax period being adjusted or the availability date of the overpayment as the transaction date of the TC 830 and use the due date of the return the credit is being applied to as the transaction date of the TC 710. See IRM 21.5.8.4.3(3), Determining Correct Credit Transfer Format, for more information.

    3. If the entire credit is not available to be transferred, generate Letter 4384C to the taxpayer. Explain why the entire amount was not available (for example, there was a balance due on the tax period being adjusted or the credit is being offset to a balance due on another tax period).

Form 943-X Tax Decreases — Claim
  1. These tax decreases involve income tax withholding and/or FICA (including Additional Medicare Tax for tax periods beginning after December 31, 2012).

    Reminder:

    AEITC was legislatively eliminated for tax periods after 201012.

  2. Verify all required items on Form 943-X are complete, such as:

    • Name, address, and EIN

    • Calendar year being corrected

    • Box 2 in Part 1 is checked

    • Box 3 and the applicable certification is checked on line 5a, 5b, 5c or 5d in Part 2

    • Detailed explanation (see IRM 21.7.2.4.6 (11))

    • Signature

  3. If a certification box is not checked, make two attempts to secure the information by phone if a telephone number is available. Otherwise, follow procedures in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Use Letter 4384C to reject the claim and identify the missing information in the letter.

    Exception:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Caution:

    The individual contacted by phone must be authorized to prepare taxpayer's employment tax returns. Document the case history with the date, time, name of individual contacted, and information obtained from the individual.

    Exception:

    Claims filed without consent. If taxpayer has not checked a box on line 5 and states (in the explanation or in response to our contact) they are not required to obtain the consents prior to filing the claim and the claim is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , send claim CAT-A. Exam will correspond with the taxpayer to secure applicable certifications. In certain situations, taxpayers may not have repaid or reimbursed their employees or obtained their consents prior to filing a claim (Form 943-X). However, they must certify they have repaid or reimbursed their employees or obtained consents before the Service can accept the claim. See Instructions for Form 943-X for more information.

  4. A decrease in tax may meet examination criteria. See Exhibit 21.5.3–2 , Examination Criteria (CAT-A), for additional information.

  5. Math verify adjustments to income tax, social security tax, Medicare tax, and Additional Medicare Tax (AdMT).≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. Input TC 291, BS 20 and the appropriate IRN's for the amount of the decrease.

    Caution:

    For tax decreases with an unreversed FTD penalty, see (4) of IRM 20.1.4.21.5, Adjusted Returns (Forms 941-X, 943-X, 944-X, and CT-1X).

  7. If the entire credit is not available to be refunded to the taxpayer, generate Letter 4384C to the taxpayer explaining the discrepancy.

Form 943-X Tax Increases — Adjusted Employment Tax Return
  1. These tax increases involve income tax withholding and/or FICA tax (including Additional Medicare Tax for tax periods beginning after December 31, 2012).

    Reminder:

    AEITC was legislatively eliminated for tax periods after 201012.

  2. Verify all required items on Form 943-X are complete, such as:

    • Name, address, and EIN

    • Calendar year being corrected

    • Box 1 in Part 1 is checked

    • Box 3 is checked in Part 2

    • Detailed explanation (see IRM 21.7.2.4.6 (11))

    • Signature

    Note:

    See (3) and (4) of IRM 21.5.3.4.1, Tax Increase or Credit Decrease Processing, if the Form 943-X is missing required information. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. Check for the date the taxpayer discovered the error. If not entered on page 1, review the explanation to see if it was entered there.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , if the ascertained date is not provided and a telephone number is available, make two attempts to contact the taxpayer by phone to obtain the information. If the ascertained date cannot be obtained by phone, input the adjustment as a TC 290.

    Exception:

    If you receive a Form 943-X for the immediately preceding tax year prior to the due date for the current tax year (for example, a Form 943-X reporting a tax increase for tax year 2015 received on or before January 31, 2017), it is not necessary to contact the taxpayer for an ascertained date. In that situation, input a TC 298 with the applicable interest computation date. See IRM 21.7.2.4.6.2, Interest-Free Adjustments (Employment Tax Returns), for more information.

    Reminder:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. Math verify adjustments to income tax withholding, social security tax, Medicare tax, and Additional Medicare Tax (AdMT).≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. Use the table below to make your adjustment(s).

    If Then
    The Form 943-X was filed by the due date of the return for the period in which the taxpayer discovered the reporting error Input TC 298, BS 20, and the appropriate IRN's with the correct interest computation date (INTCMP-DT). See IRM 21.7.2.4.6.2 and example below for additional information.
    The Form 943-X was not filed by the due date of the return for the return period in which the error was ascertained or "date you discovered errors" was blank or the date error was discovered was not furnished in Part 4 Input TC 290 and the appropriate IRN's with BS 20.

    Example:

    An employer discovers an error on February 1, 2017 and files a Form 943-X which is received by the IRS on March 8, 2017 for the 11/201612 tax period. The interest computation date would be March 8, 2017.

  6. Adjust the FTD penalty when using either a TC 290 (see IRM 20.1.4.21.3, Amended or Supplemental (Tax Decrease or Non-Interest-Free Tax Increase)) or a TC 298 (see IRM 20.1.4.21.5, Adjusted Returns (Forms 941-X, 943-X, 944-X, and CT-1X)).

    Note:

    See IRM 20.1.4.21.5.1, Amended ROFTL (Forms 941-X, 943-X, 944-X, 945-X, and CT-1X), when using a TC 298 or TC 290 and an amended ROFTL was provided with the adjusted return.

  7. If payment for the additional tax reported on the Form 943-X is not reflected on the tax period being adjusted, research the taxpayer's account for the missing credit and, if located, transfer the payment as appropriate.

Form 944, Employer's ANNUAL Federal Tax Return

  1. Form 944 is the annual employment tax return for small employers. Instead of filing quarterly tax returns (Form 941), certain eligible employers file an annual tax return (Form 944).

  2. Form 944 is processed under MFT 14 and the tax class is "1" . The first tax year for which Form 944 could be filed was 2006.

    Caution:

    MFT 14 is also the MFT for Non-Master File (NMF) Form 8613, Return of Excise Tax on Undistributed Income of Regulated Investment Companies. When generating a "C" letter from a Form 944 account, make sure the letter contains the correct form number.

  3. The same filing, paying, and depositing options available for Form 941 are also currently available for Form 944.

  4. All penalties and interest applicable to Form 941 also apply to Form 944, including FTD penalties. Federal tax deposits are required for Form 944 filers who report tax of $2,500 or more.

  5. To qualify for the Form 944 program one of the following situations must apply:

    • The taxpayer is a new employer who expects to have $1,000 or less in employment tax liability for the calendar year.

    • The taxpayer is an existing employer who expects to have $1,000 or less in employment tax liability for the calendar year, contacts the Service to request to file Form 944 (rather than Form 941), and receives written notice from the Service to file Form 944.

    • The taxpayer was required to file Form 944 for the prior year and reported $1,000 or less in total tax liability.

    Note:

    Domestic employers will generally have $1,000 or less in employment tax liability if they pay wages of $4,000 or less in a year. Employers in U.S. possessions will generally have $1,000 or less in employment tax liability if they pay wages of $6,536 or less in a year.

  6. For tax years 2006 (the first program year) through 2008, the Service ran an extract to identify employers who were eligible for the Form 944 program. If the Service determined an employer was eligible for the program, it would send a notification letter to the employer. Employers who received notification letters were required to file Form 944 to report their social security, Medicare, and withheld federal income taxes for the calendar year unless the employer made a timely request to file Form 941 quarterly instead (to opt out) and received written confirmation that their filing requirement was changed. See archived files of this IRM if information is needed for the notification letters that were issued or handling that was applied to responses.

  7. For tax years after 2008, taxpayers will either self identify during EIN assignment or can contact the Service to request consideration (opt in) for the Form 944 program. The eligibility extract is no longer run.

  8. Generally, existing employers must contact the Service by phone not later than April 1 of the current year, or send a written request postmarked by March 15th to opt in or opt out of the Form 944 program. If the due date falls on a Saturday, Sunday, or legal holiday, the last day employers may call the Service or have their written correspondence postmarked is the next business day following that Saturday, Sunday, or legal holiday.

  9. Eligible new employers can notify the IRS on Form SS-4, Application for Employer Identification Number, that they would like to file Form 944 by checking the box on line 14 of this form. Alternately, they can opt in by contacting the IRS by phone not later than the first day of the month that the first required Form 941 for the current year is due or in written correspondence postmarked on or before the 15th day of the month before the first required Form 941 is due. If the due date falls on a Saturday, Sunday, or legal holiday, the last day employers may call the Service or have their written correspondence postmarked is the next business day following that Saturday, Sunday, or legal holiday.

  10. Prior to January 1, 2010, Form 944 filers could only opt out of the program (i.e., request to file Form 941 instead) if they estimated that their employment tax liability would exceed the $1,000 threshold during the tax year or if they wanted to e-file Forms 941 quarterly. For tax years beginning on or after January 1, 2010, Rev. Proc. 2009-51 allows employers to opt out of the Form 944 program for any reason so long as their request is timely made.

  11. Current procedures for addressing taxpayer inquiries regarding the Form 944 program (including associated letters and notices), as well as for processing Form 944 adjustment requests, are found in the following subsections.

Form 944 Cache
  1. Form 944 filing requirements are recorded and controlled by data contained in the "Form 944 Cache" . The "Form 944 Cache" is researched on the second page of CC BMFOLE and consists of a row of calendar years and a row of cache values corresponding to each calendar year. The Form 944 Cache displays the current calendar year, the following calendar year, and the preceding eight calendar years. Valid Form 944 Cache values are as follows:

    • "blank" : The employer is required to file Forms 941 for the calendar year, or no filing requirement determination has yet been made for the calendar year in question.

    • "1" : The employer is required to file Form 944 for the calendar year in question.

    • "2" : The employer is required to file Form 944 for the current calendar year but will be required to file Form 941 in the following calendar year. A cache value of "2" automatically updates to a cache value of "1" at the end of the current calendar year.

    Example:

    If CC BMFOLE for an employer reflects a F944 CACHE YRS: 2012 = "blank" , 2013 = "1" , 2014 = "1" , and 2015 = "2" , then the employer was required to file Forms 941 for 2012, Forms 944 for 2013 through 2015, and will be required to file Forms 941 for 2016.

  2. Forms 941 will not post to a calendar year for which the Form 944 Cache reflects a value of "1" or "2" . And, a Form 944 will not post to a calendar year for which the Form 944 Cache reflects a "blank" value. This is true regardless of the filing requirement displayed on CC ENMOD or CC BMFOLE which should reflect current filing requirements. It is therefore imperative that the Form 944 Cache on page 2 of BMFOLE be researched any time a taxpayer inquiry is received regarding Form 944 versus Form 941 filing requirements.

    Note:

    Form 944 Cache data is also displayed on CC ENMOD. However, it is not recommended that CC ENMOD be used for research purposes because the data is displayed as a string of values without a clear indication of corresponding calendar years.

  3. Throughout the following subsections there are instructions to change filing requirements when appropriate. Those references are in regards to changing Form 944 Cache values to reflect a Form 944 filing requirement or Form 941 filing requirement (as appropriate) for a particular calendar year via CC BNCHG rather than changing the separate filing requirement indicators which will display on CC ENMOD and CC BMFOLE. Changing filing requirement indicators without changing the Form 944 Cache value will have no impact on what type of return, Form 941 or Form 944, that the computer will allow to post to a given calendar year.

    • See the description of CC BNCHG element "F944-YR/IND" in Exhibit 2.4.9-13, BMF CC BNCHG General Format, for the input format of Form 944 Cache value changes.

    • The year for which the Form 944 Cache value is being changed must be input along with an indicator of "1" to turn on Form 944 requirements or "9" to turn off Form 944 requirements (as appropriate).

    • If the Form 944 Cache value of more than one year needs to be corrected, separate CC BNCHG inputs must be completed for each year.

Form 944 Program — Opt-In and Opt-Out Inquiries
  1. For tax years 2006 through 2008, the Service identified employers who were eligible for the Form 944 program via an extract. Notification letters were issued yearly on or around February 1st to newly eligible taxpayers. (Taxpayers who were already Form 944 filers did not receive another notification letter.) The notification letters instructed the taxpayer that they were required to file Form 944 and to contact the IRS for any questions, including requests to "opt out" of the program. See archived files of this IRM if information is needed about the notification letters that were previously issued or handling of responses.

    Note:

    For tax years 2006 through 2009, Form 944 filers could only opt out (i.e., request to file Form 941 instead) if they estimated that their employment tax liability would exceed the $1,000 threshold during the tax year or if they wanted to e-file Forms 941 quarterly.

  2. For tax years after 2008, the eligibility extract is no longer run to identify taxpayers eligible for the Form 944 program. Taxpayers who wish to participate in the program will either self identify during EIN assignment or can contact the Service to request consideration (opt in) for the Form 944 program.

  3. For tax years beginning on or after January 1, 2010, Rev. Proc. 2009-51 allows employers to opt out of the Form 944 program for any reason, but they must contact the Service by phone by April 1st of the year or send a written request postmarked by March 15th. If the due date falls on a Saturday, Sunday, or legal holiday, the last day employers may call the Service or have their written correspondence postmarked is the next business day following that Saturday, Sunday, or legal holiday.

  4. The chart below provides procedures for handling most opt-in and opt-out inquiries.

    If And Then
    Taxpayer with Form 944 filing requirements wishes to file Form 941 for the current year (opt-out) for any reason The taxpayer contact is on or before April 1 or is in correspondence postmarked by March 15th Change the filing requirement from Form 944 to Form 941 and issue Letter 3007C to confirm filing requirement change.
    Taxpayer with Form 944 filing requirements wishes to file Form 941 for the current year (opt-out) for any reason The taxpayer contact is after April 1 or is in correspondence postmarked after March 15th Instruct the taxpayer as follows:
    1. They must file Form 944 for the current year.

    2. If their Form 944 for the current year reports tax of $1,000 or more, they will be notified that they are no longer eligible to file Form 944.

    3. They should contact us again after the close of the current year but before April 1 if they want to opt-out of filing Form 944 for the following year.

    Exception:

    If the taxpayer is a new employer, see the last row of this table.

    Taxpayer states they are not required to file an employment tax return (no employees, etc.) An employment tax filing requirement is open Close the open employment tax filing requirement.

    Note:

    You must verify the date the last wages were paid.

    Existing Form 941 filer (or existing taxpayer with no current employment tax filing requirement) wants to file Form 944 The taxpayer contact is on or before April 1 or is in correspondence postmarked by March 15th Review the taxpayer's Form 941 accounts for the current and preceding tax years.
    • If the tax reported for the preceding year is $1,000 or less, change filing requirement from Form 941 to Form 944 and issue Letter 3007C to confirm filing requirement change.

    • If the tax reported for the preceding year is more than $1,000, inform the taxpayer that they must file Form 941 for the current year and can request to file Form 944 for the following year if they meet eligibility requirements and contact us after the close of the year but before April 1.

    Note:

    If the tax for the preceding year was slightly over $1,000 and account analysis indicates a decreasing tax liability, the first bullet above can be followed. However, use caution when considering this action.

    Existing Form 941 filer (or existing taxpayer with no current employment tax filing requirement) wants to file Form 944 The taxpayer contact is after April 1 or is in correspondence postmarked after March 15th Instruct the taxpayer as follows that they must file Form 941 for the current year and to contact us again after the close of the current year but before April 1 if they want to file Form 944 for the following year.
    Taxpayer states they are a new employer and believe their liability will not exceed $1,000 for the year and want to file Form 944 It is any time during the year Research CC ENMOD. If CC ENMOD shows no filing requirement prior to the current year, establish filing requirements for Form 944 (delete Form 941 filing requirements if applicable) and issue 3007C letter to taxpayer.
    The taxpayer is a new employer that received a CP 575 stating they have Form 944 filing requirements and wants to file Form 941 instead because they expect to exceed the $1,000 threshold for the year ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Change the filing requirement from Form 944 to Form 941 and issue Letter 3007C to confirm filing requirement change.

    Caution:

    Any time the filing requirements are changed per the above instructions, it is necessary to consider all payments previously made for the current tax year. If payments have been applied to MFT 01 for tax that will be reported on MFT 14, or if payments have been applied to MFT 14 for tax that will be reported on MFT 01, transfer those payments to the appropriate tax account and tax period.

    Note:

    Do not change the filing requirement to Form 944 for any taxpayer that has a tax period in the preceding tax year which is in MasterFile status 02 or 03 (TDI status).

    Reminder:

    Always research the "Form 944 Cache" when addressing taxpayer contacts regarding Form 944 filing requirements. See IRM 21.7.2.4.9.1, Form 944 Cache, for more information on researching the "Form 944 Cache" and changing filing requirements to and from Form 944.

  5. If the taxpayer requests immediate confirmation of a filing requirement change made per the instructions in (4) above and the taxpayer will accept a hand written faxed document, notate on approved IRS fax cover sheet and sign statement indicating the taxpayer's request for filing requirement change has been made. Make sure the filing requirement change is made prior to closing the call.

    Caution:

    If faxing an acknowledgement, refer to IRM 11.3.1.11, Facsimile Transmission of Tax Information, for proper faxing guidance.

  6. Chief Counsel has determined that Reporting Agents (RA) are not permitted to request to "opt out" of the Form 944 program on behalf of their clients. Do not change filing requirements based on a request from an RA unless the RA also has a valid Power of Attorney (POA) (i.e. Form 2848) either on file or that can be faxed to us. Third Party PIN designees are also not authorized to "opt out" of the Form 944 program for the taxpayer.

Form 944 — CP Notices and Letters
  1. There are three CP notices that may be issued to employers informing them of changes to their filing requirements based on the taxes reported on their most recently processed Form 944.

    • CP 250A — See IRM 21.7.2.4.9.3.1, CP 250A

    • CP 250B — See IRM 21.7.2.4.9.3.2, CP 250B

    • CP 250C — See IRM 21.7.2.4.9.3.3, CP 250C

  2. There are also three "C" letters used for Form 944 filing requirement issues:

    • Letter 3007C — Issued when changing filing requirement to or from Form 944. Instructions for sending and considering this Letter 3007C are found throughout these procedures for Form 944 issues and in IRM 21.7.2.4.9.3.4, Taxpayer Files Form 944 or Form 941 in Error — Letter 4148C/4086C/3007C Responses.

    • Letter 4148C — Issued when a taxpayer files a Form 941 but is instead required to file Form 944. See IRM 21.7.2.4.9.3.4Taxpayer Files Form 944 or Form 941 in Error — Letter 4148C/4086C/3007C Responses.

    • Letter 4086C — Issued when a taxpayer files a Form 941 but is instead required to file Form 944. See IRM 21.7.2.4.9.3.4Taxpayer Files Form 944 or Form 941 in Error — Letter 4148C/4086C/3007C Responses.

    Reminder:

    Always research the "Form 944 Cache" when addressing taxpayer contacts regarding Form 944 filing requirements. See IRM 21.7.2.4.9.1, Form 944 Cache, for more information on researching the "Form 944 Cache" and changing filing requirements to and from Form 944.

CP 250A
  1. CP 250A is issued to taxpayers who filed Form 944 with a total reported tax liability of more than $1,000 on line 7 and the Form 944 was posted in cycle 09 or earlier.

  2. The notice instructs the taxpayer that they are no longer eligible to file Form 944 and that Form 941 must be filed quarterly for the current year. The notice also informs the taxpayer that they may be required to make federal tax deposits as appropriate.

  3. The Form 944 Cache on CC BMFOLE will continue to reflect a value of "1" for the prior tax year when a CP 250A is issued to show they were eligible to file Form 944 for that tax year. However, the current year Cache value will be blank and the filing requirements will be changed to Form 941 to show that the taxpayer is no longer eligible for the Form 944 program.

  4. Follow the chart below for inquiries from taxpayers who received CP 250A.

    If Then
    The taxpayer states they want to remain in the Form 944 program and will not exceed the $1,000 threshold in the current year Verify with the taxpayer that they will in fact have a total tax liability of $1,000 or less for the current year. If the explanation provided is reasonable , allow the taxpayer to remain in the Form 944 program.
    1. Change the filing requirement to Form 944.

    2. Issue Letter 3007C to the taxpayer for verification of filing requirement change.

    3. Instruct the taxpayer of their deposit requirements.

    Note:

    Taxpayers may have exceeded the $1,000 threshold for many reasons (for example, the taxpayer corrected an administrative error from a prior year or a unique situation occurred in the preceding tax year that will not recur in the current year). However, if doubt exists do not allow the taxpayer to change back to Form 944 filing requirements for the current year.

    The taxpayer states they want to remain in the Form 944 program even though they will again exceed the threshold in the current year Instruct the taxpayer that they are not eligible for the Form 944 program and must file Form 941 for the current year.

    Reminder:

    Always research the "Form 944 Cache" when addressing taxpayer contacts regarding Form 944 filing requirements. See IRM 21.7.2.4.9.1, Form 944 Cache, for more information on researching the "Form 944 Cache" and changing filing requirements to and from Form 944.

CP 250B
  1. CP 250B is issued to taxpayers who filed Form 944 with a total reported tax liability on line 7 of more than $1,000 and the Form 944 was posted in cycles 10 through 49.

  2. The notice instructs the taxpayer that:

    • They must file Form 944 for the current year.

    • They may be required to make federal tax deposits as appropriate for the current year.

    • They will not be eligible to file Form 944 for the following tax year and that Form 941 must be filed quarterly for the following tax year.

    Note:

    Taxpayers that receive CP 250B in the current year will also receive a CP 250C later in the year reminding them that they must file Form 941 quarterly for the following year. See IRM 21.7.2.4.9.3.3, CP 250C, for more information.

  3. The Form 944 Cache on CC BMFOLE will initially reflect a value of "2" when a CP 250B is issued because a Form 944 posted in cycles 10 through 49 and the tax reported exceeds the $1,000 threshhold. This cache value allows the computer to correctly identify taxpayers who should be sent CP 250C at the end of the year. Once the CP 250C is issued, the cache value will update for the year in which the CP 250B was issued from "2" to "1" .

    Example:

    Taxpayer filed Form 944 for 201612 which posted after cycle 09 (in 2017) and reported a tax liability of more than $1,000 (taxpayer will receive CP 250B). The "Form 944 Cache" for tax year 2017 is set to "2" when the 2016 return posts and will remain that value until the end of the year when MasterFile generates a CP 250C reminder notice to the taxpayer regarding their Form 941 filing requirement for 2018. At that time, the "2" cache value for 2017 will change to a "1" and the taxpayer's filing requirement will be changed to Form 941 for tax year 2018.

  4. Follow the chart below for inquiries from taxpayers who received CP 250B.

    If And Then
    Taxpayer states they wish to file Form 941 for the current year It is April 1 or prior (or postmarked on or before March 15th for written responses) Allow the taxpayer to file Form 941 for the current year.
    1. Change the filing requirement to Form 941.

    2. Issue Letter 3007C to the taxpayer for verification of filing requirement change.

    3. Inform taxpayer of their deposit requirements and Form 941 due dates.

    4. Verify that all applicable deposits are transferred to the Form 941 account.

    Taxpayer states they wish to file Form 941 for the current year It is after April 1 (or postmarked after March 15th for written responses) Instruct the taxpayer they must file Form 944 for the current year and that they will be required to file Form 941 quarterly for the following year.
    Taxpayer contacts us in the current year and states they wish to remain in the Form 944 program for the following tax year Inform the taxpayer that we cannot consider their request until they file their Form 944 for the current year. Instruct the taxpayer to contact us again once they have filed their Form 944 for the current year but not later than April 1 of the following year.
    Taxpayer contacts us in the year following the issuance of the CP 250B and states they wish to remain in the Form 944 program for that year The taxpayer reported a tax liability of $1,000 or less on the Form 944 filed for the year in which the CP 250B and it is April 1 or prior (or postmarked on or before March 15th for written responses) Allow the taxpayer to remain in the Form 944 program.
    1. Change the filing requirement for the current year to Form 944.

    2. Issue Letter 3007C to the taxpayer for verification of filing requirement change.

    3. Instruct the taxpayer of their deposit requirements.

    Taxpayer contacts us in the year following the issuance of the CP 250B and states they wish to remain in the Form 944 program for that year The taxpayer reported a tax liability of more than $1,000 on the Form 944 filed for the year in which the CP 250B was issued or it is after April 1 (or postmarked after March 15th for written responses) Instruct the taxpayer that they are not eligible for the Form 944 program for the current year and must file Form 941.

    Note:

    If the due date falls on a Saturday, Sunday, or legal holiday, the last day employers may call the Service or have their written correspondence postmarked is the next business day following that Saturday, Sunday, or legal holiday.

    Reminder:

    Always research the "Form 944 Cache" when addressing taxpayer contacts regarding Form 944 filing requirements. See IRM 21.7.2.4.9.1, Form 944 Cache, for more information on researching the "Form 944 Cache" and changing filing requirements to and from Form 944.

    Note:

    If you receive an inquiry from a taxpayer stating they filed their Form 944 and it exceeds the $1,000 threshold and the return has not posted, do not change the filing requirement. Allow the Form 944 to post and the taxpayer will either receive a CP 250A or CP 250B, depending on when the 944 posts. Instruct the taxpayer to respond to the notice at that time.

CP 250C
  1. CP 250C is generated in cycle 52 and is issued to taxpayers who:

    • Received a CP 250B earlier in the year; or,

    • Filed a Form 944 reporting more than $1,000 in total tax liability which posted after cycle 49 of the current calendar year. (Due to the timing involved, these taxpayers will receive a CP 250C but not a CP 250B,)

  2. The notice instructs the taxpayer that they are no longer eligible to file Form 944 and that Form 941 must be filed quarterly for the current year. The notice also informs the taxpayer that they may be required to make federal tax deposits as appropriate.

  3. Follow the chart below for inquiries from taxpayers who received CP 250C.

    If And Then
    The taxpayer states they want to remain in the Form 944 program for the current year It is April 1 or prior Follow the procedures for CP 250A responses provided in the table in IRM 21.7.2.4.9.3.1 (4).
    The taxpayer states they want to remain in the Form 944 program for the current year It is after April 1 Instruct the taxpayer that they are not eligible for the Form 944 program and must file Form 941 for the current year.

    Reminder:

    Always research the "Form 944 Cache" when addressing taxpayer contacts regarding Form 944 filing requirements. See IRM 21.7.2.4.9.1, Form 944 Cache, for more information on researching the "Form 944 Cache" and changing filing requirements to and from Form 944.

Taxpayer Files Form 944 or Form 941 in Error — Letter 4148C/4086C/3007C Responses
  1. If a taxpayer files a Form 941 in a calendar year in which they are designated as a Form 944 filer, the Form 941 unposts (Unpostable Code (UPC) 329 Reason Code (RC) 6). Similarly, if a taxpayer files a Form 944 for a year in which they are designated to file Form 941, the Form 944 will unpost (also UPC 329 RC 6).

    Reminder:

    See IRM 21.7.2.4.9.1, Form 944 Cache, for information on researching the taxpayer's filing requirement.

  2. BMF Entity Unpostables uses an IAT tool to resolve these unposted returns. In most situations, the IAT tool resolves the unpostable based on recorded Form 944 Cache data as of when the tool is run:

    • If the 944 Cache was updated to match the form filed after it unposted and before the tool is run, the tool will take action to accept the return as filed.

    • On the other hand, if the unposted return is not compatible with the 944 Cache value, the tool generally initiates action to delete the return and generates a letter informing the taxpayer of the correct return to be filed for the tax year in question.

    Note:

    The IAT tool in question includes programming to reapply tax deposits appropriately for those unpostable cases on which it is run.

  3. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ The role of Accounts Management employees working taxpayer inquiries addressed in IRM 21.7.2 procedures is generally to advise the taxpayer as to the correct tax return to be filed based on the current filing requirement reflected in the Form 944 Cache as of when the inquiry is worked. Procedures which follow below also allow for changes to filing requirements based on taxpayer responses to letters issued by the IAT tool in the limited circumstances described.

  4. The IAT tool used by Entity Unpostables is programmed to issue the following letters:

    • Letter 4148C is used by the tool to inform taxpayers who filed Form 941 in error that they must file Form 944 annually.

    • Letter 4086C is used by the tool to inform taxpayers who filed Form 944 in error that they must file Form 941 quarterly.

    • Letter 3007C may also be used by the tool in certain circumstances to inform taxpayers who filed either Form 941 or Form 944 that their return was accepted for processing. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. If you receive an inquiry concerning Letter 4148C, follow the procedures below:

    If And Then
    Taxpayer states that they opted out of the Form 944 program by the April 1st deadline

    Note:

    Taxpayer must have submitted a written request and/or made contact via phone and the request was not processed. Accept the taxpayer's word.

    The filing requirement was not changed to Form 941 and the 944 Cache is set to the current year and request is received in the current year

    Example:

    Taxpayer is required to file Form 944 in 2015 and the request is received in 2015.

    Allow the taxpayer to continue to file Form 941.
    1. Request the originally filed return from Files using the DLN (Document Locator Number) of the unpostable/rejected TC 150. If you are not able to secure the originally filed return, request a signed copy of the originally filed Form 941 from the taxpayer, via fax. (See NOTE below table.)

    2. Change the filing requirement to Form 941.

    3. Send Letter 3007C to confirm filing requirement change, even if resulting from a phone call.

    4. Transfer all applicable deposits to the Form 941 account.

    5. Send Form 941, secured from Files, for processing as the original. (If you are unable to secure the original return from Files and must use a faxed return, edit the received date on faxed forms to reflect a timely filed return. See Note below table.)

    Exception:

    If you are staffing the toll-free telephone lines at a remote call site, do not follow steps 1-5 above; instead complete Form 4442/e-4442 and route to the Campus AM account paper function within your Directorate or designated campus. Include the DLN of the unpostable/Rejected TC 150 on the Form 4442.

    Taxpayer states they opted out of the 944 program by the April 1st deadline The filing requirement was not changed to Form 941 and the 944 Cache is set to the current year and request is received in a subsequent year

    Example:

    Taxpayer is required to file Form 944 in 2015 and a request is received in 2016.

    DO NOT change the filing requirement. Explain to the taxpayer they must file a Form 944 for the year in question because we are not able to change the 944 filing requirement in a subsequent year.
    Taxpayer did not opt out of the 944 program by April 1st DO NOT change the taxpayer's filing requirement to Form 941.
    1. Instruct the taxpayer that they must file Form 944 and deposit accordingly.

    2. Input history items (via CC ACTON) to document that the taxpayer did not opt out and must file Form 944.

    3. Ensure all applicable deposits are applied to the 944 account.

    4. Advise taxpayer that if they file a timely Form 944 and exceed the $1,000 annual threshold, they will be notified that they are required to file a Form 941 for the next year.

    Taxpayer cites any other extenuating circumstances Refer to your manager/lead for approval.

    Reminder:

    Always research the "Form 944 Cache" when addressing taxpayer contacts regarding Form 944 filing requirements. See IRM 21.7.2.4.9.1, Form 944 Cache, for more information on researching the "Form 944 Cache" and changing filing requirements to and from Form 944.

    Note:

    If the unpostable/rejected DLN of the Form 941 is not available on IDRS, the Letter 4148C contains the DLN of the unprocessed return and can be used to request the return from Files. If you secure the originally filed return from Files and are forwarding to be processed as the original, cross out the DLN and make sure the received date is on the return.

    Reminder:

    Only the taxpayer or their authorized representatives may "opt out" of the Form 944 program. Chief Counsel has determined that Reporting Agents are not permitted to "opt out" of the program on behalf of their clients. Do not change filing requirements based on a request from an RA unless the RA also has a valid Power of Attorney (POA) (i.e. Form 2848) either on file or that can be faxed to us. Third Party PIN designees are also not authorized to "opt out" of the Form 944 program for the taxpayer.

    Reminder:

    If the taxpayer's filing requirement is changed based on a 4148C reply, be sure to secure any missing returns (not already filed) that need to be filed. If the taxpayer has missing Forms 941, secure the returns, preferably by fax. Once returns are received, forward for processing with the actual received date.

  6. Letter 4086C responses are not common. And, the letter will generally only be issued after the close of the tax year when it is too late to opt in to the Form 944 program. If a taxpayer responds to a 4086c and states they wish to file Form 944 instead of Form 941 for the tax year in question, do not change the filing requirement to Form 944 unless the taxpayer provides a copy of a written notification from the Service (i.e. Letter 3007C) instructing the taxpayer to file Form 944 for that tax year or there is clear documentation in the IRS records that a timely request to opt-in was made but failed to be properly acted upon by the Service.

  7. Letter 3007C responses are usually received by the Service as documentation from the taxpayer to support their position with regards to filing requirements. Procedures for those cases are found throughout subsections of IRM 21.7.2.4.9. However, if the taxpayer is disputing the content of a 3007C letter, contact the IRM author through the campus P & A Staff for guidance on resolving the case.

Form 944-X — Adjusted Employer's ANNUAL Federal Tax Return or Claim for Refund (including Form 944-X (PR) and 944-X (SP))
  1. Form 944-X (Form 944-X (PR)) is filed to correct income tax withholding and/or FICA tax information (including Additional Medicare Tax for tax periods beginning after December 31, 2012) previously reported on Form 944, Form 944-SS, Form 944(SP), or Form 944-PR. Taxpayers can choose to either file:

    • An adjusted employment tax return, or

    • A claim

    Note:

    If the taxpayer does not check a box in Part 1 (or checks both boxes) and the Form 944-X reflects a tax decrease, make two attempts to contact the taxpayer by phone (if a telephone number is available) to determine whether they intended to follow the adjustment process or the claim process. If unable to contact the taxpayer by phone, verify which set of certification box(es) were checked. If the taxpayer checked the adjustment certification(s) or checked both the adjustment certification(s) and the claim certification(s), process as an adjusted employment tax return. If the taxpayer checked only the claim certification(s), process as a claim for refund.

    Reminder:

    When contacting the taxpayer or authorized representative, follow taxpayer authentication guidelines in IRM 21.1.3, Operational Guidelines Overview.

  2. Taxpayers are required to certify on Form 944-X that they have filed or will file Forms W-2, or Forms W-2c, as required. They must also complete the applicable certification box based on their selection in Part 1 of Form 944-X.

    Example:

    If taxpayer checks box 1 in Part 1, then they must check the applicable certification box(es) in line 4. If taxpayer checks box 2 in Part 1, then they must check the applicable certification box(es) in line 5.

    Note:

    If the certification box checked in Part 2 is inconsistent with the process selected in Part 1, continue processing the Form 944-X based on the information provided in Part 1.

  3. Refer to the table below for valid item reference numbers for Form 944-X.

    Item Reference Number Explanation
    111 Federal income tax withheld from wages, tips, and other compensation (line 7 of Form 944-X - column 4).
    004 Taxable social security wages (line 8 of Form 944-X - column 3 plus line 14 of Form 944-X - column 3).
    005 Taxable social security tips (line 9 of Form 944-X - column 3).
    073 Taxable Medicare wages and tips (line 10 of Form 944-X - column 3 plus line 15 of Form 944-X - column 3).
    074 Taxable Wages & tips subject to Additional Medicare Tax withholding (valid for tax periods beginning after December 31, 2012) (line 11 of Form 944-X - column 3 plus line 16 of Form 944-X - column 3).
    112 Total social security, Medicare tax, and Additional Medicare Tax (for tax periods beginning after December 31, 2012).
    106 Tax adjustments (line 12 of Form 944-X - column 4).
    104 Income tax withheld figured at IRC Section 3509 tax rate on Special addition to wages for federal income tax (line 13 of Form 944-X - column 4).
    105 Social security, Medicare taxes, and (for tax periods beginning after December 31, 2012) Additional Medicare taxes figured at IRC Section 3509 tax rates on Special addition to wages for social security taxes, Special addition to wages for Medicare taxes, and Special addition to wages for Additional Medicare Tax (total of lines 14, 15, and 16 from Form 944-X - column 4).
    113 Total adjustments (total of lines 12, 13, 14, 15 and 16 of Form 944-X - column 4).

    Reminder:

    IRN 113 must be used when adjusting IRNs 104 through 106.

    Credit Reference Numbers (CRN)
    299 COBRA premium assistance payments (line 18a of Form 944-X - column 4).

    Caution:

    Form 944-X is revised on a regular basis and line numbers for particular adjustment items occasionally change. However, there is no requirement for the taxpayer to use the most current version of Form 944-X. Although line numbers are provided in the table above for easy reference, employees are responsible for ensuring the proper adjustment action is taken based on the form version filed by the taxpayer.

    Note:

    See IRM 21.7.2.4.1 for additional requirements with specific item reference numbers.

    Note:

    Lines for HIRE Act related adjustment items have been removed from the current Form 941-X version. See IRM 21.7.2.5.20.1, Adjusting the Account — HIRE if information is needed regarding adjustments for HIRE Act items on tax year 2010 (only).

    Reminder:

    AEITC was legislatively eliminated for tax periods after 201012. Lines for this adjustment item have been removed from the current Form 941-X version. See IRM 21.7.2.4.3, Advance Earned Income Tax Credit (AEITC) — Form 941, Form 943, Form 944, and Schedule H, if information is needed regarding adjustments for AEITC on tax periods 201012 and earlier.

    Caution:

    Although CRN 290 is valid for MFT 14, this credit cannot be claimed or adjusted by filing a Form 944-X. This credit is only allowed during the processing of Forms 5884-C. See IRM 21.7.2.5.22, Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, for more information.

  4. Line 1 of Form 944, wages tips and other compensation, is the equivalent of Line 2 on Form 941. The same considerations and adjustment procedures discussed in IRM 21.7.2.4.7.2, Line 2, Form 941, apply to adjustments to Line 1 of Form 944 reported on Form 944-X.

Form 944-X Decreases — Adjusted Employment Tax Return
  1. These tax decreases involve income tax withholding and/or FICA (including Additional Medicare Tax for tax periods beginning after December 31, 2012).

    Reminder:

    AEITC was legislatively eliminated for tax periods after 201012.

  2. Verify all required items on Form 944-X are complete, such as:

    • Name, address, and EIN

    • Type of return being corrected

    • Calendar year being corrected

    • Box 1 in Part 1 is checked

    • Box 3 and the applicable certification is checked on line 4a, 4b or 4c in Part 2

    • Detailed explanation (see IRM 21.7.2.4.6 (11))

    • Signature

  3. If a certification box is not checked, make two attempts to secure the information by phone if a telephone number is available. Otherwise, follow procedures in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Use Letter 4384C to reject the claim and identify the missing information in the letter.

    Exception:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Caution:

    The individual contacted by phone must be authorized to prepare taxpayer's employment tax returns. Document the case history with the date, time, name of individual contacted, and information obtained from the individual.

  4. If a taxpayer files an adjusted employment tax return within 90 days of the expiration of the period of limitations, the adjustment must be converted to a claim for refund and the taxpayer must be notified. Take the following actions:

    1. Notate the Form 944-X with the following text: "90 day - Claim" .

    2. Process the Form 944-X per procedures in IRM 21.7.2.4.9.4.2, Form 944-X Decreases — Claim, and refer to IRM 21.7.2.4.6.5, 90 Day — Claim, for additional information.

    3. Generate Letter 4384C to the taxpayer explaining the adjustment has been converted to a claim.

  5. A decrease in tax may meet examination criteria. See Exhibit 21.5.3–2 , Examination Criteria (CAT-A), for additional information.

  6. Math verify adjustments to income tax, social security tax, Medicare tax, and Additional Medicare Tax (AdMT).≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  7. Process adjusted employment tax returns as follows:

    1. Input TC 291, HC 1, BS 20 and the appropriate IRN's for the amount of decrease.

      Note:

      Overpayments arising from adjustments made under these procedures are subject to offset. Omit Hold Code 1 with the adjustment and allow the computer to systemically offset the credit if it will be fully absorbed by an outstanding balance due. Otherwise, if conditions prevent the computer from completing the offset, or if only part of the credit needs to be offset, manual offsets using TC 820/TC 700 transactions will be required.

      Caution:

      For tax decreases with an unreversed FTD penalty, see (4) of IRM 20.1.4.21.5, Adjusted Returns (Forms 941-X, 943-X, 944-X, and CT-1X).

    2. Transfer the applicable overpayment using TC 830/TC 710 to the period in which the Form 944-X was filed.

      Caution:

      To prevent either debit or credit interest from generating, use the later of the return due date of the tax period being adjusted or the availability date of the overpayment as the transaction date of the TC 830 and use the due date of the return the credit is being applied to as the transaction date of the TC 710. See IRM 21.5.8.4.3(3), Determining Correct Credit Transfer Format, for more information.

    3. If the entire credit is not available to be transferred, generate Letter 4384C to the taxpayer. Explain why the entire amount was not available (for example, there was a balance due on the tax period being adjusted or the credit is being offset to a balance due on another tax period).

  8. If the taxpayer's filing requirement has changed from Form 944 to Form 941 or vice versa, the credit will be transferred to the filing requirement that was active for the period in which the adjusted return was filed.

Form 944-X Decreases — Claim
  1. These tax decreases involve income tax withholding and/or FICA tax (including Additional Medicare Tax for tax periods beginning after December 31, 2012).

    Reminder:

    AEITC has been legislatively eliminated for tax periods after 201012.

  2. Verify all required items on Form 944-X are complete, such as:

    • Name, address, and EIN

    • Type of return being corrected

    • Calendar year being corrected

    • Box 2 in Part 1 is checked

    • Box 3 and the applicable certification is checked on line 5a, 5b, 5c or 5d in Part 2

    • Detailed explanation (see IRM 21.7.2.4.6 (11))

    • Signature

  3. If a certification box is not checked, make two attempts to secure the information by phone if a telephone number is available. Otherwise, follow procedures in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Use Letter 4384C to reject the claim and identify the missing information in the letter.

    Exception:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Caution:

    The individual contacted by phone must be authorized to prepare taxpayer's employment tax returns. Document the case history with the date, time, name of individual contacted, and information obtained from the individual.

    Exception:

    Claims filed without consent. If taxpayer has not checked a box on line 5 and states (in the explanation or in response to our contact) they are not required to obtain the consents prior to filing the claim and the claim is ≡ ≡ ≡ ≡ ≡ ≡ ≡ , send claim CAT-A. Exam will correspond with the taxpayer to secure applicable certifications. In certain situations, taxpayers may not have repaid or reimbursed their employees or obtained their consents prior to filing a claim (Form 944-X). However, they must certify they have repaid or reimbursed their employees or obtained consents before the Service can accept the claim. See Instructions for Form 944-X for more information.

  4. A decrease in tax may meet examination criteria. See Exhibit 21.5.3–2 , Examination Criteria (CAT-A) — General, for additional information.

  5. Math verify adjustments to income tax, social security tax, Medicare tax, and Additional Medicare Tax (AdMT).≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  6. Input TC 291, BS 20 and the appropriate IRN's for the amount of the decrease.

    Caution:

    For tax decreases with an unreversed FTD penalty, see (4) of IRM 20.1.4.21.5, Adjusted Returns (Forms 941-X, 943-X, 944-X, and CT-1X).

  7. If the entire credit is not available to be refunded to the taxpayer, generate Letter 4384C to the taxpayer explaining the discrepancy.

Form 944-X Increases — Adjusted Employment Tax Return
  1. These tax increases involve income tax withholding and/or FICA tax (including Additional Medicare Tax for tax periods beginning after December 31, 2012).

    Reminder:

    AEITC was legislatively eliminated for tax periods after 201012.

  2. Verify all required items on Form 944-X are complete, such as:

    • Name, address, and EIN

    • Type of return being corrected

    • Calendar year being corrected

    • Box 1 in Part 1 is checked

    • Box 3 is checked in Part 2

    • Detailed explanation (see IRM 21.7.2.4.6 (11))

    • Signature

    Note:

    See (3) and (4) of IRM 21.5.3.4.1, Tax Increase or Credit Decrease Processing, if the Form 944-X is missing required information. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. Check for the date the taxpayer discovered the error. If not entered on page 1, review the explanation.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , if the ascertained date is not provided and a telephone number is available, make two attempts to contact the taxpayer by phone to obtain the information. If the ascertained date cannot be obtained by phone, input the adjustment as a TC 290.

    Exception:

    If you receive a Form 944-X for the immediately preceding tax year prior to the due date for the current tax year (for example, a Form 944-X reporting a tax increase for tax year 2015 received on or before January 31, 2017), it is not necessary to contact the taxpayer for an ascertained date. In that situation, input a TC 298 with the applicable interest computation date. See IRM 21.7.2.4.6.2, Interest-Free Adjustments (Employment Tax Returns), for more information.

    Reminder:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. Math verify adjustments to income tax withholding, social security tax, Medicare tax, and Additional Medicare Tax (AdMT).≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. Use the table below to make your adjustment(s).

    If Then
    Return is filed by the due date of the return for the period in which the taxpayer discovered the reporting error Input TC 298, BS 20 and the correct interest computation date (INTCMP-DT). See IRM 21.7.2.4.6.2 and example below for additional information.
    Return is not filed by the due date of the return for the return period in which the error was ascertained or "date you discovered errors" was blank or the date error was discovered was not furnished in Part 4 Input TC 290 with BS 20.

    Example:

    An employer discovers an error on February 1, 2016 and files a Form 944-X which is received by the IRS on March 1, 2016 for the 14/201512 tax period. The interest computation date would be March 1, 2016.

  6. Adjust the FTD penalty when using either a TC 290 (see IRM 20.1.4.21.3, Amended or Supplemental (Tax Decrease or Non-Interest-Free Tax Increase)) or a TC 298 (see IRM 20.1.4.21.5, Adjusted Returns (Forms 941-X, 943-X, 944-X, and CT-1X)).

    Note:

    See IRM 20.1.4.21.5.1, Amended ROFTL (Forms 941-X, 943-X, 944-X, 945-X, and CT-1X), when using a TC 298 or TC 290 and an amended ROFTL was provided with the adjusted return.

  7. Be sure any payments are credited to period(s) where the tax is being assessed.

Form 945, Annual Return of Withheld Federal Income Tax

  1. Form 945, Annual Return of Withheld Federal Income Tax, must be filed to report backup withholding (BUWH) and income tax withheld from non-payroll items, such as:

    • Pensions

    • Annuities

    • IRA's

    • Military retirement

    • Gambling winnings

    • Indian Gaming Profits

    Note:

    As a general rule, all income tax withholding and BUWH (backup withholding) reported on Forms 1099 or W-2G must be reported on Form 945.

  2. Form 945 is an annual return due January 31 following the close of the calendar year.

    Exception:

    The return due date for Form 945 is extended 10 days if timely deposits are made which full pay the amount of tax reported.

  3. A taxpayer is required to file Form 945 only for a calendar year in which the taxpayer is required to withhold tax required to be reported on Form 945.

  4. The threshold for making deposits for Form 945 is $2,500. Form 945 tax deposit requirements are separate from Form 941. They cannot be combined. Taxpayers follow either semi-weekly or monthly deposit schedules determined by the Form 945 lookback period. See IRM 20.1.4, Failure to Deposit Penalty.

  5. Forms 945 are recorded on MFT 16 and the tax class is 1.

  6. Valid IRN's for Form 945 are 003 (federal income tax withheld) and 008 (BUWH).

    Note:

    IRN 184 (adjustment of withheld income tax) was valid for Form 945 for tax periods 199512 through 200812.

Form 945-X — Adjusted Annual Return of Withheld Federal Income Tax or Claim for Refund
  1. Form 945-X is filed to correct income tax withholding and/or BUWH information previously reported on Form 945. Taxpayers can choose to either file:

    • An adjusted return of withheld federal income tax, or

    • A claim

    Note:

    If the taxpayer does not check a box in Part 1 (or checks both boxes) and the Form 945-X reflects a tax decrease, make two attempts to contact the taxpayer by phone (if a telephone number is available) to determine whether the they intended to follow the adjustment process or the claim process. If unable to contact the taxpayer by phone, process as an adjusted employment tax return.

    Reminder:

    When contacting the taxpayer or authorized representative, follow taxpayer authentication guidelines in IRM 21.1.3, Operational Guidelines Overview.

  2. Adjustments on Form 945-X can only be made if they are the result of an administrative error.

    1. See IRM 21.7.2.4.6.3.1 for more information on administrative errors.

    2. Even if income tax or BUWH was erroneously withheld, it cannot be corrected in a subsequent year. This includes erroneous withholding on IRA's.

    3. The amount withheld must be reported on Form 945-X under the same EIN as was actually used to do the withholding. Withholding amounts cannot be transferred or delegated to different EIN's, unless such action involves a successor employer.

    Example:

    The mutual fund industry has an "industry practice" involving transfer agents where one agent has control of an account and withholds taxes for part of the year. Another agent may take control of the account and withhold taxes for the remainder of the year. The industry practice is for the agent in control of the account at the end of the year to report all taxes withheld. This CANNOT be done. Each agent must report and deposit the amount of tax withheld under their own EIN and issue a Form 1099. Any requests for adjustments involving this practice must be denied. Input TC 290 .00 in block 98 (without return) or 99 (with return) and issue Letter 105C or 106C as appropriate.

  3. Item reference numbers valid for Form 945-X are 003 and/or 008.

Form 945-X Decreases — Adjusted Employment Tax Return
  1. These tax decreases involve income tax withholding and/or BUWH.

  2. Verify all required items on Form 945-X are complete, such as:

    • Name, address, and EIN

    • Calendar year being corrected

    • Box 1 in Part 1 is checked

    • Detailed explanation (see IRM 21.7.2.4.6 (11))

    • Signature

  3. If a taxpayer files an adjusted employment tax return within 90 days of the expiration of the period of limitations, the adjustment must be converted to a claim for refund and the taxpayer must be notified. Take the following actions:

    1. Notate the Form 945-X with the following text: "90 day - Claim" .

    2. Process the Form 945-X per procedures in IRM 21.7.2.4.10.1.2, Form 945-X Decreases — Claim, and refer to IRM 21.7.2.4.6.5, 90 Day — Claim, for additional information.

    3. Generate Letter 4384C to the taxpayer explaining the adjustment has been converted to a claim.

  4. A decrease in tax may meet examination criteria. See Exhibit 21.5.3–2 , Examination Criteria (CAT-A) — General, for additional information.

  5. Math verify adjustments to income tax and/or BUWH.

  6. Process adjusted employment tax returns as follows:

    1. Input TC 291, HC 1, BS 20 and the appropriate IRN's (003 and/or 008) for the amount of decrease.

      Note:

      Overpayments arising from adjustments made under these procedures are subject to offset. Omit Hold Code 1 with the adjustment and allow the computer to systemically offset the credit if it will be fully absorbed by an outstanding balance due. Otherwise, if conditions prevent the computer from completing the offset, or if only part of the credit needs to be offset, manual offsets using TC 820/TC 700 transactions will be required.

      Caution:

      For tax decreases with an unreversed FTD penalty, see (4) of IRM 20.1.4.21.5, Adjusted Returns (Forms 941-X, 943-X, 944-X, and CT-1X).

    2. Transfer the applicable overpayment using TC 830/710 to the period in which the Form 945-X was filed.

      Caution:

      To prevent either debit or credit interest from generating, use the later of the return due date of the tax period being adjusted or the availability date of the overpayment as the transaction date of the TC 830 and use the due date of the return the credit is being applied to as the transaction date of the TC 710. See IRM 21.5.8.4.3(3), Determining Correct Credit Transfer Format, for more information.

    3. If the entire credit is not available to be transferred, generate Letter 4384C to the taxpayer. Explain why the entire amount was not available (for example, there was a balance due on the tax period being adjusted or the credit is being offset to a balance due on another tax period).

Form 945-X Decreases — Claim
  1. These tax decreases involve income tax withholding and/or BUWH.

  2. Verify all required items on Form 945-X are complete, such as:

    • Name, address, and EIN

    • Calendar year being corrected

    • Box 2 in Part 1 is checked

    • Detailed explanation (see IRM 21.7.2.4.6 (11))

    • Signature

  3. A decrease in tax may meet examination criteria. See Exhibit 21.5.3–2, Examination Criteria (CAT-A) — General, for additional information.

  4. Math verify adjustments to income tax and/or BUWH.

  5. Input TC 291, BS 20 and the appropriate IRN's (003 and/or 008) for the amount of the decrease.

    Caution:

    For tax decreases with an unreversed FTD penalty, see (4) of IRM 20.1.4.21.5, Adjusted Returns (Forms 941-X, 943-X, 944-X, and CT-1X).

  6. If the entire credit is not available to be refunded to the taxpayer, generate Letter 4384C to the taxpayer. Explain why the entire amount was not available (for example, there was a balance due on the tax period being adjusted or the credit is being offset to a balance due on another tax period).

Form 945-X Increases — Adjusted Employment Tax Return
  1. These tax increases involve income tax withholding and/or BUWH.

  2. Verify all required items on Form 945-X are complete, such as:

    • Name, address, and EIN

    • Calendar year being corrected

    • Box 1 in Part 1 is checked

    • Detailed explanation (see IRM 21.7.2.4.6 (11))

    • Signature

    Note:

    See (3) and (4) of IRM 21.5.3.4.1, Tax Increase or Credit Decrease Processing, if the Form 945-X is missing required information. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. Check for the date the taxpayer discovered the error. If not entered on page 1, review the explanation.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , if the ascertained date is not provided and a telephone number is available, make two attempts to contact the taxpayer by phone to obtain the information. If the ascertained date cannot be obtained by phone, input the adjustment as a TC 290.

    Exception:

    If you receive a Form 945-X for the immediately preceding tax year prior to the due date for the current tax year (for example, a Form 945-X reporting a tax increase for tax year 2013 received on or before January 31, 2015), it is not necessary to contact the taxpayer for an ascertained date. In that situation, input a TC 298 with the applicable interest computation date. See IRM 21.7.2.4.6.2, Interest-Free Adjustments (Employment Tax Returns), for more information.

    Reminder:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. Math verify adjustments to income tax and/or BUWH.

  5. Use the table below to make your adjustment(s).

    If Then
    The Form 945-X was filed by the due date of the return for the period in which the taxpayer discovered the reporting error Input TC 298, BS 20, IRN 003 and/or IRN 008 as appropriate, and the correct interest computation date (INTCMP-DT). See IRM 21.7.2.4.6.2 and example below for additional information.
    The Form 945-X was not filed by the due date of the return for the return period in which the error was ascertained or "date you discovered errors" was blank or the date error was discovered was not furnished in Part 4 Input TC 290 with BS 20 along with IRN 003 and/or IRN 008 as appropriate.

    Example:

    An employer discovers an error on February 1, 2016 and files a Form 945-X which is received by the IRS on March 1, 2016 for the 16/201512 tax period. The interest computation date would be March 1, 2016.

  6. Adjust the FTD penalty when using either a TC 290 (see IRM 20.1.4.21.3, Amended or Supplemental (Tax Decrease or Non-Interest-Free Tax Increase)) or a TC 298 (see IRM 20.1.4.21.5, Adjusted Returns (Forms 941-X, 943-X, 944-X, and CT-1X)).

    Note:

    See IRM 20.1.4.21.5.1, Amended ROFTL (Forms 941-X, 943-X, 944-X, 945-X, and CT-1X), when using a TC 298 or TC 290 and an amended ROFTL was provided with the adjusted return.

  7. If payment for the additional tax reported on the Form 945-X is not reflected on the tax period being adjusted, research the taxpayer's account for the missing credit and, if located, transfer the payment as appropriate.

Taxpayer Reports Non-Payroll Withholding on Incorrect Form
  1. Non-payroll items including backup withholding and withholding for pensions, annuities, gambling winnings, Individual Retirement Account (IRA), 401K, military pensions, etc. are required to be reported on Form 945, Annual Return of Withheld Federal Income Tax. However, taxpayers occasionally report these amounts on an incorrect tax form. If taxpayer contact (or a referral from SP) is received identifying a situation in which non-payroll items were reported on Form 941, process as follows:

    If And Then
    Taxpayer has filed Form 945 Previously reported non-payroll withholding on Form 941 Advise the taxpayer (use the appropriate "C" letter if working paper correspondence) to file a Form 941-X for each quarter in which they incorrectly reported non-payroll withholding on Form 941 and attach a statement detailing the amounts of any federal tax deposits or other payments which should be reapplied to their Form 945 tax account.
    Taxpayer has not yet filed Form 945 Previously reported non-payroll withholding on Form 941 Advise the taxpayer (use the appropriate "C" letter if working paper correspondence) to take the following actions:
    1. File a Form 945 reflecting the correct non-payroll withholding for the tax year

    2. File a Form 941-X for each quarter in which they incorrectly reported non-payroll withholding on Form 941 and attach a statement detailing the amounts of any federal tax deposits or other payments which should be reapplied to their Form 945 tax account.

    Taxpayer files Form 941 indicating non-payroll items were included on the return Code & Edit (C&E) identifies the situation As per procedures in (4) of IRM 3.11.13.13, C&E will correspond with the taxpayer to determine their intent. If the taxpayer's reply indicates they should have filed Form 945, C&E will forward the Form 941 to Accounts Management on Form 3465 indicating "Non-payroll on Form 941" Take the following actions to resolve the situation:
    1. If appropriate, delete the filing requirements for Form 941 and establish Form 945 filing requirements.

    2. Return the Form 941 to the taxpayer using the appropriate "C" letter and inform the taxpayer of their correct filing requirements.

    3. Input credit transfers as appropriate to move credits from the Form 941 account to the Form 945 account.

BUWH Claims on Form 945
  1. For payments made in tax years 2003 and subsequent, BUWH is imposed at the rate of 28% on reportable payments of interest, dividends, patronage dividends, etc.

  2. Some payors withhold the tax from exempt recipients who are not otherwise required to file an income tax return, and advise them to secure refunds from IRS. Basically, a payor is not required to withhold on a payment made to a payee described in IRC 3406(g)(1).

  3. The following types of entities are exempt from withholding:

    1. An organization exempt from taxation under IRC 501(a) or an individual retirement plan.

    2. The United States, its wholly owned agency or instrumentality.

    3. A state, the District of Columbia, a possession of the United States, or any political subdivision, wholly owned agency, or instrumentality of these entities.

    4. A foreign government or political subdivision of a foreign government, wholly owned agency, or instrumentality of these entities.

    5. An international organization (e.g., the United Nations and the Organization of American States).

  4. If an organization is exempt under IRC 501(a) or an individual retirement plan, and has been erroneously subjected to BUWH, it must file Form 990-T, Exempt Organization Business Income Tax Return, to claim a refund of such withholding.

    Exception:

    A Private Foundation can claim erroneous BUWH on Form 990-PF, Return of Private Foundation, instead of Form 990-T.

    Note:

    See IRM 5.19.3, Backup Withholding Program and IRM 21.7.7.4.3.5, Backup Withholding, for additional information on BUWH.

Form 945 BUWH Refunds for Exempt Entities
  1. The procedures listed below on issuing a refund from the employer’s Form 945 account apply only to the exempt entities described in list items (b), (c) and (d) in IRM 21.7.2.4.10.3 (3).

  2. If a payor withholds on an exempt recipient, the payor may treat the amount as erroneously withheld and refund it to the payee as long as the refund is made prior to the end of calendar year and prior to the time the appropriate Form 1099 series information return is furnished.

    1. If a payor makes a refund after having made last deposit for tax year, but before the Form 945 is filed, then only the correct amount of BUWH should be reported but nevertheless includes the BUWH amount of the Form 945 and the overpayment automatically refunded to taxpayer (payor).

    2. If a payor makes a refund during the calendar year but after last deposit has been made for tax year, then a Form 843 claim must be filed to obtain a refund.

  3. If recipient is exempt from filing an income tax return, use the following procedure:

    1. The exempt recipient must file Form 843 or similar statement.

    2. Attach a statement to Form 843 from each payor who erroneously withheld tax, setting forth the amount of tax withheld, the date withheld, and a statement to the effect the payor did not repay or reimburse the recipient and will not claim an adjustment for the amount on Form 945.

    3. The statement must be signed by the person authorized to sign the payor’s Form 945, and list the TIN (Taxpayer Identification Number) of the account the BUWH was paid under. See the table below for processing instructions.

    If Then
    Payee files a Form 843 for tax withheld before the end of the tax year Advise payee to seek reimbursement from the payor.
    Tax year has ended and the required statement is attached Follow normal procedures to issue a manual refund to the exempt recipient from the payor’s Form 945. Include manual interest and verify posting of the manual refund.
    The tax year has ended and the required statement is not attached Advise the payee to obtain the required statement from the payor.
BUWH Claims for Taxpayers Other Than Exempt Entities
  1. All other taxpayers must claim BUWH on a related income tax return. See IRM 21.7.4.4.10, Backup Withholding (BUWH) on Income Tax Returns, for more information.

  2. If a Form 94XX or Form 843 claim is filed for BUWH on any employment tax account, including Form 945, reject the claim and explain to taxpayer an income tax return must be filed to claim the credit.

Tax Equity and Fiscal Responsibility Act (TEFRA)
  1. TEFRA requires pension trusts to withhold federal income tax from pension income. The withholding is subject to deposit rules and is reported on Form 945.

  2. Taxpayers can request a separate EIN for the pension trust, however, it is not a requirement. Separate branches within a company may want a different EIN for internal purposes only.

  3. If multiple Form 945 tax returns are filed under one EIN and the taxpayer’s intent cannot be determined:

    1. Correspond to inform taxpayer to combine all the withholding from pension incomes on one Form 945, or to request separate EIN's for each pension trust.

    2. Inform taxpayer, if separate EIN's are assigned, they are responsible for all filing requirements and penalty assessments.


    If Then
    No reply, or taxpayer states they do not want separate EIN's Input TC 290 to assess any additional tax.
    Taxpayer requests separate EIN's Photocopy the case file and forward to Entity for assignment of EIN's. When EIN's are assigned, re-input the returns and transfer any credits to the new EIN's.
    Refunds were issued prior to the posting of the second return Contact taxpayer as stated in (3) above.

Household Employment Taxes

  1. The Social Security and Domestic Employment Reform Act of 1994 (SSDERA) added IRC 3510 which provides that the collection of domestic service employment taxes on services performed after December 31, 1994 be coordinated with the collection of income taxes.

  2. Domestic service in the private home of the employer is also referred to as household employment. Domestic employees are also referred to as household employees. The FICA taxes, federal income tax withholding (if any), and FUTA taxes incurred by employers of household employees are referred to as household employment taxes.

    Note:

    Household employers are required to withhold Additional Medicare Tax on household employees who they pay wages/tips in excess of $200,000 for a calendar year beginning after December 31, 2012.

  3. Although collected with income tax, household employment taxes are employment taxes.

  4. See IRM 21.7.2.4.11.1, Forms Used in Reporting Employment Taxes for Household Employees, for information on the proper form to be filed for reporting household employment taxes.

  5. For additional guidance on household employment taxes, see:

    • Pub 926, Household Employer's Tax Guide

    • Notice 95-18 (1995-1 C.B. 300) which clarifies issues related to SSDERA.

    • Rev. Proc. 2013-39 , IRB 2013.-52.

Forms Used in Reporting Employment Taxes for Household Employees
  1. Schedule H (Form 1040), Household Employment Taxes, is used to report FICA tax, any federal income tax withheld, and FUTA tax for household employees as follows:

    • Individuals file Schedule H (Form 1040) with their Form 1040 series income tax return. These are processed on MFT 30. See IRM 21.6.4.4.8, Schedule H, Household Employment Taxes, for more information.

    • Trusts file Schedule H (Form 1040) with Form 1041. These are processed on MFT 05. See IRM 21.7.4.4.1.11, Social Security Domestic Employment Reform Act and BMF Schedules H , for more information.

    • If no income tax return is required to be filed, Schedule H (Form 1040) is filed by itself. These are processed to either MFT 30 or MFT 05 as appropriate.

  2. Taxpayers who are sole proprietors, or whose home is on a farm operated for profit, may include FICA tax and income tax withholding for domestic employees on their employment tax returns (Forms 941, 943, or 944 as appropriate) along with the employment taxes for their other business or farm employees. If the employer chooses to report household employment taxes in this manner, FUTA taxes for the household employees must be reported on Form 940.

  3. Partnerships cannot be domestic employers.

  4. Corporations cannot be domestic employers.

  5. See IRM 21.7.2.4.11.3, Household Employment Taxes and Section 3504 Agents, for filing and payment requirements when an employer has designated an agent (including state and local governments or their subagents) to withhold, report, and make payment of household employment taxes.

Procedures for Household Employment Tax Inquiries
  1. The table below provides guidance for handling common household employment tax inquiries received in Accounts Management.

    If And Then
    A general inquiry is received regarding household employment taxes.

    Example:

    Questions regarding wage thresholds, tax rates, forms to be filed, etc.

    Research Pub 926, Household Employer's Tax Guide, forms, and form instructions as appropriate to provide the taxpayer with the guidance needed.
    An inquiry is received about a Schedule H (Form 1040) which was or will be filed with Form 1041. See IRM 21.7.4.4.1.11, Social Security Domestic Employment Reform Act and BMF Schedules H , for more information.
    An inquiry is received about a Schedule H (Form 1040) which was or will be filed with Form 1040. See IRM 21.6.4.4.8, Schedule H, Household Employment Taxes for more information.
    An inquiry is received about a Form 941, Form 943, Form 944 filed to report household employment taxes (FICA and/or federal income tax withheld). The household employment taxes (FICA and/or federal income tax withheld) should have instead been reported on Schedule H (Form 1040) with a Form 1040 See IRM 21.6.4.4.8.12, BMF Form 941 Filed Instead of IMF Schedule H, for more information.
    An inquiry is received about a Form 941, Form 943, Form 944 filed to report household employment taxes (FICA and/or federal income tax withheld). The household employment taxes (FICA and/or federal income tax withheld) should have instead been reported on Schedule H (Form 1040) with a Form 1041 See paragraph (5) of IRM 21.7.4.4.1.11.2.3, Adjustments (Amended Returns, TRNS 193s, etc.) Involving Forms 1041 With Schedule H, for more information.
    An inquiry is received regarding a Form 940 filed to report FUTA taxes for household employees. The FUTA tax should have instead been reported on Schedule H (Form 1040) with either a Form 1040 or Form 1041 See IRM 21.7.3.4.13, Schedule H FUTA Erroneously Reported.
    An inquiry is received from an entity claiming to be a partnership The entity has reported household employment taxes Advise the taxpayer that a partnership cannot be a domestic employer. Instruct the taxpayer that they must follow one of the following options for reporting household employment wages and tax:
    1. One member of the unit can report all taxes and wages on Schedule H filed with their Form 1040, or;

    2. Each member can report their portion on Schedule H filed with their Form 1040.

    An inquiry is received from a state or local government acting as an IRC 3504 agent on behalf of Home Care Service Recipients (HCSR)

    Note:

    These entities may be identified by the presence of Employment Code "A" , the literals "HHCSR" or "HCSR" in the name line, or use of the following terms: "Household Employer Agency" , "Fiscal Agent" , or "Choreworker" .

    An FTD penalty has been charged (on any tax module) Abate any FTD penalties identified on these accounts even if taxpayer is not requesting abatement. Taxes can be paid with the return. No deposits are necessary. See IRM 20.1.4.5, State and Local Health Welfare, for more information.
    An inquiry is received from a party who is operating as an IRC 3504 agent for one or more household employers but is not a state or local government. An FTD penalty has been charged Do not adjust the penalty unless other abatement criteria applies. These agents are responsible for making timely federal tax deposits as any other employer or Section 3504 agent.

    Note:

    Starting January 2, 2014, see (5), (6), and (7) in IRM 21.1.1.6, Customer Service Representative (CSR) Duties, for new tax law procedures.

Household Employment Taxes and Section 3504 Agents
  1. An employer may appoint an agent under IRC Section 3504 to withhold, report and pay Federal employment taxes. To request approval to act as a Section 3504 agent for an employer, the agent files Form 2678, Employer/Payer Appointment of Agent, with the IRS.

    Note:

    Form 2678 processing information may be found in IRM 3.13.2.16, Form 2678, Employer/Payer Appointment of Agent.

  2. Specific rules apply when the employer is a Home Care Service Recipient (HCSR).

    • A Home Care Service Recipient (HCSR) is an individual who receives home care services while enrolled in a program administered by a Federal, state, or local government agency that provides funding for the home care services.

    • "Home care services" are personal and attendant care services rendered to the Home Care Service Recipient.

    • Generally, the Home Care Service Recipient (HCSR) is the employer if they have the right to direct and control the provision of services by the home care services provider. The provision of services to the HCSR also generally constitutes household employment.

    • The Home Care Service Recipient (HCSR) may designate, and the IRS may approve, a Section 3504 agent to act on behalf of the HCSR to withhold, report and pay the Federal employment taxes for the workers they hire to provide home care services. Agents may be also be authorized for purposes of Federal Unemployment Tax Act (FUTA) taxes if they are acting on behalf of an HCSR (only).

  3. There are two types of Section 3504 agents that act on behalf of Home Care Service Recipients (HCSRs):

    • Federal, state or local government agency operating in accordance with Rev. Proc. 2013-39. See IRM 21.7.2.4.11.3.1, State or Local Government Agency Acting as IRC 3504 Agent, for special procedures that apply to these agents and their subagents.

    • Any other non-governmental entity engaged by the Federal, state or local government agency to participate in various aspects of a home care services program. These entities may choose to act as the Section 3504 agent for the HCSRs in accordance with Rev. Proc. 2013-39 by filing a Form 2678 for each HCSR.

    Note:

    Both types of agents may elect to perform the employment tax obligations themselves or to further contract with a reporting agent or subagent.

State or Local Government Agency Acting as IRC 3504 Agent for Home Care Service Recipients
  1. A state or local government agency may be approved to act as a Section 3504 agent on behalf of Home Care Service Recipients (HCSRs) who hire home care service providers.

  2. These entities may be identified by one or more of the following characteristics:

    • The presence of Employment Code "A" .

    • The literals "HHCSR" or "HCSR" in the name line of the entity.

    • Returns or correspondence referencing the terms "Household Employer Agency" , "Fiscal Agent" , or "Choreworker" .

  3. Rev. Proc. 2013-39, 2013-52 I.R.B. 830, provides guidance to state and local government health and welfare agencies acting on behalf of HCSRs. Rev. Proc. 2013-39 superseded Rev. Proc. 70-6 , Rev. Proc. 80-4 , and Notice 2003-70 .

  4. If the government agency operates according to Rev. Proc. 2013-39, then several special procedures apply:

    • Government agencies acting on behalf of HCSRs enrolled in a program they administer do not need to file a Form 2678, Employer/Payer Appointment of Agent, for each HCSR. For more information on Form 2678, see IRM 21.7.2.3.7, Section 3504 Agents, and IRM 3.13.2.16, Form 2678, Employer/Payer Appointment of Agent.

    • The government agency obtains a special EIN that is used for the sole purpose of acting as a Section 3504 agent for HCSRs. See Rev. Proc. 2013-39, section 10.03(3).

    • The government agency files aggregate Form 941 and Form 940 tax returns using the government agency’s special EIN to report all wages paid on behalf of HCSRs.

      Note:

      Section 3504 agents are required to attach an allocation schedule when filing aggregate employment tax returns. See IRM 21.7.2.4.4.3, Loose Schedule R (Form 941): Allocation Schedule for Aggregate Form 941 Filers, and IRM 21.7.3.4.6.1, Schedule R (Form 940): Allocation Schedule for Aggregate Form 940 Filers, for more information.

    • The government agency may remit all taxes related to HCSRs with a timely filed Form 941 or Form 940. Government agencies acting as Section 3504 agents for HCSRs are not required to make Federal Tax Deposits (FTDs) or follow the deposit schedules applicable to employers and other Section 3504 agents. If the government agency hires a reporting agent to perform employment tax obligations, the reporting agent may perform those obligations as if it were the government agency. However, if the government agency uses Form 2678 to appoint a Section 3504 Agent (called a "subagent" ) to perform the employment tax obligations of the HCSRs, the subagent must file returns using its own EIN and make deposits under normal deposit rules.

      Note:

      FTD penalties are systemically waived for accounts bearing Employment Code "A" . However, incorrect penalties may be charged on accounts which have not been correctly coded. See the table in IRM 21.7.2.4.11.2, Procedures for Household Employment Tax Inquiries, for instructions on addressing FTD penalties charged on accounts of state or local government agencies acting as Section 3504 agents for HCSRs.

Specific Claims and Other Issues

  1. This section includes information and procedures for specific claims and other issues associated with employment taxes.

Frivolous Employment Tax Claims

  1. Claims citing IRC 861 may be frivolous claims and must be sent to the Ogden Compliance Campus Frivolous Return Program as outlined in IRM 21.5.3.4.16.7, Identifying Frivolous Returns/Correspondence and Responding to Frivolous Arguments . Do not, under any circumstances, adjust the account prior to sending to Ogden.

  2. Some claims may be received that don't indicate this section. However, they may also be considered frivolous. See (3) for examples.

  3. There may be a Form 941c, or Form 941 annotated across the top "Amended or Corrected" , or Form 941-X filed to reduce payroll taxes ≡ ≡ ≡ ≡ ≡ ≡ for all open payroll tax quarters. Most of these returns have been prepared by hand.

    • The explanation generally states "see attached..." which is usually a cover letter. The letters do not state a specific reason for filing the amended return, or they provide a general explanation such as "I have enclosed a corrected Form 941-X as required by law when the filer discovers any error made on such return." Often the cover letter contains a cc: to a congressperson.

    • The taxpayer only cites "Administrative Error" and does not indicate further why they are reducing the tax ≡ ≡ ≡ ≡ .

  4. If doubt exists as to whether the claim is frivolous, do not send the claim to Ogden. Reject the claim back to the taxpayer following "No Consideration" procedures outlined in IRM 21.5.3.4.6 , No Consideration and Disallowance of Claims and Amended Returns. Inform the taxpayer sufficient information was not received to consider the claim at this time and that a detailed explanation is necessary. If the claim received is a numbered return, or statute is imminent, contact the taxpayer for a complete explanation before adjusting the account.

Employer’s Wages Erroneously Reported on Form 941, 943 or 944

  1. On occasion, individual taxpayers erroneously treat personal withdrawals as wages and pay FICA taxes on Form 941, Form 943, or Form 944. To correct such errors in reporting, taxpayers must file the appropriate Form 94XX.

  2. If a taxpayer files a Form 94XX on this basis, take the following actions:

    1. Adjust the impacted employment tax account(s) as per the appropriate Form 94XX procedures (e.g., for a tax decrease - claim for refund filed on Form 941-X, follow IRM 21.7.2.4.7.6.2, Form 941-X Tax Decrease — Claim).

    2. If the taxpayer wishes the overpayment(s) on the employment tax return(s) to be applied to their individual Form 1040 account (for example, to pay a balance due), input credit transfers as appropriate. See IRM 21.5.8 , Credit Transfers, for general guidance on credit transfers.

Worker Classification Determinations

  1. A worker, whose firm reported earnings on a Form 1099-MISC, can request IRS to determine whether or not they are an employee. (The term "Firm" is used here instead of "employer" since the issuer of the Form 1099-MISC has not been determined to be an employer at this stage.) A Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, must be filed by the worker or the firm in order for the IRS to make the determination. The form can also be filed by workers treated as employees if they want to determine their proper classification.

  2. In order to file Form SS-8:

    • The worker must have filed a tax return(s) for the period(s) in question. (See (6) or (7) below, depending on tax year, for procedures when the taxpayer has not yet filed a return for the period(s) in question.)

    • The statute of limitations must be open for that period(s).

    • The worker must have no objection to disclosing their name to the firm.

    Note:

    If the taxpayer initially objects to disclosing their name to the firm, encourage them to do so. If Form SS-8 is not filed, the matter becomes an issue which the worker must resolve. Usually this involves contact with the firm. That process is time consuming and frustrating for both the worker and the firm. If worker still objects, see (5) below.

  3. If the worker meets the criteria in (2) above, follow the steps below.

    1. Send Form SS-8 to the worker.

    2. Instruct the worker to complete Form SS-8 and mail it to the address provided in the "Where to File" section of the Instructions for Form SS-8.)

    3. Alert the taxpayer that the determination can take up to 180 days after the Form SS-8 is received.

      Note:

      If the statute of limitations for the period in question may expire before the determination is made, inform the worker that a letter will be sent when the Form SS-8 is received advising of procedures for filing a protective claim for that period.

  4. The SS-8 group contacts the firm and asks them to complete Form SS-8 from their perspective of the work relationship. The SS-8 group compares the two Forms SS-8. The SS-8 group makes a determination, and:

    If And Then
    Worker is determined to be an employee Worker originally filed Schedule SE and paid self-employment tax Worker should file Form 8919, Uncollected Social Security and Medicare Tax on Wages, to report only the employee share of social security and Medicare tax and file Form 1040X attaching an amended Schedule SE to correct the self-employment tax previously reported.
    Worker is determined to be an employee Worker originally reported only the employee share of social security and Medicare tax

    Note:

    Currently the use of Form 8919, Uncollected Social Security and Medicare Tax on Wages, requires the filing of a Form SS-8 except in limited cases indicated on the form.

    Worker does not need to file Form 1040X, but simply keeps a copy of the determination letter for their records.
    Worker is determined to be an employee Section 530 of the Revenue Act of 1978 applies to the firm The firm is not required to treat worker as an employee for employment tax purposes. The worker is liable for only the employee share of social security and Medicare taxes. IRM 21.6.4.4.15, Workers Whose Employers Qualify Under the Revenue Act of 1978, Section 530, contains additional information.
    Worker is determined to be an independent contractor The SS-8 group sends the worker a letter advising of the necessary actions including self-employment tax liability.
  5. See the Note in (2) above. Form SS-8 will not be processed if the worker does not agree to disclose their name to the firm. In that situation, the worker must determine to the best of their knowledge whether they are an employee. A worker receiving a Form 1099-MISC would be assumed to not be an employee (unless the worker can convince the employer they are, in fact, an employee and have Form W-2 issued instead of Form 1099-MISC). A worker who does not agree to disclose their name to the firm should be advised as follows:

    If Then
    The worker believes they should be classified as an employee and determination has not been made The worker should report the income on the "wages" line on Form 1040 and attach Form 1099-MISC. The taxpayer will not be assessed self-employment tax on original processing. However, Examination may review the return to determine if the taxpayer is liable for self-employment tax.
    The worker believes they should be classified as self-employed The worker should:
    1. Report income on Schedule C.
    2. Compute self-employment tax on Schedule SE.
    3. Attach Forms 1099-MISC, Schedule C, and Schedule SE to Form 1040.

    Note:

    Always encourage the workers to participate in the Form SS-8 process. Only inform the workers of the filing/reporting options in the table above if they refuse to participate. Inform them that if they do report the income as if they were an employee, it is possible they could be classified as self-employed at a later date and owe additional taxes.

  6. If the taxpayer has not yet filed a return for the tax period involved and the tax year is 2006 or prior, see archived files for this IRM for handling instructions.

  7. If the taxpayer has not yet filed a return for the tax period involved (2007 or subsequent), instruct them to:

    1. File Form 1040.

    2. Report the amount on Form 1099-MISC on the "wages" line. (The taxpayer may also want to indicate "Form SS-8 filed" on the dotted line to the left of the "wages" if they filed, or will file, Form SS-8.)

    3. Complete Form 8919 and attach it to Form 1040.

    4. Follow the instructions on Form 8919 for computing the social security and Medicare tax, and enter the amount on Form 1040, page 2 as instructed on Form 8919.

    5. File Form SS-8 by mailing it to the address provided in the “Where to File” section of the Instructions for Form SS-8. It is not to be filed with Form 1040.

  8. If an inquiry is received during current year and the taxpayer wants a determination prior to the end of the year, inform the taxpayer that a determination cannot be made until a payer document (i.e. Form 1099-MISC) is received by the taxpayer.

IRC Section 3509

  1. In certain circumstances, IRC 3509 provides for reduced employer liability for employment taxes when a worker is reclassified from being treated as an independent contractor to being treated as an employee. If IRC 3509 tax rates apply, the amount of employment taxes owed by the employer will depend on whether information returns (e.g. Form 1099–MISC) were filed as required for treatment of the individuals as independent contractors. The employer pays their share of FICA tax and either 20% or 40% of the employee's share (including Additional Medicare Tax to the extent wages and tips paid to an employee exceed $200,000 for a calendar year beginning after December 31, 2012). The employer also pays income tax withholding figured at either 1.5% or 3% of the wages.

  2. IRC 3509 assessments are often made by the Service and can be identified by the use of IRN 079. However, the employer may self-assess under IRC 3509 provisions if they determine the worker was misclassified and all requirements are satisfied. See Pub 4341, Information Guide for Employers Filing Form 941 or Form 944, Frequently Asked Questions about the Reclassification of Workers as Employees.

  3. The following procedures address employer self-assessments of employment taxes for misclassified employees where IRC 3509 special tax rates apply.

    Note:

    The following paragraphs reference the line numbers for Form 941 and Form 941-X. If the employer is filing another adjusted employment tax return, use the applicable line and column numbers.

  4. For misclassified workers discovered on or after January 1, 2009, employers must file Form 941-X (or other applicable "X" form) for each tax period involved to report employment taxes owed under the special IRC 3509 tax rates. The Form 941-X must be prepared as follows:

    1. The wage amounts must be entered in column 1 on lines 14, 15, 16, and 17.

    2. Zeroes should be entered in column 2 of lines 14, 15, 16, and 17.

    3. Columns 3 and 4 must be completed as per the Part 3 instructions.

    Note:

    See archived IRM 21.7.2 if information is needed on IRC 3509 handling prior to January 1, 2009.

  5. If an original tax return was not filed for each tax period involved, the employer must also file the delinquent tax return(s) as follows:

    1. An original tax return must be prepared for each tax period with "Misclassified Employees" written in dark, bold letters across the top margin of page 1.

    2. A zero must be entered on line 10 ("Total taxes after adjustments" ).

    3. Part 5 ("Sign here" ) must be completed.

    4. The completed Form 941-X (or other applicable "X" form) must be attached to the original return being filed.

    Note:

    These filing instructions are an exception to normal filing and processing. Submission Processing has instructions to forward Forms 941-X filed under these special procedures to Accounts Management for adjustment action and will code the original return to freeze any credit on the tax module. See IRM 3.11.13.11.3, Non-Taxable Returns With No Line Entries.

  6. Adjust the tax account per the Form 941-X (or other applicable "X" form) as follows:

    1. Input an increase to IRN 004 to match the figure in column 3 of line 15.

    2. Input an increase to IRN 073 to match the figure in column 3 of line 16.

    3. Input an increase to IRN 074 to match the figure in column 3 of line 17 (valid for Forms 941/943/944 for tax periods beginning after December 31, 2012).

    4. Input an increase to IRN 104 to match the figure in column 4 of line 14.

    5. Input an increase to IRN 105 for the combined figures found in column 4 for lines 15, 16 and 17 (and any amount reported for AdMT).

      Note:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    6. Input an increase to IRN 113 for the combined IRN 104 and IRN 105 figures as determined above.

    7. Input a TC 290 or TC 298 increase as per IRM 21.7.2.4.6.2, Interest-Free Adjustments (Employment Tax Returns), procedures to match the IRN 113 figure as determined above.

    Note:

    The IRNs indicated above also apply to Form 944-X adjustments for this issue. However, IRNs 104, 105, and 113 are not valid for Form 943. So, for Forms 943-X filed for this adjustment issue, the IRNs to be used are 004, 073, 074 (if applicable), 003 and 007.

  7. Adjust the FTD penalty when using either a TC 290 (see IRM 20.1.4.21.3, Amended or Supplemental (Tax Decrease or Non-Interest-Free Tax Increase)) or a TC 298 (see IRM 20.1.4.21.5, Adjusted Returns (Forms 941-X, 943-X, 944-X, and CT-1X)).

    Note:

    See IRM 20.1.4.21.5.1, Amended ROFTL (Forms 941-X, 943-X, 944-X, 945-X, and CT-1X), when using a TC 298 or TC 290 and an amended ROFTL was provided with the adjusted return.

  8. If payment for the additional tax reported on the Form 941-X is not reflected on the tax period being adjusted, research the taxpayer's account for the missing credit and, if located, transfer the payment as appropriate.

    Note:

    Employers who discover they have misclassified employees but who do not qualify for the special IRC 3509 tax rates are also required to file Form 941-X (or other applicable "X" form) to report the employment taxes owed and may qualify for interest-free tax adjustments. In cases where the employer did not file an original return for the tax period involved, the employer is instructed to file an original tax return with "Misclassified Employees" written across the top margin of page 1 in dark, bold letters and to attach a completed Form 941-X (or other applicable "X" form). Accounts Management may receive documents filed under those procedures for misclassified employees. Normal tax rates and adjustment procedures are to be applied when the special IRC 3509 rates do not apply.

Railroad Retirement Board (RRB) Determinations

  1. If a Form 941-X mentions RRB determinations or transferring overpaid FICA taxes to Form CT-1, see IRM 21.7.2.6.5.8.

Form SS-16, Certificate of Election of Coverage Under the Federal Insurance Contributions Act (FICA)

  1. A religious order whose members are required to take a vow of poverty (or any autonomous subdivision of such an order) may elect to have FICA extended to services performed by its members in the exercise of duties required by such order. They are excluded from "employment" for FICA purposes, except when an election of coverage is in effect. See IRC 3121(b)(8)(A) and § 31.3121(b)(8)-1; IRC 3121(r) and § 31.3121(r)-1.

  2. A religious order making an election of coverage must file Form SS-16, Certificate of Election of Coverage Under the Federal Insurance Contributions Act. See IRM 3.13.12.15, Form SS-16, for additional information.

  3. On Form SS-16, the religious order must designate one of the following dates as the effective date for the election:

    • The first day of the calendar quarter in which the Form SS-16 was filed, or

    • The first day of the calendar quarter immediately after the calendar quarter in which Form SS-16 is filed, or

    • The first day of any one of the 20 quarters before the quarter in which the Form SS-16 was filed.

  4. The following table illustrates the last day the Form SS-16 can be filed to elect retroactive coverage for 20 quarters:

    If the religious order wants coverage retroactive to: Then Form SS-16 is due:
    January 1, 2011 (1st quarter 2011) March 31, 2016
    April 1, 2011 (2nd quarter 2011) June 30, 2016
    July 1, 2011 (3rd quarter 2011) September 30, 2016
    October 1, 2011 (4th quarter 2011) December 31, 2016
    January 1, 2012 (1st quarter 2012) March 31, 2017
    April 1, 2012 (2nd quarter 2012) June 30, 2017
    July 1, 2012 (3rd quarter 2012) September 30, 2017
    October 1, 2012 (4th quarter 2012) December 31, 2017
    If Then
    Form SS-16 is made effective the first day of the calendar quarter in which the SS-16 is filed The return is due the normal due date for Form 941 for the current quarter.
    Form SS-16 is made effective the first day of the calendar quarter immediately after the calendar quarter in which the SS-16 is filed The return is due the normal due date for Form 941.
  5. Under IRC 3121(r), the due date of the returns for all retroactive quarters is determined by the date the Form SS-16 is "filed " . The due date for filing the returns and paying the tax, for calendar quarters prior to the quarter in which the SS-16 is filed, is the last day of the calendar month following the calendar quarter in which the Form SS-16 is filed.

    If the Form SS-16 is filed any day during the Then all the returns for the retroactive quarters must be filed and tax paid by
    1st quarter 2016 April 30, 2016
    2nd quarter 2016 July 31, 2016
    3rd quarter 2016 October 31, 2016
    4th quarter 2016 January 31, 2017
    1st quarter 2017 April 30, 2017
    2nd quarter 2017 July 31, 2017
    3rd quarter 2017 October 31, 2017
    4th quarter 2017 January 31, 2018

    Note:

    Generally, the received date is the date Form SS-16 is "filed" for purposes of determining when returns are due. If the religious order or subdivision selects an effective date that is the first day of the 20th calendar quarter preceding the quarter in which Form SS-16 is postmarked, but the Form SS-16 is received in a later quarter, the IRS will use the postmark date to determine the date filed to ensure the intended 20th quarter can be included.

  6. A religious order will not be subject to a failure to pay penalty or interest, if it files the returns for the retroactive quarters and pays the total tax liability by the due date. IRC 3121(r) provides that the period of limitations for assessment for retroactive quarters will not expire before the expiration of 3 years from such due date.

  7. A religious order must report its tax liability for each quarter it is electing coverage. The form that must be filed for each of the retroactive quarters depends on whether an original Form 941, Employer's QUARTERLY Federal Tax Return, was filed for the specific retroactive period. Refer to table below:

    If Then
    Form 941 was never filed for one or more quarters for which the election is effective The religious order must file Forms 941 for those retroactive quarters.
    Original Forms 941 were filed for any of the retroactive quarters for which the election is effective The religious order must file Form 941-X, Employer's QUARTERLY Federal Tax Return or Claim for Refund, for those retroactive quarters.

Federal Labor Laws — Wage Payments Made by Federal Agencies

  1. Certain government agencies are empowered to collect wages from employers that were erroneously not paid to current or former employees. These federal agencies disburse the wage amounts to the employees concerned. Agencies allowed to take this action and some of the provisions which allow such action are:

    • Department of Labor (DOL) – Fair Labor Standards Act

    • Government Accountability Office (GAO) – Davis-Bacon Act

    • Housing and Urban Development (HUD) – Davis-Bacon Act

    • National Labor Relations Board (NLRB) – Labor Management Relations Act

    Note:

    Extensive investigations are performed by the federal agencies to determine if claims for back wages or unfair labor practices are valid. Therefore, a relatively long period of time may elapse between the time employees become entitled to the wages and the time they actually receive payment from the agency involved.

Processing of Tax Returns Filed by Federal Agencies to Report Withheld Income Taxes and Employee Share of FICA Taxes (Wage Payments Made by Federal Agencies)
  1. Federal agencies making wage determinations withhold income taxes and the employee's share of FICA taxes from payments made to employees. The federal agency then reports and pays the withheld income taxes and the employee share of FICA with an employment tax return filed with the IRS under a separate EIN assigned to the federal agency.

  2. Employment tax returns filed by the federal agencies are processed at the campus of receipt.

  3. In addition to federal income tax withheld, the federal agency will report wages on the appropriate lines of Form 941 and compute the full amount of FICA taxes. The employer share of FICA is then deducted on one of the adjustment lines of Form 941 as a negative adjustment.

    Note:

    Wages may also be reported on Form 943 or Form 944.

  4. An aggregate Form 941-X will generally be attached to the federal agency's Form 941.

    1. The aggregate Form 941-X will reflect the total wages and tax withheld for all employees for which wage determinations were made by the federal agency for that tax period.

    2. In the explanation area, the agency indicates the name of the agency and the Act which authorizes them to collect and pay back wages.

    3. The Form 941-X is stamped "Do Not Transmit to SSA" .

    Note:

    The federal agency also prepares two copies of Form 941-X for each employer showing the wage determinations for their employees and the FICA taxes owed by the employer. The federal agency sends one copy to the employer to inform them of their tax liability. The federal agency files the other copy with the IRS for assessment of the employer's share of FICA on the employer's EIN. See IRM 21.7.2.5.7.2, Processing of Forms 941-X Filed by Federal Agencies to Report Employer Share of FICA Taxes (Wage Payments Made by Federal Agencies), for instructions on processing those Forms 941-X.

Processing of Forms 941-X Filed by Federal Agencies to Report Employer Share of FICA Taxes (Wage Payments Made by Federal Agencies)
  1. Federal agencies collecting wages from employers on behalf of employees withhold income taxes and the employee's share of FICA taxes from the payments made to the employees. However, the employer remains liable for the employer's share of FICA taxes.

  2. The federal agency prepares two copies of Form 941-X for the employer showing the wage determinations for their employees and the FICA taxes owed by the employer. One copy is sent to the employer to inform them of their tax liability. The other copy is filed by the federal agency with the IRS for assessment of the employer's share of FICA on the employer's EIN.

    Reminder:

    Additional Medicare Tax (AdMT) is only imposed on the employee (for tax periods beginning after December 31, 2012). There is no employer share of AdMT. Therefore, no AdMT should be assessed in the course of handling cases per the procedures found in the following subsections.

  3. The Form 941-X used by federal agencies for this purpose is generally not filed on the official Form 941-X version and does not include line numbers. However, it will be accepted so long as all information needed to compute the employer's share of the FICA tax liability and to process the adjustment is provided.

Return Posted (TC 150), Account Not in TDA (Taxpayer Delinquent Account) Status (Wage Payments Made by Federal Agencies)
  1. If a return for the employer is posted:

    1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Caution:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

      Example:

      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. Use IRN 004 to show the amount of taxable social security wages.

    3. Input IRN 073 to show the amount of taxable Medicare wages.

    4. Input IRN 112 for the total FICA tax adjustment (employee and employer shares).

    5. Input IRN 110 and IRN 113 to reduce tax for the employee share of FICA tax already collected from the employee's wages by the federal agency.

    6. Initiate Letter 134C to the employer (use the address currently showing on ENMOD/BMFOLE) advising a bill for employer’s portion of FICA will be issued in the near future and include a copy of Form 941-X from the government agency.

    Caution:

    Do not include FITW (Federal Income Tax Withheld) (IRN 003/111) in the adjustment.

    Note:

    If the TC 150 on the module was a dummy return prepared per procedures later in this IRM section and there is a credit balance on the module which exceeds the amount of the assessment reflected on the Form 941-X filed by the federal agency, then use Hold Code 1 with the adjustment to hold the credit and allow the notice of adjustment to be issued. Also, in this particular situation, inform the employer in the Letter 134C being issued that they must file the appropriate original employment tax return to report any other taxes due and/or to claim a refund for any overpaid taxes.

Return Posted, Account in TDA Status (Wage Payments Made by Federal Agencies)
  1. If a return for the employer has posted, but the account is in TDA Status, see IRM 21.3.3.4.9.2.1, Compliance Criteria for Amended Returns/Claims and/or Balance Due Correspondence, for additional guidance. State the nature and facts of the case if routing per that guidance.

No Return Posted, No Filing Requirements (Wage Payments Made by Federal Agencies)
  1. If no return for the employer has posted and there are no filing requirements for the current quarter, take the following actions:

    1. Initiate Letter 134C to the employer (use the address currently showing on ENMOD/BMFOLE).
      • Include a copy of the Form 941-X received from the federal agency.
      • Advise the taxpayer that we will be processing the Form 941-X and will issue a bill once that action is complete.
      • Advise the taxpayer of the amount of tax that will be assessed.
      • Advise the taxpayer that they should go ahead and make payment for the amount of tax to be assessed in order to limit any interest charges that may be due.

    2. Prepare a dummy return on the applicable employment tax return (usually Form 941) showing zero tax for the tax period for which the Form 941-X was filed.
      • Enter "Dummy Return Prepared by IRS — Do Not Correspond for Signature" on the signature line.
      • Mark the block for "Final" return.
      • Enter Computer Condition Codes (CCC) "F" and "X" on the face of the dummy return. DO NOT enter any other Computer Condition Codes such as "M" , "D" , "J" , or "R" to restrict penalties or interest.
      • Route the completed dummy return to Submission Processing.

    3. Monitor the account until the dummy return posts to the module.

    4. Follow the procedures in IRM 21.7.2.5.7.2.1 to adjust the account per the Form 941-X.

      Note:

      Do not issue a second Letter 134C to the employer when the assessment is made under these procedures.

No Return Posted, Delinquency Notice Issued (Wage Payments Made by Federal Agencies)
  1. If no return for the employer has posted and a delinquency notice has been issued:

    1. Route to your Campus Collection Function.

    2. State facts in case and amount due.

    3. Attach continuation page(s) of Form 941-X to the memo.

No Return Posted, Open Filing Requirements, No Delinquency Notice Issued (Wage Payments Made by Federal Agencies)
  1. A federal agency may submit a Form 941-X before the employer's tax return is processed and posted to their tax account. This includes some rare situations where the federal agency submits the Form 941-X prior to the return due date for the tax period effected.

  2. In these situations, it will be necessary to monitor the employer tax account for posting of their tax return prior to taking action on the Form 941-X. Once posted, the employer's tax return data must also be reviewed to determine whether they have reported the additional wages and tax on their Form 941 and used one of the adjustment lines to back out the employee share collected by the federal agency.

  3. Monitor the account until the tax return posts and take the following action:

    If And Then
    A tax return is filed by the employer There is an entry on one of the adjustment lines corresponding to the federal agency wage determination Input TC 290 .00 and state "taxpayer reported as line item adjustment" in the Remarks section.
    A tax return is filed by the employer There is no entry on one of the adjustment lines corresponding to the federal agency wage determination Follow the procedures in IRM 21.7.2.5.7.2.1, Return Posted (TC 150), Account Not in TDA (Taxpayer Delinquent Account) Status (Wage Payments Made by Federal Agencies) or IRM 21.7.2.5.7.2.2, Return Posted, Account in TDA Status (Wage Payments Made by Federal Agencies), as appropriate.
    A return has not posted within 60 days of the return due date A delinquency notice has been issued Follow the procedures in IRM 21.7.2.5.7.2.4, No Return Posted, Delinquency Notice Issued (Wage Payments Made by Federal Agencies).
    A return has not posted within 60 days of the return due date No delinquency notice has been issued and there is no indication of a return being filed; e.g., Unpostable, Reject, open controls, etc. Follow the procedures in IRM 21.7.2.5.7.2.3except:
    • Do not indicate "Final" and do not CCC"F" .
    • If there are credits on the module, be certain to enter CCC "X" on the dummy return and use Hold Code 1 when adjusting the account to hold any excess credits.

    Reminder:

    All open controls and assignments must be considered and contacts made as appropriate prior to taking action on a tax account per these procedures.

Missing or Incorrect Employer EIN (Wage Payments Made by Federal Agencies)
  1. If the Form 941-X is otherwise processable and is missing only a correct EIN for the employer (or an SSN was provided in either SSN or EIN format), research for the correct EIN. If the correct EIN is not found, forward the case to Entity Control (5 day turnaround) and request that they determine the correct EIN or assign an EIN to the business.

  2. If the Form 941-X is missing data (address, money amount, etc.) necessary to process the case in addition to a missing or incorrect EIN, return the Form 941-X to the agency initiating the case and request the missing data. If the agency returns the Form 941-X with the missing information but states the employer does not have an EIN, forward the case to Entity Control as in (1) above.

    Note:

    Use Letter 134C or other appropriate "C" letter when rejecting documents back to the initiating federal agency. Agency addresses may be found in the text of Letter 134C.

Section 3402(d) and Section 3102(f)(3), Tax Relief in Employment Tax Cases (Forms 4668, 4669, and 4670)

  1. During the course of an examination, the IRS may determine an employer/employee relationship exists and propose the assessment of tax, penalties and interest. This assessment may include income tax and/or Additional Medicare Tax (AdMT) that should have been withheld from amounts paid to employees.

  2. Form 4668, Employment Tax Examination Changes Report, is the basic report used for all employment tax return examinations.

    • It is used to show the additional tax, over-assessment, or delinquent tax proposed by the examiner.

    • It should be attached to the last quarter return examined as part of the Revenue Agents Report.

      Note:

      TC 971 AC 057 is sometimes used by Exam to designate a cross-reference account where relevant documentation is located.

    Note:

    Form 4668-B, Report of Examination of Withheld Federal Income Tax, is generally used for backup withholding issues as well as withholding reported on Forms 1099 and W-2G.

  3. Form 2504, Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment , and Form 2504-WC, Agreement to Assessment and Collection of Additional Employment Tax and Acceptance of Overassessment in Worker Classification Cases, are used to obtain a taxpayer’s agreement to the proposed assessment or over-assessment of employment tax.

    • An error is considered ascertained on the date the signed Form 2504 or Form 2504-WC is received by the IRS. Therefore, the additional tax must be paid at the time the signed Form 2504 is received for the assessment to be completely interest-free.

    • Form 2504 or Form 2504-WC should be attached to the same period’s return as Form 4668.

  4. When specific conditions are met, the Internal Revenue Code (IRC) provides relief from paying certain employment taxes proposed or assessed by Exam:

    • IRC 3402(d) provides relief from paying income tax proposed or assessed by Exam if the employee reported the income and paid the taxes due with the employee's income tax return. IRC 3402(d) relief also applies to Exam assessments of backup withholding.

    • IRC 3102(f)(3) provides relief from paying Additional Medicare Tax (AdMT) proposed or assessed by Exam (for tax periods beginning after December 31, 2012) if the employee reported the income and paid AdMT due with the employee's income tax return.

    Caution:

    Income tax withholding assessed under IRC 3509 is not subject to abatement. See IRM 21.7.2.5.4 for more information on IRC 3509.

  5. To obtain relief under IRC 3402(d) and/or IRC 3102(f)(3), employers must:

    1. Secure a signed Form 4669, Statement of Payments Received, from the employee(s) covered by the examination.

    2. Prepare and sign a Form 4670, Request for Relief of Payment of Certain Withholding Taxes, indicating the tax year and number of statements (Form 4669) secured.

    3. Submit the signed Form 4670 with the signed Form(s) 4669 attached.

      Exception:

      If the tax due was paid prior to the filing of the Forms 4670 and 4669, then the Forms 4670 and 4669 must be attached to a properly completed claim form (Form 94XX) since that situation constitutes a claim for refund rather than a request for relief from payment as provided for under IRC 3402(d) or IRC 3102(f)(3).

  6. The Revenue Agent/Officer conducting the examination provides the employer with an extra copy of Form 4668 along with blank Forms 4669 and 4670. The employer is instructed to file the copy of the Form 4668, a Form 4670, and Form(s) 4669 with the appropriate campus.

    Note:

    Revenue Agents/Officers may process Forms 4670 and 4669 received before the examination is closed as per guidance in IRM 4.23.8.4.3, Procedures for Granting Relief Under IRC 3402(d) and/or IRC 3102(f)(3) by Examiners.

Processing Procedures for Forms 4669 and 4670
  1. Requests for relief under IRC 3402(d) and/or IRC 3102(f)(3) are not Exam criteria even though they involve tax accounts that were previously examined.

  2. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ "≡ ≡ ≡ ≡ ≡ ≡ ≡ " ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. The Form 4668 for the case must be secured to determine the amount of tax for which relief can be granted under IRC 3402(d) and IRC 3102(f)(3). Take the following actions if the employer submits Forms 4669 and 4670 without a copy of the Form 4668:

    1. Make two attempts to contact the employer (or an authorized representative) by phone to obtain a copy of the Form 4668.

    2. If unable to obtain the Form 4668 from the employer, request the TC 30X assessment document (or controlling DLN) on the last quarter of the calendar year shown on Form 4670.

      Note:

      If the TC 30X assessment document is charged out to Examination on an initial document request, suspend the case and request the document again after 30 days.

    3. If a copy of the Form 4668 cannot be obtained from the employer or from Files as per the above procedures, return the Forms 4669 and Form 4670 to the employer with instructions to resubmit the documents with a copy of the Form 4668.

  4. Use Forms 4668 and 4669 to determine the amount of tax to be adjusted as follows:

    Exception:

    Area Office Forms 3870, Request for Adjustment, do not need to be verified against Form 4668.

    • IRC 3402(d) relief requests:
      1) For the calendar year involved, add the figures shown on line 6a, "Payments subject to Income Tax Withholding" (line 6b, "Payments subject to Backup Withholding" , for backup withholding), of the Form(s) 4669 submitted with Form 4670.
      2) Multiply the figure determined in step 1 above by 28% (.28).
      3) The amount of the tax adjustment to be made is limited to the lesser of the tax figure determined in step 2 above or the amount shown on line 12, "Maximum tax available for abatement under IRC 3402(d)" , of Form 4668 (or line 20 of Form 4668-B).

      Caution:

      If line 12, Form 4668, is zero, blank or "none" , do not make any adjustment to income tax withheld (or backup withholding).

    • IRC 3102(f)(3) relief requests:
      1) For the calendar year involved, add the figures shown on line 6d, "Payments subject to Additional Medicare Tax Withholding" , of the Form(s) 4669 submitted with Form 4670.
      2) Multiply the figure determined in step 1 above by 0.9% (.009).
      3) The amount of the tax adjustment to be made is limited to the lesser of the tax figure determined in step 2 above or the amount shown on line 13, "Maximum tax available for abatement under IRC 3102(f)(3)" , of Form 4668.

      Caution:

      If line 13, Form 4668, is zero, blank or "none" , do not make any adjustment to AdMT.

      Note:

      The instructions above are based on current form versions. Relief requests filed on earlier versions of Form 4669 are to be processed whenever possible. See archived IRM versions if information relating to previous form versions is needed, including previous line numbers and line titles.

      Note:

      Revised Form 4669 includes line 6c, "Payments to Foreign Persons subject to Withholding Tax" , which can be used by taxpayers to request relief from payment of certain taxes proposed or assessed by Exam. Requests for relief of taxes related to payments which could be reported on line 6c of Form 4669 should not be received in Accounts Management. Contact the IRM author through the campus P & A Staff for guidance on resolving or rerouting the case if a Form 4669 is received in Accounts Management with a figure entered on line 6c of Form 4669.

  5. When the claim can be processed, adjust the module for the proper amount using either TC 291 or TC 299 (along with the appropriate IRNs) as follows:

    If And Then
    The employer signed the Form 2504 Interest is not restricted on the module Input TC 299 with an "interest from" date using the date the original signed Form 2504 was received by the IRS.
    The employer signed the Form 2504 Interest is restricted on the module Interest must be manually computed and adjusted unless the assessment qualified as a completely interest-free adjustment. Input TC 299 with an "interest from" date using the date the original signed Form 2504 was received by the IRS and the appropriate TC 34X amount. No underpayment interest is due on the amount being abated under IRC 3402(d) and/or IRC 3102(f)(3). However, underpayment interest is due on any remaining amount of the assessment from the date the original Form 2504 was received to the date of full payment.
    The employer did not sign the Form 2504 Interest is not restricted on the module See IRM 20.2.12.6.3 , Interest on Income Tax Withholding Assessment Abated under IRC 3402(d). Input TC 299 with an interest from date. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡
    The employer did not sign the Form 2504 Interest is restricted on the module See IRM 20.2.12.6.3 , Interest on Income Tax Withholding Assessment Abated under IRC 3402(d). Interest must be manually computed and adjusted. Input TC 299 with an interest from date and adjust interest with a TC 34x transaction as appropriate. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    If the Form 2504 is unavailable, and there is a TC 308 on the module, use the date of the TC 308 for the interest computation date when following the procedures in the table above. If there is no TC 308, request the assessment document or contact the employer for a copy of the Form 2504. Fax copies are acceptable.

  6. Restrict any penalty assessments on the module if a tax decrease made under these procedures would cause penalties to recompute. The employer is liable for all penalties as a result of the examination. Penalties should not be decreased when tax is adjusted.

  7. Documentation for the adjustment must include the Forms 4669 and 4670 provided by the employer, copy of the Form 4668, and Form 2504 (if secured).

IRC Section 127, Educational Exclusions

  1. Under IRC Section 127, an employer can exclude from gross income up to $5,250 per employee for educational assistance benefits. This benefit expired and was reinstated a number of times over the years until the Economic Growth and Tax Relief Reconciliation Act of 2001 permanently extended IRC 127.

  2. Employers should account for IRC Section 127 exclusions as they pay wages and report employment taxes during the year. However, employers may file claims on Forms 94XX if necessary when errors in reporting have occurred. Follow the procedures for the appropriate Form 94XX adjusted employment tax return when working these claims or adjustment requests.

  3. Employees unable to obtain refunds from their employer may file Form 843 to obtain a refund. A statement from the employer must be attached listing any amount which has been reimbursed by employer. If employee is unable to obtain this statement, they must provide this information to the best of their ability. (Contact the taxpayer if neither an employer or employee statement has been provided with the claim. Fax copies are acceptable.) When the required documentation is secured, follow procedures in IRM 21.7.2.4.6.4.2, Excess Social Security and Medicare Tax Withheld — Employee Claims for Refund, under "Claim is correctly filed with employer's statement attached" , in the "If/Then" table.

  4. See archived IRM 21.7.2 if information is needed with regards to the handling of claims for tax years ending December 31, 2001 or earlier.

Medical/Dental Residents Excess FICA Claims (United States vs. Mayo Foundation or Minnesota vs. Apfel)

  1. In the court case Minnesota vs. Apfel, 151 F.3d 742 (8th Cir. 1998), the court ruled that certain medical/dental residents may be considered students and, therefore, not subject to FICA taxes.

  2. On March 2, 2010, the Internal Revenue Service made an administrative determination to accept the position that medical residents are excepted from FICA taxes based on the student exception for tax periods ending before April 1, 2005 when new IRS regulations went into effect. The IRS has contacted hospitals and universities as well as medical residents who filed FICA (social security and Medicare tax) refund claims for these tax periods for the purpose of perfecting the claims. Additional information may be found on the IRS website at: IRS to Honor Medical Resident FICA Refund Claims.

  3. Final regulations under IRC 3121(b)(10) (the "student exception" ) clarified who can be considered a student for purposes of the student exception. The final regulations provide that an employee whose normal work schedule is 40 hours or more per week is considered a full-time employee and is not eligible for the student FICA exception (the "full-time employee" rule). This prevents medical residents from being considered students and therefore wages earned by medical residents are considered wages subject to FICA taxes. The final regulations are applicable with respect to services performed on or after April 1, 2005.

  4. In Mayo Foundation for Medical Education and Research et al v. United States, 131 S. Ct. 701 (2011), the Supreme Court held that the full-time employee rule was valid. This resolved the FICA tax treatment of wages paid to medical residents for tax periods beginning on or after April 1, 2005.

  5. Two explanations frequently used by taxpayers when attempting to claim exemption from FICA (social security and Medicare) taxes are:

    1. "Amounts paid to residents in training are scholarship grants for training. Such training grants are not payments for services within the meaning of IRC Section 117(c) or Section 3121(b)(10). Consequently, these training grants are not subject to FICA taxes."

    2. "Amounts paid to residents in training were originally included in the FICA (Social Security and Medicare) wages for periods included in this Form 941-X. We are adjusting the FICA (Social Security and Medicare) wages to exclude the amounts paid to residents in training since these amounts are not subject to FICA taxes."

  6. For medical/dental resident claims filed by employers, including those citing the Mayo Foundation decision and/or citing Section 218 agreements, follow handling procedures in IRM 21.7.2.5.10.1, Employer Claims (Medical/Dental Residents).

  7. For medical/dental resident claims filed by employees, including those citing the Mayo Foundation decision and/or citing Section 218 agreements, follow handling procedures in IRM 21.7.2.5.10.2, Employee Claims (Medical/Dental Residents).

Employer Claims (Medical/Dental Residents)
  1. Follow the instructions in the table below for Medical/Dental Resident claims filed by employers, including those citing the Mayo Foundation decision and/or citing Section 218 agreements.

    If And Then
    A claim (Form 941-X) is filed for any tax period. There is no evidence of timely filing Disallow the claim on the basis of the expired refund statute expiration date (RSED) and send Letter 105C as per instructions in IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures, and IRM 25.6.1.10.2.5.3 , Notification to Taxpayer Upon Disallowance of a Claim.
    A claim (Form 941-X) is filed for a tax period before April 1, 2005. There is evidence of timely filing. Forward as CATA and notate case as 'CATAMEDDEN'.

    Exception:

    Do not send CAT-A until the claim is complete for processing, including all required certifications. Take the following actions on incomplete claims:
    1. Attempt to contact the taxpayer (employer) for the necessary information. (The information can be faxed as long as the original claim contains a signature.) Upon receipt, follow instructions above.
    2. If unable to contact the taxpayer (employer), return the claim using Letter 916C. Inform the taxpayer (employer) of the information needed and instruct them to resubmit the claim when the necessary information is obtained. If the claim is received within 180 days of RSED, follow procedures in IRM 21.5.3.4.3, Tax Decrease and Statute Consideration.

    A claim (Form 941-X) is filed for a tax period after March 31, 2005 The claim is timely filed Disallow the claim and send Letter 105C as per instructions in IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. The following language should be used in the disallowance letter open paragraph: "Your claim(s) is being denied because of the Supreme Court decision in Mayo Foundation for Medical Education and Research v. United States, 131 S. Ct. 704 (2011). In that case, the Court held that medical residents do not qualify for exemption from FICA taxes as “students” under Internal Revenue Code Section 3121(b)(10) for tax periods ending after March 31, 2005."

    Note:

    For tax period 200812 and earlier, employers could correct errors and make claims (including Medical/Dental claims) for prior tax periods as line adjustments on a current employment tax return. For Medical/Dental Resident claims taken as line adjustments on returns filed for tax periods ending December 31, 2008 and earlier, follow the table above. For Medical/Dental Resident claims taken as line adjustments on returns filed for tax periods ending after December 31, 2008, follow the appropriate section of IRM 21.7.2.4.6.7, Exception Processing — Incorrect Filing, Including Forms Routed to AM from SP.

Employee Claims (Medical/Dental Residents)
  1. Follow the instructions in the table below for Medical/Dental Resident claims filed by employees, including those citing the Mayo Foundation decision and/or citing Section 218 agreements.

    If And Then
    A claim is filed for any tax period There is no evidence of timely filing Disallow the claim on the basis of the expired refund statute expiration date (RSED) and send Letter 105C as per instructions in IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures, IRM 25.6.1.10.2.5.3 , Notification to Taxpayer Upon Disallowance of a Claim, and the last two rows of the If/Then Table in (3) of IRM 21.7.2.4.6.4.2, Excess Social Security and Medicare Tax Withheld — Employee Claims for Refund.
    A claim is filed for a tax period before January 1, 2006. There is evidence of timely filing. Forward as CATA and notate case as 'CATAMEDDEN'.

    Exception:

    Do not send CAT-A until the claim is complete for processing, including the employer statement (or equivalent employee statement) discussed in IRM 21.7.2.4.6.4.2, Excess Social Security and Medicare Tax Withheld — Employee Claims for Refund. Take the following actions on incomplete claims:
    1. Attempt to contact the taxpayer (employee) for the necessary information. (The information can be faxed as long as the original claim contains a signature.) Upon receipt, follow instructions above.
    2. If unable to contact the taxpayer (employee), return the claim using Letter 916C. Inform the taxpayer (employee) of the information needed and instruct them to resubmit the claim when the necessary information is obtained. If the claim is received within 180 days of RSED, follow procedures in IRM 21.5.3.4.3, Tax Decrease and Statute Consideration.

    A claim is filed for a tax period after December 31, 2005. The claim is timely filed Disallow the claim and send Letter 105C as per instructions in IRM 21.5.3.4.6.1, Disallowance and Partial Disallowance Procedures. The following language should be used in the disallowance letter open paragraph: "Your claim(s) is being denied because of the Supreme Court decision in Mayo Foundation for Medical Education and Research v. United States, 131 S. Ct. 704 (2011). In that case, the Court held that medical residents do not qualify for exemption from FICA taxes as “students” under Internal Revenue Code Section 3121(b)(10) for tax periods ending after March 31, 2005."

    Note:

    Although Form 1040X is not the proper form to file for refund or credit of these excess FICA claims, we will accept it for processing purposes if it contains the necessary information. However, if the claim is filed on a Form 1040X and you are rejecting the claim back to the employee, you must advise the employee that Form 843 (rather than Form 1040X) must be used when/if the claim is resubmitted with the necessary information.

Foreign Students — FICA Tax Erroneously Withheld

  1. Per IRC 3121(b)(19), certain foreign students and other non-resident aliens are exempt from FICA for services performed as specified in Section 101(a)(15)(F), (J), (M), or (Q) of the Immigration and Nationality Act.

  2. It is generally the employer's responsibility to determine the tax status of foreign students and other non-resident employees for employment tax purposes. However, employers sometimes erroneously treat an exempt employee's wages as taxable for FICA. In that situation, claims for refund or credit may be filed by either the employer or the employee:

    • See IRM 21.7.2.5.11.1, Procedures for Inquiries Received From Foreign Students, for handling guidance on inquiries and claims filed by employees for this issue.

    • See IRM 21.7.2.5.11.2, Employer Claims Involving Foreign Students, for handling guidance on inquiries and claims filed by employers for this issue.

Procedures for Inquiries Received From Foreign Students
  1. Employers may in some instances erroneously withhold FICA taxes from exempt foreign students and other non-resident aliens holding F, J, M, or Q visas. Employees for whom FICA taxes are erroneously withheld should seek reimbursement from their employer. However, If the employee is unable to obtain repayment or reimbursement from their employer, they may file a claim for refund of the erroneously withheld FICA taxes.

    Caution:

    Any excess Additional Medicare Tax (AdMT) withheld by an employer and not repaid or reimbursed to the employee in the same calendar year must be claimed on an income tax return.

  2. In order to substantiate exemption from FICA taxes, the individual holding the F, J, M, or Q visa must supply:

    1. Completed and signed Form 843 claim for each employer. If the claim is for more than one employer, but otherwise complete with all required documentation, the claim may be processed.

    2. Form W-2 (If a Form W-2 is not provided, the FICA withholding amount can be verified using CC IRPTR, if available.) If the visa status changed, a copy of the pay stub is needed to verify the FICA amount claimed.

    3. A copy of the entry and current visa.

    4. Form I-94, Arrival/Departure Record, or other documentation showing the dates of arrival and departure.

      Note:

      Overseas filers no longer have the Form I-94 since the USCIS (US Citizenship and Immigration Service) keeps this document when the student/visitor leaves the United States.

    5. Form I-20 (for F-1/M-1 visa(s) only) or IAP-66/DS-2019 (for J-1 visa only).

    6. Form 8316, Information Regarding Request for Refund of Social Security Tax Erroneously Withheld on Wages Received by a Nonresident Alien on an F, J, or M Type Visa , or signed claim/statement verifying that unsuccessful attempts have been made to obtain a refund from the employer. Statements in lieu of the Form 8316 must include all the information requested on the Form 8316.

      Note:

      For I-766 or I-688B (Employment Authorization Document) is issued by USCIS and is needed only if the student is engaged in optional practical training. See IRM 21.8.2.7.1.1, Optional Practical Training and Curricular Practical Training (CPT).

  3. Foreign student claims filed by employees are processed by International teams at the Ogden campus as per procedures in IRM 21.8.2.7.3, Processing Employee Claims.

  4. Process foreign student claims received at any campus other than at Ogden as follows:

    If Then
    The employee's claim is complete for processing (verify items discussed in (2) above are attached). Route these claims to the following address and advise the taxpayer of the transfer via Letter 86C:
    Ogden Campus
    1973 N Rulon White Blvd
    Ogden, Utah 84404
    M/S 6552
    The employee's claim is not complete for processing (verify items discussed in (2) above are attached). Follow procedures in IRM 21.8.2.7.3(4) and advise the employee in the required Letter 513C to file a complete claim at the Ogden campus address as above if they are unable to obtain reimbursement from their employer.

    Note:

    Employer claims involving foreign students must be filed on the appropriate Form 94XX and are processed at the Cincinnati or Ogden Campuses. See IRM 21.7.2.5.11.2, Employer Claims Involving Foreign Students.

Employer Claims Involving Foreign Students
  1. Employer claims must be filed on the appropriate Form 94XX and are processed at the Cincinnati or Ogden Campuses.

  2. There are no special procedures (see Exception in (3) below) for Forms 94XX filed by employers seeking refunds or credits of FICA taxes erroneously withheld from employees who are foreign students and other exempt non-resident aliens holding F, J, M, or Q visas or for the associated employer's share of FICA taxes.

  3. Forms 94XX filed by employers for this issue are to be processed as per the general Form 94XX processing instructions in IRM 21.7.2.4.6, Adjusted Employer's Federal Tax Return or Claim for Refund, and the procedures for the specific type of Form 94XX and filing situation (e.g., if the 941-X received is a tax decrease - claim for refund, follow IRM 21.7.2.4.7.6.2, Form 941-X Tax Decrease — Claim).

    Exception:

    If the employee has already filed a Form 843 claim and received a refund of erroneously withheld FICA taxes, then the employer may only obtain a refund or credit for the employer's share of associated FICA taxes. In that instance, the account will reflect a reduction in wages and a reduction in tax equal to the employee's share of FICA taxes. The Form 94XX filed by the employer may reflect an identical reduction in wages as was posted with the employee claim adjustment. If so, adjust IRN 112 (or IRN 007 as appropriate) but do not reduce wages a second time.

    Note:

    Employee claims involving foreign students are filed on Form 843 and are processed by International teams at the Ogden Campus. See IRM 21.7.2.5.11.1, Procedures for Inquiries Received From Foreign Students, for handling and routing information if an employee claim is received at a site other than Ogden.

IRC Section 3121(q) Adjustments

  1. IRC section 3121(q) provides that the employers pay their share of FICA taxes on tips reported by their employees. Such remuneration is deemed to have been paid at a time a written statement including such tips is furnished to the employer. If no such statement is furnished (or to the extent the statement is incomplete or inaccurate) such remuneration shall be deemed paid on the date on which notice and demand for such taxes is made to the employer.

  2. Following a tip examination, employers must pay the employer portion of FICA taxes on unreported tips shown on the Section 3121(q) Notice and Demand. See Letter 3263 and Letter 4520 for more information. They are instructed to include the taxes due on line 5e of their Form 941 for the quarter in which the Section 3121(q) Notice and Demand is made.

    Note:

    For tax periods in 2009 and 2010, taxpayers were instructed to report these taxes on line 7c of Form 941, notate "3121(q)" beside the line, and attach a copy of the Notice and Demand. For tax years 2005 through 2008, instructions were for these taxes to be reported on Line 7e of Form 941.

  3. Generally, the statute of limitations for assessment is three years after April 15 of the calendar year following the Section 3121(q) Notice and Demand date. However, if the employer files Form 941 late and the filing date is after April 15 of the calendar year following the year the Section 3121(q) Notice and Demand is made, the Service must assess the employer FICA taxes within 3 years after the date the return was filed.

    Example:

    If the employer files Form 941 for the first quarter of 2015 on July 12, 2016, the assessment period ends on July 12, 2019.

    Note:

    If the employer files a false or fraudulent Form 941 for the quarter in which the liability is required to be reported or fails to file Form 941 for that quarter, the additional employer FICA taxes on the unreported tips can be assessed at any time.

Procedures for Section 3121(q) Adjustments — Forms 941-X
  1. Even though employers are instructed to report a Section 3121(q) tip liability on their current period original Form 941, a Form 941-X may be received reporting a Section 3121(q) liability as an adjustment.

  2. If Form 941-X is received reporting a Section 3121(q) adjustment, verify all applicable sections are complete. See IRM 21.7.2.4.6, Adjusted Employer's Federal Tax Return or Claim for Refund, and IRM 21.7.2.4.7.6, Form 941-X, Adjusted Employer's QUARTERLY Federal Tax Return or Claim for Refund (including Form 941-X (PR)).

    Note:

    IRC Section 3121(q) liabilities must be reported for the tax period in which the Section 3121(q) Notice and Demand was dated.

    Example:

    Section 3121(q) Notice and Demand was dated March 30, 2014. If Form 941-X is filed, the adjustment must be input on the 201403 tax period.

  3. Section 3121(q) adjustments reported on Forms 941-X may qualify for interest-free treatment in limited situations. See IRM 21.7.2.5.12.2, Section 3121(q) and Interest-Free Adjustments, for information on when to use a TC 298 or TC 290 when making Section 3121(q) adjustments.

  4. IRN 114 is used to adjust the employer's share of social security and Medicare tax for Section 3121(q) liability on Form 941 for tax periods beginning on or after 01/01/2011. IRN 114 corresponds to Line 5f of Form 941 and Line 12 of Form 941-X.

    Note:

    IRN 112 was used for Section 3121(q) adjustments on MFT 01 for tax periods ending on or before 12/31/2010.

  5. Accept the employer's figure as reported unless a Section 3121(q) Notice of Demand is attached indicating the amount should be higher. In that case, adjust the account using the higher figure shown on the Section 3121(q) Notice of Demand and inform the employer using Letter 4384C.

    Exception:

    If an employer attaches a copy of a Section 3121(q) Notice and Demand to Form 941-X and it can be determined the employer reported both the employee and employer shares of the social security and Medicare tax adjustment, assess only the employer share of social security and Medicare taxes and inform the employer using Letter 4384C.

    Note:

    If an employer attaches a copy of a Section 3121(q) Notice and Demand to Form 941-X but does not report the tax on the Form 941-X and it was not reported with the original Form 941, assess the amount shown on the Section 3121(q) Notice and Demand and inform the employer using Letter 4384C.

  6. Do not adjust IRN 072 (Tips deemed to be wages) or IRN 073 (Medicare wages) when making Section 3121(q) adjustments for tax periods beginning on or after January 1, 2011 even if the employer provides wage information related to the adjustment on a Form 941-X or attaches the Section 3121(q) Notice and Demand. Wage data figures related to Section 3121(q) adjustments will not be recorded for tax periods beginning on or after January 1, 2011.

    Note:

    For tax periods ending December 31, 2010 and earlier, Section 3121(q) adjustment procedures included instructions to adjust IRN 072 and IRN 073 to record the wages on which the tax was reported.

  7. Ensure all applicable deposits have been applied to the account being adjusted.

  8. Adjust the FTD penalty when using either a TC 290 (see IRM 20.1.4.21.3, Amended or Supplemental (Tax Decrease or Non-Interest-Free Tax Increase)) or a TC 298 (see IRM 20.1.4.21.5, Adjusted Returns (Forms 941-X, 943-X, 944-X, and CT-1X)).

    Note:

    See IRM 20.1.4.21.5.1, Amended ROFTL (Forms 941-X, 943-X, 944-X, 945-X, and CT-1X), when using a TC 298 or TC 290 and an amended ROFTL was provided with the adjusted return.

    Caution:

    For tax decreases with an unreversed FTD penalty, see IRM 20.1.4.21.5, Adjusted Returns (Forms 941-X, 943-X, 944-X, and CT-1X).

Section 3121(q) and Interest-Free Adjustments
  1. The date of the Section 3121(q) Notice and Demand is the ascertained date for the taxes due.

    • To qualify for interest-free treatment, a Form 941-X reporting additional tax must be filed by the due date for the tax period in which the liability for additional tax was ascertained. See IRM 21.7.2.4.6.2, Interest-Free Adjustments (Employment Tax Returns).

    • IRC Section 3121(q) liability must be reported for the tax period in which the Section 3121(q) Notice and Demand letter was dated.

    • Therefore, a Form 941-X reporting taxes due for a Section 3121(q) adjustment has the same filing due date as the tax period being adjusted. If the Form 941-X is filed after the return due date for the tax period being adjusted, the adjustment does not qualify for interest-free treatment.

      Example:

      An employer receives a Section 3121(q) Notice and Demand dated June 22, 2015. The ascertained date for the taxes due is therefore June 22, 2015. Per the instructions provided to the employer, the taxes shown on the Section 3121(q) Notice and Demand should be reported on their Form 941 for the second quarter of 2015 which has a filing due date of July 31, 2015. Instead, the employer reports the correction on a Form 941-X. The ascertained date is still June 22, 2015 based on the Section 3121(q) Notice and Demand and the Form 941-X reporting the Section 3121(q) tax is due by July 31, 2015. The employer files the Form 941-X on July 27, 2015. Therefore the adjustment qualifies for interest-free treatment.

      Example:

      An employer receives a Section 3121(q) Notice and Demand dated September 21, 2015. The ascertained date for the taxes due is therefore September 21, 2015. Per the instructions provided to the employer, the taxes shown on the Section 3121(q) Notice and Demand should be reported on their Form 941 for the third quarter of 2015 which has a filing due date of October 31, 2015. Instead, the employer reports the correction on a Form 941-X. The ascertained date is still September 21, 2015 based on the Section 3121(q) Notice and Demand and the Form 941-X reporting the Section 3121(q) tax is due by October 31, 2015. The employer files the Form 941-X on November 15, 2015. The Form 941-X was filed late and therefore the adjustment does not qualify for interest-free treatment.

  2. Use the following table to determine whether to make the Section 3121(q) adjustment using a TC 290 or TC 298:

    If Then
    The Form 941-X is not filed by the due date of the tax period for which the Section 3121(q) adjustment is reported Input the adjustment using a TC 290.
    The Form 941-X is filed by the due date of the tax period for which the Section 3121(q) adjustment is reported Input the adjustment using a TC 298. Input the return due date of the tax period being adjusted as the interest computation date.

    Exception:

    If the Page 1 error discovery date, information in Part 4, or the date of the Section 3121(q) Notice and Demand (if attached) indicate the employer filed the Form 941-X for a tax period other than that required based on the ascertained date, input the adjustment as a TC 290 or TC 298 (if timely filed) on the tax period associated with the ascertained date and inform the employer using Letter 4384C.

    Note:

    For the Section 3121(q) adjustment to be completely interest-free, the tax must be paid by the return due date of the tax period for which the adjustment is reported. Otherwise, underpayment interest accrues from that date to the date of full payment.

Taxpayer Reports Other Adjustments In Addition to Section 3121(q) Adjustments
  1. Even though employers are instructed to report a Section 3121(q) liability on their current period original Form 941, a Form 941-X may be received reporting a Section 3121(q) liability as an adjustment. And, if a taxpayer reports a Section 3121(q) adjustment on Form 941-X, it is possible they may also report other adjustments on the same Form 941-X.

  2. If a Section 3121(q) adjustment and other corrections are reported on the same Form 941-X, separate adjustment actions may be required as per the following table:

    If And Then
    The Form 941-X is filed by the due date of the tax period for which the Section 3121(q) adjustment is reported Input one adjustment for the entire amount of the corrections reported using a TC 298. Input the return due date of the tax period being adjusted as the interest computation date.

    Reminder:

    Use IRN 114 for the Section 3121(q) portion of the tax adjustment.

    The Form 941-X is not filed by the due date of the tax period for which the Section 3121(q) adjustment is reported The employer provided an ascertained date for the other errors being corrected and the Form 941-X was timely filed by the associated due date Input the Section 3121(q) adjustment using a TC 290 and IRN 114. Input the adjustment for the other errors being corrected as a separate TC 298 adjustment using the Form 941-X received date as the interest computation date.
    The Form 941-X is not filed by the due date of the tax period for which the Section 3121(q) adjustment is reported The employer did not provide an ascertained date for the other errors being corrected Input one adjustment for the entire amount of the corrections reported using a TC 290.

    Reminder:

    Use IRN 114 for the Section 3121(q) portion of the tax adjustment.

    The Form 941-X is not filed by the due date of the tax period for which the Section 3121(q) adjustment is reported The employer provided an ascertained date for the other errors being corrected but the Form 941-X was not timely filed by the associated due date Input one adjustment for the entire amount of the corrections reported using a TC 290.

    Reminder:

    Use IRN 114 for the Section 3121(q) portion of the tax adjustment.

    Reminder:

    If the Page 1 error discovery date, information in Part 4, or the date of the Section 3121(q) Notice and Demand (if attached) indicate the employer filed the Form 941-X for a tax period other than for which the Section 3121(q) liability is required to be reported, input the adjustment for the Section 3121(q) liability as a TC 290 or TC 298 (if timely filed) on the correct tax period and inform the employer using Letter 4384C.

IRC Section 3121(v)

  1. FICA tax is generally imposed at the time wages are actually or constructively paid. However, IRC Section 3121(v)(2)(A), contains a special timing rule. This special timing rule usually results in imposition of FICA tax before benefit payments under the plan begin. The rule provides that any amount deferred under a non-qualified deferred compensation (NQDC) plan must be taken into account as wages for FICA tax purposes the later of:

    • When the services are performed; or

    • When there is no substantial risk of forfeiture of the rights to such amount

  2. Section 31.3121(v)(2)-1, of the employment tax regulations provides guidance as to when amounts deferred under, or paid from, an NQDC plan are taken into account as wages for purposes of FICA tax.

IRC Section 3121(v) Claims and Requests for Adjustments
  1. Any claims or requests for adjustments (including increases) received on Form 94XX (or Form 843) that indicate any of the following must be routed as CAT-A (Category A):

    • 3121(v)

    • Regulations Section 31.3121(v)

    • Non-qualified deferred compensation (or NQDC)

    • Deferred compensation

    • Transitional rules

    • Treasury Decision 8814

    • Other indications suggesting that IRC Section 3121(v) is at issue

    Exception:

    See IRM 21.7.2.5.13.2 for procedures relating to airline employee/retiree claims.

  2. These cases must be recontrolled to Exam. If Exam returns the case, handling instructions will be included.

    Note:

    If a claim is received on Form 843 and Exam provides instructions to disallow the claim, follow normal claim disallowance procedures.

  3. See archived files for this IRM if information is needed on previous handling for this issue.

IRC Section 3121(v) — FICA Claims from Airline Employees and Retirees
  1. Current or retired ≡ ≡ ≡ ≡ ≡ Airline and ≡ ≡ ≡ Airline employees whose nonqualified deferred pension benefit plans were terminated during the airlines' bankruptcy proceedings have filed claims for refund. Generally, these retirees' claims request a refund of the 1.45% Medicare tax and occasionally the 6.2% social security tax paid by the employer under IRC Section 3121(v)(2)(A). The refund claim amounts are based on FICA taxes paid on the net present value of the deferred benefit for that employee once the value became reasonably ascertainable and the FICA taxes that would have been assessed, if paid on the actual deferred pension benefit received by the retiree. The majority of the claims are related to Medicare tax.

  2. Claims have been filed on Form 843 and/or Form 1040X. These claims may be received at any campus.

  3. All these claims must be disallowed.

    1. Input TC 290 .00 with appropriate blocking series.

    2. Send Letter 105C and include the following paragraphs:

    "We have disallowed your claim for refund of FICA taxes. Section 3121(v)(2) of the Internal Revenue Code requires an employer withhold and pay FICA taxes on amounts deferred under nonqualified deferred compensation plans once the present value of the deferred benefit becomes reasonably ascertainable."

    "Unfortunately, an inherent feature of these plans is that benefits promised by the employer may never actually be distributed to the employees. Even though you may never receive the full value of the deferred benefits, these FICA taxes must be withheld and remitted by the employer. There are no provisions in law which allows the refund of FICA taxes if the plan is terminated."

    Note:

    Ensure all applicable years are addressed in the disallowance process.

    Note:

    Refer to IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns, for additional information.

  4. In addition to the above paragraph, if the taxpayer's claim was not timely filed, provide the following paragraph:

    "You filed your claim for refund more than 3 years after the date the tax return for withheld employee FICA taxes was to be filed. Withheld employee FICA taxes are deemed to be paid, and the tax returns with respect to such taxes are deemed to be filed on April 15 of the calendar year succeeding the calendar year in which your employer remitted these FICA taxes on your behalf."

    Note:

    The "not timely filed" paragraph is required in addition to the "substantive language" paragraph if the Form 843 and/or Form 1040X is filed more than 3 years following April 15 of the year following the year of retirement or any claim year.

FICA Adjustments on Exempt Organizations Pursuant to IRC Section 501(c)(3)

  1. Organizations exempt under IRC Section 501(c)(3) are liable for FICA taxes with few exceptions.

  2. Churches and qualified church-controlled organizations opposed to the payment of FICA taxes for religious reasons, are provided a method to elect exemption from the employer's share of FICA taxes. See IRM 21.7.2.5.14.2, Form 8274, Churches Making the Election for Exemption From FICA.

IRC Section 501(c) Definitions
  1. Church means a church described in IRC Section 501(c)(3) and IRC Section 170(b)(1)(A)(i) which includes conventions or associations of churches.

  2. It also includes elementary or secondary schools controlled, operated, or principally supported by a church.

  3. IRC Section 3121(w)(3)(B) provides that a qualified church-controlled organization includes any church-controlled tax-exempt organization described in IRC Section 501(c)(3), except if the organization both:

    1. Offers goods, services, or facilities for sale to the general public, other than on an incidental basis or other than for a nominal charge; and

    2. Normally receives more than 25% of its support from governmental sources or receipts from admissions, sales of merchandise, performance of services, or finishing of facilities in related trade or business activities, or both.

Form 8274, Churches Making the Election for Exemption From FICA
  1. The election is made by filing Form 8274, Certification by Churches and Qualified Church-Controlled Organizations Electing Exemption From Employer Social Security and Medicare Taxes.

    • Form 8274 is filed after the electing organization has hired employees, but before the first date on which Form 941 (or Form 944) is due, or would otherwise be due, except for this election.

    • Form 8274 is processed by the Entity Control Function. See IRM 3.13.2, BMF Account Numbers.

    • Form 8274 can be recognized by Employment Code (EC) "C" .

  2. The election applies to services performed by all current and future employees of the electing organization. The election does not apply to:

    • Service as minister of a church

    • Members of a religious order

    • Service performed in unrelated trade or business of the church or qualified church-controlled organization

  3. The electing organization is required to withhold federal income tax on wages, tips, and other compensation. Forms W-2 and 941 (or 944) must be filed as appropriate. The IRS will permanently revoke the election if the organization does not file Form W-2 for two years or more and does not provide the information within 60 days after a written request by the IRS.

  4. By filing a Form 941 (or Form 944) and paying FICA taxes, the election can be permanently revoked.

Claims (IRC Section 501(c))
  1. Allow the claim if the TC 070 establishment date is within, or prior to, the quarter for which the claim is filed, and either of the conditions below exist:

    1. The claim is filed under one of the exceptions from wages under IRC Section 3121(a).

    2. There is a miscalculation of tax on a previously filed return.

  2. Do not allow the claim if any of the conditions below exist:

    1. A nonprofit organization requests a refund based on "constitutional rights" .

    2. It is filed for refund of FICA taxes and the establishment date posted with TC 070 is after the quarter for which it is filed.

    3. The Form 8274 election was revoked by IRS (TC 071).

    4. The exempt Status under IRC Section 501(c)(3) was revoked (EO Status Code 22) or denied (EO Status Code 70). See IRM 3.13.12.6.18.2, EO Status Codes.

  3. Also, see IRM 21.5.3, General Claims Procedures, for Category A issues.

State and Local Government FICA Under Section 218

  1. Both the employer and employee share of FICA taxes are collected and reported to IRS by state and local government employers if the employees are covered under Section 218 of the Social Security Act.

    1. Section 218 provides a state may enter into a voluntary agreement with the Commissioner of Social Security to provide social security coverage for its employees and the employees of local governments within the state.

    2. Employers under Section 218 agreements are identified by Employment Code (EC) "T" . See Section 3, Document 6209, IRS Processing Codes and Information, for additional information on Employment Codes.

  2. If taxpayer states they are not liable for FICA:

    If Then
    EC is "T" Inform taxpayer they are liable for FICA.
    EC is not"T" Abate any FICA taxes assessed.
    Taxpayer states they did not have any employees during the period Abate any FICA taxes assessed.
    TC 150 shows zero tax and no FICA taxes or wages are shown No adjustment action is necessary.
    There are any discrepancies concerning the agreement Advise taxpayer to contact SSA.
  3. If taxpayer writes concerning payments made to the State, advise taxpayer to contact the State.

Internally Generated Transcripts (IRC Section 218 Coverage)
  1. Transcripts may be received from Accounting which involve EC "T" or EC "G" issues.

  2. If it can be determined taxpayer has Section 218 coverage, take the following action:

    1. Change EC to "T" with a filing requirement of "01" , if not already posted on the entity module.

    2. After input of the EC, or if EC "T" has already posted, input TC 29X (see IRM 21.5.2.4.17, Posting Delay Code (PDC)) with IRN's 004, 112, and 073 to assess FICA taxes based on the wages shown on the return.

    3. Advise taxpayer of action taken.

    4. If no wages are reflected on return, correspond with taxpayer to obtain correct wages.

  3. If you cannot determine taxpayer coverage, verify with appropriate State Social Security Office whether entity is covered by a Section 218 agreement.

    1. See IRM 3.13.12.6.28.11, Employment Code T, for contact information.

    2. If Section 218 coverage is elected, process as in (2) above.

    3. If Section 218 coverage is not elected, correspond with taxpayer to resolve issues regarding social security coverage status.

Claims Related to CSX Corp. and/or Quality Stores, Inc. Litigation

  1. Claims have been filed for refunds or adjustments of FICA, RRTA (Railroad Retirement Tax Act), or FUTA taxes based on the following litigation:

    • The Court of Federal Claim's opinion in CSX Corp. v. United States, 518 F3d 1328 (Fed. Cir 2008), and/or,

    • The Sixth Circuit's opinion in United States v. Quality Stores, Inc.

  2. Most of these claims have been filed on Form 941-X, but have also been seen on Forms 843, Forms 941 with the words "amended return" written in, as line adjustments on Form 941, or on stand alone Forms 941c. With respect to RRTA tax, the claims may have been filed on Forms CT-1 X, amended Forms CT-1, or amended Forms CT-2. With respect to FUTA tax, the claims may have been filed on amended Forms 940. Forms affected include CT-1, CT-2, 940, 941, and possibly 943. These claims could have been received at any campus.

  3. Most claims received referenced CSX Corp. v. United States. and/or United States v. Quality Stores, Inc. Each of these court cases addressed whether certain payments made pursuant to reduction in force programs are considered wages for purposes of FICA and FUTA taxes and compensation for purposes of RRTA taxes. However, any claim referencing an item in the list below must also be handled in accordance with the procedures which follow.

    • "Involuntary Separation Plans"

    • "Involuntary Termination Benefits"

    • "SUCB" or "SUB-pay"

    • "Reduction in Force"

    • "Severance pay"

  4. In United States v. Quality Stores Inc., et al., 134 S. Ct. 1395 (March 25, 2014), the Supreme Court held that the severance payments in question were subject to FICA. All claims meeting the criteria discussed above are to be disallowed, including those with addresses of record in the Sixth Circuit (Kentucky, Michigan, Ohio, and Tennessee) and those with Form 8275, Disclosure Statement, attached.

    1. Input TC 290 .00 with appropriate blocking series.

    2. Send Letter 105c and include the following paragraphs:

      "Your claim is being denied because of the decision of the Supreme Court of the United States in United States v. Quality Stores, Inc., et al., 134 S. Ct. 1395 (March 25, 2014). In that case, the Supreme Court held that all of the payments were taxable wages for FICA tax purposes."

    Note:

    Claims citing Rev. Rul. 90-72 (with or without other citations) with IRS received dates prior to October 1, 2014 are to be formally disallowed as per the instructions provided above. For claims citing Rev. Rul. 90-72 received on or after October 1, 2014, see IRM 21.7.2.5.25, Claims Citing Rev. Rul. 90-72 (SUB-pay).

    Caution:

    Ensure all applicable years are addressed in the disallowance process.

    Reminder:

    Refer to IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns, for additional information.

  5. Responses to 105c letters issued per the instructions in (4) are to be handled as per instructions in IRM 21.5.3.4.6.2, Appeals and Responses to Letter 105C and 106C.

    Exception:

    Responses to 105C letters stating the supplemental unemployment plan satisfies all the requirements of Rev. Rul 90-72 require development by Exam prior to acceptance in Appeals. See (2) in IRM 21.7.2.5.25 for handling instructions.

FICA Claims from Automotive Industry Employees

  1. Former and/or current employees of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ who were offered buyouts have filed claims for refund. These buyouts were correctly treated as wages and subject to FICA Withholding. Under Rev. Rul. 2004-110, the employee receives the payment as consideration for cancelling the remaining period of their employment contract and relinquishing their contract rights. As such, the payment is part of the compensation the employer pays for employment. The payment provided by the employer to the employee is wages for purposes of FICA, FUTA, and federal income tax withholding. This conclusion applies regardless of the name by which the reimbursement is designated or whether the employment relationship still exists at the time the payment is made.

  2. Claims have been filed on Form 843 and/or Form 1040X by employees of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . These claims may be received at any campus.

  3. All these claims must be disallowed.

    1. Input TC 290 .00 with appropriate blocking series.

    2. Send Letter 105C and include the following paragraph:

      "Your claim is being denied. See Rev. Rul. 2004-110 which states that an amount paid to an employee as considerations for cancellation of an employment contract and relinquishment of contract rights is ordinary income and wages for purposes of FICA, FUTA, and federal income tax withholding."

      Note:

      See IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns, for more information.

Refund Claims/Major League Baseball

  1. Alert S02163 dated 03/25/2002 provided instructions for referring claims for refunds of excess FICA or FUTA tax, received from Major League Baseball Clubs or players. No future claims are expected. If a claim is received, contact the author of this IRM through proper channels.

Premium Assistance for COBRA Benefits

  1. COBRA (Consolidated Omnibus Budget Reconciliation Act) gives employees who lose coverage under the employer's group health plan due to a "qualifying event" , one of which is a termination of employment, the right to elect to continue that coverage for a period of time by paying premiums to the employer to continue such coverage. COBRA (under the Code, ERISA, or the Public Health Service Act) generally covers multi-employer health plans and health plans maintained by private-sector or state or local government employers with 20 or more employees. It generally does not apply to churches and certain religious organizations.

  2. The American Recovery and Reinvestment Act of 2009 (as modified by subsequent legislation) provides premium assistance for COBRA continuation coverage for certain individuals and their families (referred to as assistance eligible individuals) who lose health plan coverage due to an involuntary termination of employment during the period beginning September 1, 2008 and ending May 31, 2010 and who are eligible for COBRA continuation coverage during this period. Workers who were involuntarily terminated between September 1, 2008 and February 17, 2009 (date of enactment), but failed to initially elect COBRA or initially elected COBRA coverage and dropped it before February 17, 2009, were required to be given an additional period to elect COBRA and receive the subsidy. The premium assistance also applies to temporary continuation coverage elected under the Federal Employees Health Benefits Program and to continuation coverage under State programs that provide for coverage comparable to COBRA continuation coverage.

  3. A federal subsidy of 65% of the COBRA premium is available to assistance eligible individuals for up to 15 months.

    • Assistance eligible individuals who elect COBRA continuation coverage are treated as having paid the required COBRA continuation coverage premium if the individual elects COBRA and pays 35% of the premium.

    • The 65% of the premium not paid by the assistance eligible individual is reimbursed to the employer maintaining the group health plan through a credit against payroll taxes.

    • Individuals whose modified adjusted gross income exceeds $125,000 ($250,000 for those filing joint returns) are subject to a phase-out of the subsidy and must recapture the full amount of the subsidy if their modified adjusted gross income exceeds $145,000 ($290,000 for those filing joint returns). The employer/COBRA provider is not responsible for enforcing this limit. Instead, an individual who receives the subsidy and is subject to the phase-out must increase their tax liability by the amount of the subsidy to be recaptured.

    Note:

    The 15-month COBRA premium assistance subsidy eligibility period does not begin until employer provided coverage ends. For example, the 15-month eligibility period for an assistance eligible individual who was terminated on April 30, 2010 and received continued employer provided coverage under a 2-year severance package would begin May 1, 2012 (the day after employer provided coverage ended) and would continue through July 31, 2013. See Q-14 of Notice 2009-27 for more information.

  4. The employer reports the 65% premium assistance provided to assistance eligible individuals on their employment tax return after they have received the 35% premium payment from the individual.

    • The first quarter of 2009 was the first tax period employer's could claim the COBRA premium assistance credit.

    • For tax periods 200903 through 201312, employers could claim the COBRA premium assistance credit on their original employment tax return or on a corresponding Form 94XX adjusted return or claim. The amount claimed should be 65% of the total COBRA premiums for assistance eligible individuals and should not include any amounts paid to the employer/COBRA provider by the COBRA assistance eligible individuals.

    • Employment tax returns for tax periods 200903 through 201312 also included lines to report the total number of individuals provided COBRA premium assistance payments. Each assistance eligible individual who paid a reduced COBRA premium in the quarter should be counted as one individual, whether or not the reduced premium was for insurance that covered more than one assistance eligible individual. Each individual is reported only once per quarter.

    • For tax periods after 201312, lines for claiming the COBRA premium assistance credit were removed from original employment tax forms. Those few employers who are still eligible to claim the COBRA premium assistance must do so on the appropriate Form 94XX adjusted return or claim.

    • The credit is posted to Masterfile with a TC 766, CRN 299 and is treated as a deposit made on the first day of the return period (year or quarter) which reduces the employer's employment tax liabilities. Employers can apply the credit to offset their federal tax deposits, to generate a refund, or both.

  5. In most cases, the employer maintaining the group health plan is the party eligible to claim the credit for the subsidy provided to the assistance eligible individual. However, in some cases, a person other than the employer is the proper party to receive the credit. For example, if the COBRA coverage is provided by a multi-employer plan, the plan will provide 65% federal subsidy for the COBRA premium to the assistance eligible individuals who have paid their 35% premium, and then report the subsidy on its Form 941. Similarly, if the premium assistance is provided with respect to continuation coverage required under state law, the insurer is generally the proper party to receive the credit on its Form 941.

  6. Employers/COBRA providers must maintain supporting documentation for the credit claimed. This includes, but is not limited to:

    • Information on the receipt, including dates and amounts, of the assistance eligible individuals' 35% share of the premium.

    • In the case of an insured plan, copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier required under COBRA.

    • In the case of a self-insured plan, proof of the premium amount and proof of the coverage provided to the assistance eligible individuals.

    • Attestation of involuntary termination, including the date of the involuntary termination (which must be during the period from September 1, 2008, to May 31, 2010), for each covered employee whose involuntary termination is the basis for eligibility for the subsidy.

    • Proof of each assistance eligible individual's eligibility for COBRA coverage at any time during the period from September 1, 2008, to May 31, 2010, and election of COBRA coverage.

    • A record of the SSN's of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for one individual or two or more individuals.

    • Proof of delayed eligibility for COBRA (i.e., length of severance period prior to start of COBRA coverage), if applicable.

    • Other documents necessary to verify the correct amount of reimbursement.

    Note:

    This documentation must be maintained, but will not be required to be submitted to the IRS with an original employment tax return or Form 94XX adjusted return or claim.

  7. The Internal Revenue Service issued News Release IR-2009-15 to help employers/COBRA providers claim COBRA premium assistance credit on their employment tax returns. This news release also provided employers/COBRA providers with informative FAQ's. The news release, FAQs, and other information are available on www.irs.gov.

Submission Processing (SP) Procedures — COBRA
  1. This information applies to COBRA premium assistance payments claimed on original employment tax returns filed for tax periods 200903 through 201312. Credit for COBRA premium assistance payments for tax periods after 201312 must be claimed on the appropriate Form 94XX adjusted return or claim.

  2. For credits previously claimed on original employment tax returns, both the COBRA premium assistance amount and the number of COBRA recipients was transcribed and posted to MF. Credit for the COBRA premium assistance payments posts as a TC 766 with CRN 299 and the number of COBRA recipients will be displayed separately.

    Note:

    The COBRA TC 766 (CRN 299) credit is applied to Master File using the first day of the tax period as the credit effective date.

  3. During original processing, SP would correspond for missing information related to COBRA premium assistance. If an employer/COBRA provider claimed the credit on an original employment tax return, then an entry for the number of COBRA recipients was required and vice versa.

  4. If credit for COBRA premium assistance payments claimed on an original employment tax return (tax periods 200903 through 201312) was determined to be questionable during initial processing, any credit on the tax module was held pending a review to verify the allowable amount. Taxpayers were informed of the review via issuance of a CP 269C. This notice also advised the taxpayer that the Service could ask them to provide information substantiating the premium assistance payments reported.

Adjusting the Account — COBRA
  1. An employer/COBRA provider must file the applicable Form 94XX in order to claim COBRA premium assistance credits for tax periods after 201312 or to correct previously reported credits for tax periods 200903 and subsequent.

  2. Although taxpayers should check the line 3 certification block and either the line 4c or 5d certification blocks stating the adjustment or claim amounts were not withheld from employee wages, we will accept the applicable "X" form without the Part 2 certifications if the only correction requested is to previously reported COBRA premium assistance payments (assuming the correction request is otherwise processable). Do not reject the form or contact the taxpayer for the certification information if the only correction being requested is to previously reported COBRA premium assistance payments.

  3. Credit Reference Number (CRN) 299 is used to adjust premium assistance for COBRA benefits.

    • Input CRN 299 to adjust this credit when claimed on an adjusted employment tax return. Use a minus (-) when decreasing the COBRA benefit.

    • CRN 299 will generate a TC 766 (increase) or TC 767 (decrease).

    • CRN 299 can be input separately or with any combination of other TCs, IRNs, or CRNs.

    • The COBRA TC 766 (CRN 299) credit is applied by MF using the first day of the tax period as the credit effective date.

    • CRN 299 is a refundable credit. The COBRA credit will generate an overpayment if the taxpayer chooses to make all deposits for tax liability amounts incurred during the period instead of counting the credit as a payment towards tax liability.

    Reminder:

    The total number of individuals provided COBRA premium assistance payments is not an adjustable field.

    Note:

    MF programming was corrected in January of 2011 to recognize that reversals of COBRA refundable credits (CRN 299) are eligible for interest-free adjustments under IRC 6205 provisions. When a TC 298 is input along with a CRN 299 reversal, the Interest Computation Date generates a second date field (showing as “COBRA/TAX-HOL<” on IDRS) which the computer will use as the start date for accruals. Prior to the programming correction, COBRA refundable credit reversal procedures included instructions to restrict penalty and interest calculations with TC 340 and TC 270 transactions as appropriate.

  4. Process claims for COBRA premium assistance credits as follows:

    If And Then
    Taxpayer files Form 941-X claiming COBRA credit The tax period is prior to 200903 Disallow the COBRA portion of the claim by sending the applicable disallowance letter (105C or 106C). Include the following paragraph in the disallowance letter:
    "Credit for COBRA premium assistance payments cannot be claimed for the tax period for which your claim was filed."

    Note:

    Also insert the appropriate paragraphs in the letter if the claim was not timely filed.

    Taxpayer files Form 941-X claiming COBRA credit The Entity is coded with an Employment Code (EC) "C" Disallow the COBRA portion of the claim by sending the applicable disallowance letter (105C or 106C). Include the following paragraph in the disallowance letter:
    "Our records indicate your entity is a church or qualified church controlled organization exempt from tax under Section 501 and therefore you are exempt from COBRA and do not qualify to claim COBRA subsidy reimbursement " .
    Taxpayer files Form 941-X claiming an increase to COBRA credit The claim is filed for tax period ending 12/31/2013 or earlier Send claims requesting an increase to COBRA credit ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ CAT-A. When referring these claims CAT-A, select "HQ Reserved 4" from the drop down listing of reasons referred.
    Taxpayer files Form 941-X claiming an increase to COBRA credit The claim is filed for a tax period beginning 01/01/2014 or later Send claims requesting an increase to COBRA credit CAT-A ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ . When referring these claims CAT-A, select "HQ Reserved 4" from the drop down listing of reasons referred.
    Taxpayer files Form 941-X claiming COBRA credit Does not provide the new total number of employees Make two attempts to secure the information by phone if a telephone number is available. Otherwise, follow procedures in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Use Letter 4384C to reject the claim and identify the missing information in the letter.

HIRE — Payroll Tax Exemption

  1. Under the Hiring Incentives to Restore Employment (HIRE) Act, enacted March 18, 2010, a new tax benefit was available to employers who hired certain previously unemployed workers ("qualified employees" ) in their trade or business.

  2. The payroll tax exemption provided employers with an exemption from the employer's 6.2% share of social security tax on wages paid to qualified employees, effective for wages paid from March 19, 2010, through December 31, 2010. The employee's 6.2% share of social security tax, and the employer and employee's shares of Medicare tax still applied to all wages. Qualified employers could elect out of the payroll tax exemption.

  3. A qualified employee was an employee who:

    • Began employment with a qualified employer after February 3, 2010, and before January 1, 2011,

    • Certified by signed affidavit, under penalties of perjury, that they had not been employed for more than 40 hours during the 60-day period ending on the date they began such employment,

    • Was not employed by the qualified employer to replace another employee of such employer unless such other employee separated from employment voluntarily or was terminated for cause, and

    • Was not a family member of or related in certain other ways to the employer.

  4. A model affidavit (Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit) was developed for employers to use. Employers were required to secure an affidavit with the same information as the Form W-11, but they were not required to use Form W-11. The Form W-11 or equivalent was not to be filed with the IRS but was instead required to be retained by the employer with other tax documents.

  5. Qualified employers:

    • Taxable Businesses and tax-exempt organizations qualified to claim the payroll tax exemption for eligible newly-hired employees.

    • Qualified employers in all five U.S. territories (i.e., American Samoa, Commonwealth of the Northern Mariana Islands, Guam, the US Virgin Islands, and Puerto Rico) that are subject to social security tax also qualify for the payroll tax exemption.

    • Federal, state and local government employers generally did not qualify for the tax exemption. However, public colleges and universities could qualify; Indian tribal governments also qualified.

    • Household employers did not qualify.

  6. The payroll tax exemption was claimed on Form 941, Employer's QUARTERLY Federal Tax Return, beginning with the second quarter of 2010, or annual employment returns (Forms 943 - Agricultural, 944 - Small Business, and CT-1 - Railroad).

  7. The payroll tax exemption that would be applicable to wages paid during the first quarter of 2010 cannot be applied on the first quarter Form 941. Instead, the amount by which the employer's social security tax would have been reduced as a result of applying the exemption to wages paid during the first quarter was treated as a "payment" for the second quarter. The credit for this payment could be claimed only on the second quarter Form 941 (lines 12c - 12e) and could only be claimed with respect to wages paid to qualified employees from March 19, 2010 (the day after the date of enactment), through March 31, 2010. The amount of the credit claimed on Form 941 for the second quarter could be refunded to the employer or applied against a liability for a later quarter.

    Note:

    A seasonal employer that did not otherwise have to file Form 941 for the second quarter was required to file a Form 941 for that quarter in order to claim the payroll tax exemption for the amount of the exemption that would have applied to wages paid during the first quarter.

  8. "Code CC" was created for box 12 of Form W-2 for employers to identify qualified employees and report the amount of wages and tips covered by the payroll tax exemption. In addition, box 12b was created on Form W-3 to report the aggregate of "Code CC" .

  9. The HIRE payroll tax exemption reduced an employer's tax liability on wages paid to qualified employees during the second, third and fourth quarters of 2010. This reduction was effective as of when wages are paid, and the employer was not required to deposit the employer's 6.2% share of social security tax on such wages. Therefore, employers should not include the exemption amounts in corresponding liabilities reported on Schedule B (or other tax liability schedules for Forms 941, 943 and 944) for the second, third, or fourth quarters of 2010. In addition, since the HIRE payroll tax exemption could not be claimed for the first quarter and had to instead be claimed as a refundable credit for the second quarter, an employer could reduce their deposits for the second quarter of 2010 by the amount of the first quarter credit (treated as a deposit available on April 1, 2010). However, the refundable HIRE credit amount claimed for the second quarter did not reduce the amount of liability required to be reported on Schedule B (or other tax liability schedules for Forms 941, 943 and 944) for the second quarter of 2010.

Adjusting the Account — HIRE
  1. If the qualified employer needs to correct a previously reported payroll tax exemption, it will need to file the applicable "X" form. This section applies to Forms 941-X, 943-X, 944-X, and CT-1X.

    Note:

    If the applicable "X" form is only being filed to correct previously reported HIRE exemption amounts or the HIRE refundable credit , then the employer must check the line 3 certification box and should check the line 4 or line 5 certification box which states none of the refund or credit was withheld from the employee wages. If the line 3 certification block is checked but no certification box is checked on lines 4 or 5, process the applicable "X" form without contacting the employer for the missing information so long as the adjustment is for HIRE amounts only.

  2. Credit Reference Number (CRN) 296 is used to adjust the payroll tax exemption for wages paid to qualified employees from March 19 - 31, 2010 (HIRE refundable credit). New Item Reference Numbers (IRN) were used to adjust the applicable tax and wages associated with the payroll tax exemption.

  3. Payroll tax exemption reference numbers:

    Item Reference Numbers (applicable for Forms 941, 943, and 944)
    Number Explanation
    115 Used to adjust exempt wages/tips paid to qualified employees this quarter.
    116 Used to adjust tax from exempt wages/tips paid to qualified employees this quarter.
    117 Used to adjust exempt wages/tips paid to qualified employees March 19 - 31.
    Credit Reference Number (applicable for Forms 941, 943, 944, and CT-1)
    296 Used to adjust the HIRE refundable credit from exempt wages/tips paid to qualified employees March 19 - 31 .

    Caution:

    The Assessment Statute Expiration Date (ASED) and Refund Statute Expiration Date (RSED) for timely filed 2010 employment tax returns expired on April 15, 2014. Accordingly, the future volume of timely filed adjustment requests for HIRE related credits is expected to be minimal. Line numbers for HIRE related items have been removed from current Form 941-X (and other Forms 94XX) versions. However, some small number of valid HIRE related adjustment requests (e.g. original return filed late and/or late paid tax situations) may be received on an older version form for 2010. See IRM 25.6.1, Statute of Limitations Processes and Procedures, as appropriate for additional guidance on determining whether an adjustment request was timely filed.

    Note:

    The number of qualified employees is not an adjustable field.

  4. Use CRN 296 to adjust the payroll tax exemption for wages paid to qualified employees from March 19 - 31 (HIRE refundable credit). Use a minus (-) when decreasing the credit. The CRN 296 will generate a TC 766 (increase) or TC 767 (decrease).

    Note:

    CRN 296 can be input separately or with any combination of other TC's, IRNs, or CRNs.

    Note:

    MF programming was corrected in January of 2011 to recognize that reversals of HIRE refundable credits (CRN 296) are eligible for interest-free adjustments under IRC 6205 provisions. When a TC 298 is input along with a CRN 296 reversal, the Interest Computation Date generates a second date field (showing as “COBRA/TAX-HOL<” on IDRS) which the computer will use as the start date for accruals. Prior to the programming correction, HIRE refundable credit reversal procedures included instructions to restrict penalty and interest calculations with TC 340 and TC 270 transactions as appropriate.

  5. The payroll tax exemption TC 766 (CRN 296) credit is applied using April 1, 2010 as the credit effective date for both quarterly and annual tax returns. If a taxpayer chooses not to count the credit as payment towards the tax liability amounts incurred during the period and makes the applicable deposits instead, the credit will generate an overpayment.

  6. The payroll tax exemption that would be applicable to wages paid during the first quarter of 2010 is only valid for the second quarter 2010. If a request is received for a tax period other than 201006, "no consider" the request and follow existing procedures in IRM 21.5.3.4.6.3, No Consideration Procedures.

  7. Use the chart below to determine if the HIRE claim is processable.

    If And Then
    Taxpayer files the applicable “X” form claiming the payroll tax exemption, ≡ ≡ ≡ ≡ ≡ The entity is coded with an Employment Code (EC) “F”, “G”, “T”, or “A” Send the claim CAT-A. When referring these claims CAT-A, select "HQ Reserved 4" from the drop down listing of reasons referred.
    Taxpayer files the applicable “X” form claiming an increase to the payroll tax exemption, ≡ ≡ ≡ ≡ ≡ ≡ ≡ The address of record is a foreign address

    Exception:

    the five U.S. territories (i.e., American Samoa, Commonwealth of the Northern Mariana Islands, Guam, the US Virgin Islands, and Puerto Rico) are not considered a foreign address

    Send the claim CAT-A. When referring these claims CAT-A, select "HQ Reserved 4" from the drop down listing of reasons referred.
    Taxpayer with BOD Code "LM" files the applicable “X” form claiming an increase to the payroll tax exemption The amount of tax is a tax decrease of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Send the claim CAT-A. When referring these claims CAT-A, select "HQ Reserved 4" from the drop down listing of reasons referred.
    Taxpayer with BOD Code "SB" or "TE" files the applicable “X” form claiming an increase to the payroll tax exemption The amount of tax is a tax decrease of ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Send the claim CAT-A. When referring these claims CAT-A, select "HQ Reserved 4" from the drop down listing of reasons referred.
    Taxpayer (any BOD code) files the applicable “X” form claiming an increase to the payroll tax credit for the exempt wages paid to qualified employees March 19 – 31 for tax period 201006 The amount of additional “credit” is ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ Send the claim CAT-A. When referring these claims CAT-A, select "HQ Reserved 4" from the drop down listing of reasons referred.
    Taxpayer files the applicable “X” form claiming the payroll tax credit for the exempt wages paid to qualified employees March 19 – 31 The tax period is for any period other than 201006 "No consider" the request and inform the taxpayer the payroll tax exemption that would be applicable to wages paid during the first quarter of 2010 is only valid for the second quarter 2010.

    Note:

    See IRM 21.5.3.4.6.3, No Consideration Procedures, for additional information.

Affordable Care Act (ACA) of 2010 — Income Exclusion for Loan Forgiveness for Health Professionals

  1. The Affordable Care Act expands a tax exclusion for amounts received by health professionals under loan repayment and forgiveness programs. Prior to the new law, only amounts received under the National Health Service Corps Loan Repayment Program or certain state loan repayment programs eligible for funding under the Public Health Service Act qualified for a tax exclusion.

  2. The Affordable Care Act expands this tax exclusion to include any state loan repayment or loan forgiveness programs intended to increase the availability of health care services in underserved areas or health professional shortage areas and makes this exclusion retroactive to the 2009 tax year.

  3. Health care professionals participating in these programs who have reported income from repaid or forgiven loan amounts on their 2009 returns, possibly after receiving a Form W-2, Wage and Tax Statement, or Form 1099, may be due refunds. Those health care professionals who believe they qualify for this relief should be encouraged to consult their state loan program offices to determine whether the program is covered by the new law.

  4. A health care professional whose employer withheld and paid social security and Medicare taxes on a repaid or forgiven loan covered by the new provision of the Affordable Care Act should request that the employer seek a refund of withheld social security and Medicare taxes on the employee’s behalf.

  5. Since the employer also pays a portion of FICA (Social Security and Medicare tax) that is not withheld from the amount paid to the employee, the employer will also be entitled to a refund.

    • To obtain the refund, the employer must file a separate Form 941-X, Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund, for each Form 941 that needs to be corrected.

    • Employers filing a Form 941-X are also required to file Form W-2c.

    Note:

    These claims will only be identifiable if the taxpayer states in the explanation the specific reason for filing. Some possible explanations may be "excluded student loan amount under 2010 Health Care Act" , "Affordable Care Act" or "Student Loan Forgiveness" .

  6. These returns will be centralized in Accounts Management (AM) at the Ogden campus. Once these claims are identified and you are not part of the centralized team, route accordingly.

    1. If you receive a paper case, route to:
      Internal Revenue Service
      ARKA Building
      1973 North Rulon White Blvd
      Ogden, UT 84404
      Attn: MS 6552

    2. If you receive a case that has already been scanned into CIS, reassign to the Ogden Campus IDRS number 0448207815 and notate on AMS/CIS "Affordable Care Act" .

  7. The procedures below are for the Ogden AM centralized team only:

    1. Follow existing procedures in IRM 21.7.2 to make the applicable adjustments.

    2. Beginning July 1, 2010. In addition to inputting the applicable adjustment, TC 971 action code 389 must be input via CC REQ77 in order to track these applicable claims. This 971 code must be input on the specific tax module for which the applicable adjusted return was filed.

    3. Organization, Function, and Program (OFP) Code 710-84381 must be used when working these ACA claims.

Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans

  1. The VOW to Hire Heroes Act of 2011 expanded the Work Opportunity Credit (WOC) to businesses that hired certain eligible qualified veterans who began work before January 1, 2013. For the first time, this law also made the Work Opportunity Credit available to certain tax-exempt organizations who hire qualified veterans (see IRC 52(c)(2) and IRC 3111(e)). The initial eligibility period has been legislatively extended multiple times (Section 309 of the American Tax Relief Act of 2012 (ATRA 2012), Section 119 of the Tax Increase Prevention Act of 2014 (TIPA 2014), and Section 142, Division Q of the Consolidated Appropriations Act, 2016) and can now apply to qualified veterans who began work on or after November 22, 2011, and before January 1, 2020. Qualified tax-exempt organizations (organizations described in IRC 501(c) and exempt from tax under IRC 501(a)) claim this credit against the employer portion of social security tax on wages paid to all employees during the 1-year period beginning on the day a qualified veteran begins working for the organization.

  2. Qualified tax-exempt organizations entitled to a credit under IRC 3111(e) must use Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, to claim the credit after they file their employment tax return (Form 941, Form 943, or Form 944). The credit cannot be claimed on an original employment tax return or on a Form 94XX.

    Note:

    For-profit employers will claim the credit as part of the general business credit by filing Form 5884, Work Opportunity Credit, and Form 3800, General Business Credit, with their income tax return.

  3. Key points relative to the filing of Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, are as follows:

    • Although the credit under IRC 3111(e) is applied against the employer social security tax liability for the employment tax period in which the credit is claimed, the liability reported on the qualified tax-exempt organization's employment tax return (Form 941, Form 943, or Form 944) is not reduced when that return is filed. Accordingly, the qualified tax-exempt organization should not reduce tax liabilities reported on an original or subsequently filed Schedule B (or other tax liability schedules for Forms 941, 943 and 944) by the amount of any credit claimed on Form 5884-C.

    • Qualified tax-exempt organizations should not reduce their required deposits in anticipation of any credit claimed on Form 5884-C. However, any balance due, including applicable penalties and/or interest, will generally be recomputed when the credit is allowed. See IRM 21.7.2.5.22.2, CRN 290 Impact on Penalties and Interest, for more information.

    • Any credit claimed on Form 5884-C will be refunded to the qualified tax-exempt organization (along with any applicable overpayment interest) unless the IRS corrects the Form 5884-C during processing or the organization owes other taxes, penalties, or interest.

    • Form 5884-C is filed separately and should not be attached to any other return filed by the qualified tax-exempt organization.

    • Form 5884-C should be filed after the qualified tax-exempt organization files its employment tax return for the tax period for which the credit is claimed. However, Form 5884-C must be filed within 2 years from the date the tax reported on the employment tax return was paid, or 3 years from the date the employment tax return was filed, whichever is later.

    • The qualified tax-exempt organization using Form 5884-C must calculate the cumulative credit to which the qualified tax-exempt organization is entitled under IRC 3111(e) for all qualified veterans hired on or after November 22, 2011 and before January 1, 2020. The qualified tax-exempt organization must reduce the cumulative credit by any credits claimed on any Forms 5884-C filed for prior tax periods.

    • The amount of the credit claimed on each Form 5884-C will be limited to the amount of employer social security tax reported on the employment tax return filed by the qualified tax-exempt organization for the employment tax period for which the credit is claimed.

    • Any excess credit (i.e., credit that exceeds the employer social security tax for the period the credit is claimed) may be carried forward and will be included in the qualified tax-exempt organization's cumulative calculation on Form 5884-C for a subsequent tax period to the extent provided in the instructions for Form 5884-C.

      Note:

      Due to the cumulative calculation method incorporated into Form 5884-C, it should generally not be necessary for a qualified tax exempt organization to file more than one Form 5884-C per employment tax return period (quarterly or annually).

  4. Additional information on this credit may be found in the Form 5884-C instructions, Notice 2012-13, and under the heading "Tax-exempt Employers" on the following irs.gov webpage: Work Opportunity Tax Credit.

  5. Qualified tax-exempt organizations are directed in the form instructions to file Form 5884-C at the Ogden campus.

  6. Processing of Forms 5884-C will be centralized in Accounts Management (AM) at the Ogden campus. If you receive a Form 5884-C claim and are not part of the centralized team, route the claim as follows:

    1. If you receive a paper case, route to:
      Internal Revenue Service
      1973 North Rulon White Blvd
      Ogden, UT 84404
      MS 6750
      ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    2. If you receive a case that has already been scanned into CIS, reassign to the Ogden Campus IDRS number 0443676091 and notate on AMS/CIS "Form 5884-C" .

  7. Form 5884-C processing guidelines for the centralized team are found in the following subsections.

General Processing Guidelines for Form 5884-C
  1. Qualified tax-exempt organizations will claim the credit by filing Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, after they file their employment tax return (Form 941, Form 943, or Form 944).

    Reminder:

    The credit cannot be claimed on an original employment tax return or on a Form 94XX.

  2. The credit applies to qualified tax-exempt organizations hiring certain eligible unemployed veterans who begin work on or after November 22, 2011, and before January 1, 2020. The valid claims tax periods for Form 5884-C are as follows:

    • Form 941 (MFT 01): 201112 through 202012

    • Form 943 (MFT 11): 201112 through 202012

    • Form 944 (MFT 14): 201112 through 202012

    Note:

    Forms 5884-C filed for other than valid tax periods will be formally disallowed.

  3. Credit Reference Number (CRN) 290 is used to adjust the Work Opportunity Credit (WOC) claimed on Form 5884-C. Use a minus (-) when decreasing the credit. The CRN 290 will generate a TC 766 (increase) or TC 767 (decrease).

    Note:

    The programming for CRN 290 will permit it to be input separately or with any combination of other TCs, IRNs, or CRNs. However, because of the unique nature of this credit, any allowance or correction of a CRN 290 amount should generally be input as a separate adjustment unless manual penalty and/or interest corrections are required.

    Caution:

    CRN 290 was selected to record and adjust the credit claimed on Form 5884-C due to the immediate effective date of the legislation and other administrative reasons. However, by law, this credit is NOT a refundable credit. The maximum credit allowable is limited to the employer portion of social security tax on wages paid to all employees during any period.

  4. Forms 5884-C will be scanned into Correspondence Imaging System (CIS) with Document Type 941-X, 943-X or 944-X (as appropriate) and Category Code SPC3. The scanning of a Form 5884-C will systemically generate a TC 971 AC 010 and set a -A or E- freeze which must be addressed before closing the case. See IRM 21.5.6.4.2, -A Freeze, and/or IRM 21.5.6.4.9, E- Freeze, for additional information. Also see the fourth paragraph of IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing, when rejecting a Form 5884-C and IRM 21.7.2.5.22.4, Form 5884-C Filed — No TC 150 Posted, when a Form 5884-C is received but no related original return has been posted.

  5. Use blocking series 15, 18, or 00 as appropriate when adjusting an account per a Form 5884-C. Do not use blocking series 20.

  6. Form 5884-C cases are to be worked under the 1005X program.

  7. Forms 5884-C requesting a credit (or an increase to credit) are considered claims. Special processing instructions for Forms 5884-C are provided in the following subsections. However, guidance found in IRM 21.5.3, General Claims Procedures, also applies to their handling.

  8. Verify the following items to ensure the Form 5884-C is complete for processing:

    • Verify the entity information (EIN, organization name, and address) entered on the Form 5884-C matches IRS records.

    • Verify there are entries in lines 4a/4b and/or 5a/5b, in lines 6 through 10, and in either line 11 or 12, as appropriate.

    • Verify the Form 5884-C is signed. See IRM 21.5.3.4.4, Signature Requirements for Claims, for more information.

    • Verify the tax form and tax period for which the Form 5884-C was filed. If blocks on lines 2 and/or 3 are not marked, attempt to determine the correct tax form and tax period by comparing the line 9 entry to posted return data. If not found, make two attempts to contact the taxpayer by phone (if a telephone number is available) for the missing information. If still unable to determine the correct tax form and tax period, reject the Form 5884-C with Letter 916C.

    • Compare the entry on line 9 to the appropriate wage/tips figure(s) on the account being adjusted. Math verify lines 10 and 11 (only) to ensure the claim amount does not exceed the employer share of social security tax for the claim period. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  9. Eligibility for the credit claimed on Form 5884-C is limited to qualified tax-exempt organizations (organizations described in IRC 501(c) and exempt from tax under IRC 501(a)). Review the entity and EO submodule data on INOLES and follow the instructions in the table below to determine if the Form 5884-C was filed by an eligible entity and the appropriate handling:

    If And Then
    There is an EO submodule The EO status is 18, 19, 20, 22, 70, 71, 72, 97, 98 or 99 Send the claim CAT-A.
    There is an EO submodule The EO status is 34 Formally disallow the claim and send Letter 105C. Use the following text in an open paragraph: "Our records indicate you are not a qualified tax-exempt organization (an organization described in Section 501(c) and exempt from tax under Section 501(a)) and you are therefore not eligible for the credit you claimed on Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans." Also refer to IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns, for additional information.

    Exception:

    If there is no TC 150 posted to the tax period for which the Form 5884-C was filed, issue Letter 916C using the text provided above instead of issuing a Letter 105C and "no consider" the claim.

    There is an EO submodule The EO status is not one of those listed in an earlier row of this table Continue to process the claim.
    There is no EO submodule The account reflects an Employment Code of "W" or "C" Continue to process the claim.
    There is no EO submodule None of the other rows of this table apply Formally disallow the claim in the same manner as discussed in the second row of this table.
  10. In addition to the claims described in the first row of the table in (9) above, send all Forms 5884-C (including amended Forms 5884-C) reflecting a line 11 claim amount of ≡ ≡ ≡ ≡ or more CAT-A.

CRN 290 Impact on Penalties and Interest
  1. FTD penalty: The credit claimed on Form 5884-C does not reduce the tax liability reported on the qualified tax-exempt organization’s employment tax return. However, the TC 766 / CRN 290 credit is applied by Masterfile as a credit against tax liability using the first day of the tax period as the credit effective date for FTD penalty purposes (only). Any previously assessed FTD penalty will be recomputed on that basis when a CRN 290 credit is allowed. This recomputation will generally occur systemically unless the FTD penalty was previously restricted.

    Note:

    The qualified tax-exempt organization should not reduce tax liabilities reported on an original or subsequently filed Schedule B (or other tax liability schedules for Forms 941, 943 and 944) by the amount of any credit claimed on Form 5884-C.

  2. FTF penalty: For purposes of any late filing penalty, the CRN 290 credit is considered a timely credit as of the return due date for the tax period to which it is applied. Similarly, a reversal of the credit is considered a reduction in timely credits as of the return due date. Accordingly, the computer will generally recompute the FTF penalty systemically with CRN 290 adjustments unless the penalty was previously restricted.

  3. FTP penalty: For FTP penalty purposes, allowances and reversals of a CRN 290 credit will be treated in the same manner as an increase or decrease to tax liability even though we are not actually increasing or decreasing recorded tax when making these adjustments. When allowing a CRN credit (or increasing the amount allowed), the computer will accurately compute FTP if there has not been a previous tax assessment on the account. However, if there has been a previous tax increase on the account, or if the credit is being reversed in part or full, the FTP penalty will generally need to be manually computed and restricted as discussed later in specific handling procedures.

  4. Overpayment interest: For the purposes of calculating any applicable overpayment interest, a CRN 290 credit will be considered to be available as of the return due date for the tax period for which the Form 5884-C was filed.

    Note:

    The 45-day interest rule for claims and amended returns applies to Forms 5884-C claiming (or increasing) a CRN 290 credit. See (10) through (13) of IRM 21.5.3.4 and IRM 20.2.4.7.5.4.4 for more information, including instructions for inputting the date the processable claim was received by the Service as the Amended Claims Date on ADJ54.

  5. Underpayment interest: Any applicable underpayment interest arising from the reversal of a CRN 290 credit, or arising from an amount reported due on line 12 of Form 5884-C, will be charged from the return due date of the tax period for which the Form 5884-C was filed.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

Form 5884-C Filed — TC 150 Posted
  1. After considering all verification requirements in IRM 21.7.2.5.22.1, follow the procedures provided in the table below to process a Form 5884-C when there is a TC 150 posted to the tax account for which the Form 5884-C was filed.

    If And Then
    The Form 5884-C was filed for an invalid tax period (see IRM 21.7.2.5.22.1 (2) for valid tax periods) Formally disallow the request and send Letter 105C. Use the following text in an open paragraph: "The credit you claimed on Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, cannot be claimed for the tax period for which your form was filed. We are therefore disallowing your claim." Refer to IRM 21.5.3.4.6, No Consideration and Disallowance of Claims and Amended Returns, for additional information.
    The Form 5884-C reflects both a claim amount on line 11 and an amount due on line 12 (regardless of whether there is a previously posted CRN 290 credit on the tax period for which the Form 5884-C was filed) Net the line 11 and 12 amounts:
    • If the result would be a credit, continue to process (per the table guidance below) as if the net credit had been claimed on line 11.
    • If the result would be an amount due, treat the Form 5884-C as if the net amount due had been reported on line 12 and process as per procedures in IRM 21.7.2.5.22.7, Form 5884-C, Line 12 Credit Reversals.

    Exception:

    If there is documentation attached to the Form 5884-C indicating the line 11 and line 12 amounts apply to different tax periods, contact the IRM author through the Ogden Accounts Management Campus P & A Staff for guidance on resolving the case.

    The Form 5884-C reflects an amount due on line 12 (regardless of whether there is a CRN 290 credit posted to the tax period for which the Form 5884-C was filed) See IRM 21.7.2.5.22.7, Form 5884-C, Line 12 Credit Reversals.
    The Form 5884-C reflects a credit amount on line 11 There is no previous CRN 290 credit on the tax period for which the Form 5884-C was filed Input a CRN 290 transaction to allow the amount claimed on Line 11 of Form 5884-C. Input the appropriate Amended Claims Date with the adjustment.
    The Form 5884-C reflects a credit amount on line 11 There is a previous CRN 290 credit on the tax period for which the Form 5884-C was filed which is for the same amount as shown on the current form Treat as a previous action situation. Input a TC 290 $.00 to release the -A freeze.
    The Form 5884-C reflects a credit on line 11 There is a previous CRN 290 credit on the tax period for which the Form 5884-C was filed which is less than what is shown on the current form (i.e. the Form 5884-C reflects an increase to credit claimed) Input a CRN 290 transaction to allow the difference between the net posted CRN 290 amount and the amount claimed on line 11 of Form 5884-C. Input the appropriate Amended Claims Date with the adjustment.

    Exception:

    If there is documentation attached which indicates the amount claimed on the current Form 5884-C is an additional amount (for example, the credit claimed on the current Form 5884-C is in regards to a qualified veteran not claimed on the previously filed Form 5884-C for the same tax period), allow the full amount claimed on the current Form 5884-C.

    The Form 5884-C reflects a credit on line 11 There is a previous CRN 290 credit on the tax period for which the Form 5884-C was filed which is more than what is shown on the current form (i.e. the Form 5884-C reflects a decrease to credit claimed) Treat this situation as if the difference between the amount previously allowed and the amount claimed on the new Form 5884-C (i.e. the credit amount to be reversed) had been reported as an amount due on line 12 and process according to the procedures in the second row of the table in IRM 21.7.2.5.22.7 (3).

    Exception:

    If there is documentation attached which indicates the amount claimed on the current Form 5884-C is an additional amount (for example, the credit claimed on the current Form 5884-C is in regards to a qualified veteran not claimed on the previously filed Form 5884-C for the same tax period), allow the full amount claimed on the current Form 5884-C.

    Note:

    Form 5884-C does not include a line or check mark to request a credit elect. However, if the Form 5884-C includes a written request to reapply the credit to a particular tax period, we will generally honor the request unless there is an earlier tax period with a balance due to which the credit must be applied. If reapplying the credit per this guidance, transfer the overpayment as a TC 820/TC 700 credit transfer and use the later of the return due date of the tax period for which the Form 5884-C was filed or the credit availability date as the transaction date. See IRM 21.5.8, Credit Transfers, for general guidance on credit transfers.

    Reminder:

    If the account is in Collection Status 22, 24, or 26, also see IRM 21.3.3.4.10.2.1, Amended Returns/Claims - Compliance Criteria.

  2. Special FTP penalty procedures when allowing CRN 290 credits: See IRM 21.7.2.5.22.2 (3). If an FTP penalty was charged in association with an additional tax assessment made after the original return posted, special procedures must be applied when allowing a CRN 290 credit as per the following table:

    If Then
    The CRN 290 amount being allowed is equal to or exceeds the tax assessment amount to which the FTP applied Input an adjustment to reverse the full amount of FTP that posted in association with the tax assessment amount with a restricting TC 271 transaction along with the appropriate CRN 290 amount being allowed (and the appropriate Amended Claims Date). Interest will be accurately recomputed by the computer.
    The CRN 290 amount being allowed is less than the tax assessment amount to which the FTP penalty applied
    1. Manually recompute the amount of FTP due by treating the CRN 290 amount as a reduction to the tax assessment (for calculation purposes only).

    2. Input an adjustment to reduce or reverse (as appropriate) the assessed FTP penalty with a restricting TC 271 transaction along with the appropriate CRN 290 amount being allowed (and the appropriate Amended Claims Date). Interest will be accurately recomputed by the computer.

    Reminder:

    The procedures above do not apply to FTP penalty assessments associated with the original return. The computer will generally accurately recompute penalties and interest associated with original return filing when allowing a CRN 290 credit unless penalties and/or interest were previously restricted. See IRM 21.7.2.5.22.2, CRN 290 Impact on Penalties and Interest, for more information.

Form 5884-C Filed — No TC 150 Posted
  1. If a Form 5884-C is received and there is no TC 150 posted to the tax account for which the Form 5884-C was filed, handle as follows:

    If And Then
    The Form 5884-C was received with a Form 94X See IRM 21.7.2.5.22.5, Form 5884-C Filed with Form 94X.
    The Form 5884-C was received with a Form 94XX See IRM 21.7.2.5.22.6, Form 5884-C Filed with Form 94XX.
    There is an indication on the account or Form 5884-C that an employment tax return was filed
    1. Monitor the account for the posting of the employment tax return.

    2. Process the Form 5884-C as per handling instruction in IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted.

    There is an indication on the account or Form 5884-C that an employment tax return was filed More than 60 days have passed since the normal due date for filing the employment tax return or from the known date of actual filing and the return has not posted
    • If a copy of the employment tax return is available, send it to Submission Processing (retain a copy with the Form 5884-C) to be processed, monitor it to posting, and then process the Form 5884-C as per handling instruction in IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted.

    • If a copy of the employment tax return is not available, make two attempts to contact the taxpayer for a copy of their employment tax return if a telephone number is available. Follow procedures in the first bullet above if a copy is obtained from the taxpayer.

    • If a copy of the employment tax return cannot be obtained, reject the Form 5884-C using Letter 916C. Advise the taxpayer that we cannot process it because we have no record of receiving their original return and to refile the Form 5884-C after they file a newly signed copy of their employment tax return.

    There is an open TDI on the tax period for which the Form 5884-C was filed There is no indication on the Form 5884-C that an employment tax return was filed Reject the Form 5884-C using Letter 916C and include the following text in an open paragraph:
    "We are unable to process your Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, because we have no record of receiving your original Form [enter form number] for [enter tax period]. You may resubmit your Form 5884-C for our consideration after you file your original employment tax return. "
    The taxpayer has no employment tax return filing requirements There is no indication on the Form 5884-C that an employment tax return was filed Reject the Form 5884-C using Letter 916C and include the following text in open paragraphs:
    "The credit claimed on Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, is taken against the employer’s share of social security tax. We are unable to process your claim because our records show you do not file employment tax returns reporting social security taxes."
    "If you have recently hired employees, you must report and pay required employment taxes on the appropriate employment tax form. After you have filed the appropriate employment tax form to report those taxes, you may resubmit your Form 5884-C for our consideration."

    Reminder:

    Any E- freeze set on these cases must be resolved prior to closing the case. If rejecting the Form 5884-C, release the E- freeze by inputting a TC 971 Action Code 002.

    Caution:

    When rejecting documents, extreme care must be taken to ensure that only the material relative to the taxpayer(s) to which the correspondence is addressed is enclosed in the envelope. See IRM 21.3.3.4.25, Breaches of Personally Identifiable Information (PII) Caused by Manual Stuffing Errors, for additional information.

Form 5884-C Filed with Form 94X
  1. Taxpayers are instructed to file Form 5884-C separately from the associated employment tax returns. However, some taxpayers may file a Form 5884-C with a Form 94X despite the instructions.

  2. If Submission Processing receives a Form 5884-C with a Form 94X for the same tax period, Submission Processing will process the original return, notate on the Form 5884-C that it was received with an original return, and route the Form 5884-C with a copy of the Form 94X to be scanned into CIS and assigned to the designated AM unit for handing.

  3. If a Form 5884-C is received with a Form 94X attached, handle as follows:

    If And Then
    The Form 94X or Form 5884-C has a notation made by Submission Processing as discussed in (2) above Follow procedures in IRM 21.7.2.5.22.4, Form 5884-C Filed — No TC 150 Posted, or IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted, as appropriate.
    The Form 94X or Form 5884-C does not have a notation made by Submission Processing as discussed in (2) above There is no TC 150 posted to the tax period for which the Form 5884-C was filed
    1. Forward the Form 94X to Submission Processing to be processed to the account (retain a copy of the Form 94X with the Form 5884-C).

    2. Monitor the account until the TC 150 posts.

    3. Process the Form 5884-C as per handling instructions in IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted.

    The Form 94X or Form 5884-C does not have a notation made by Submission Processing as discussed in (2) above There is a posted TC 150 which matches the Form 94X received with the Form 5884-C (i.e. True Duplicate) Process the Form 5884-C as per handling instructions in IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted.
    The Form 94X or Form 5884-C does not have a notation made by Submission Processing as discussed in (2) above There is a posted TC 150 which reflects more tax than the Form 94X received with the Form 5884-C
    1. Research the taxpayer account for common situations such as misapplied tax returns or an unprocessed Form 94XX. If such a situation is identified, take the appropriate action to resolve that issue and then process the Form 5884-C as per handling instruction in IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted.

    2. If the taxpayer's intent cannot be determined through account research, make two attempts to contact the taxpayer if a telephone number is available and take the appropriate action based on information provided by the taxpayer.

    3. If unable to resolve the issue as per items 1) and 2) above, input a TC 290 for $.00 to release the -A freeze. Reject the Form 5884-C and Form 94X using Letter 4384C. Explain that we are unable to process the documents because the Form 94X does not match our records. Advise the taxpayer to file the appropriate Form 94XX if their original return was incorrect and advise the taxpayer to refile the Form 5884-C separately or with a Form 94XX. Also see IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing.

      Exception:

      Procedures in IRM 21.5.3.4.3, Tax Decrease and Statute Consideration, must be followed if the Form 5884-C was received within 180 days of the Refund Statute Expiration Date (RSED).

    The Form 94X or Form 5884-C does not have a notation made by Submission Processing as discussed in (2) above There is a posted TC 150 which reflects less tax than the Form 94X received with the Form 5884-C
    1. Research the taxpayer account for common situations such as misapplied tax returns or an unprocessed Form 94XX. If such a situation is identified, take the appropriate action to resolve that issue and then process the Form 5884-C as per handling instruction in IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted.

    2. If the taxpayer's intent cannot be determined through account research, make two attempts to contact the taxpayer if a telephone number is available and take the appropriate action based on information provided by the taxpayer.

    3. If unable to resolve the issue as per items 1) and 2) above, make the appropriate tax increase per the Form 94X. See the general procedures in IRM 21.7.2.4.6, Adjusted Employer's Federal Tax Return or Claim for Refund, and the specific procedures applicable to the type of Form 94XX which should have been filed (e.g., if an amended or supplemental Form 941 is received reporting a tax increase, follow IRM 21.7.2.4.7.6.3, Form 941-X Tax Increases — Adjusted Employment Tax Return). Send Letter 4384C and include the paragraph that explains we have adjusted their account but that they must use one of the "X" forms for any future corrections.

    4. Process the Form 5884-C as per handling instructions in IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted.

    Caution:

    When rejecting documents, extreme care must be taken to ensure that only the material relative to the taxpayer(s) to which the correspondence is addressed is enclosed in the envelope. See IRM 21.3.3.4.25, Breaches of Personally Identifiable Information (PII) Caused by Manual Stuffing Errors, for additional information.

Form 5884-C Filed with Form 94XX
  1. Taxpayers are instructed to file Form 5884-C separately from the associated employment tax returns. However, some taxpayers may file a Form 5884-C with a Form 94XX despite the instructions.

  2. If a Form 5884-C is received with a Form 94XX, handle as follows:

    If Then
    There is no TC 150 posted
    1. Follow the procedures in IRM 21.7.2.4.6.6, Adjusted Employer's Tax Return or Claim for Refund Return Filed — No TC 150 Posted.

    2. Once a TC 150 is posted and any tax changes reported on the Form 94XX are processed, process the Form 5884-C as per procedures in IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted.

    The Form 94XX reflects no tax data or reflects only the credit claimed on the Form 5884-C Process the Form 5884-C as per procedures in IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted.
    The Form 94XX reflects a tax increase
    1. Process the Form 5884-C as per procedures in IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted. However, use Hold Code 1 if allowing the CRN 290 credit (and/or if there are other credits on the account needed to pay the Form 94XX tax increase).

    2. Process the Form 94XX using applicable procedures. However, use a post delay code of 1 cycle with this adjustment.

      Note:

      Because of the unique nature of this credit, CRN 290 adjustments should generally NOT be combined with other tax or credit adjustments in a single ADJ54 input.

    The Form 94XX reflects a tax decrease
    1. Process the Form 94XX using applicable procedures. However, use Hold Code 1 if the Form 5884-C reflects an amount due on Line 12.

    2. Process the Form 5884-C as per procedures in IRM 21.7.2.5.22.3, Form 5884-C Filed — TC 150 Posted. However, use a post delay code of 1 cycle with this adjustment.

      Note:

      Because of the unique nature of this credit, CRN 290 adjustments should generally NOT be combined with other tax or credit adjustments in a single ADJ54 input.

Form 5884-C, Line 12 Credit Reversals
  1. In some rare instances, qualified tax-exempt organizations may file a Form 5884-C showing a balance due on line 12.

  2. These cases require special handling due to programming limitations associated with use of CRN 290 to administer this credit.

    Caution:

    An unpostable will result if a CRN 290 credit reversal is input for more than the net posted CRN 290 credit on a tax module.

  3. After considering all verification requirements in IRM 21.7.2.5.22.1, follow the procedures provided in the table below to process a Form 5884-C showing an amount due on line 12.

    If Then
    There is no TC 150 posted for the tax period for which the Form 5884-C was filed. Follow procedures in IRM 21.7.2.5.22.4, Form 5884-C Filed — No TC 150 Posted.
    The amount reported due on line 12 of Form 5884-C is less than or equal to the net previously posted CRN 290 credit on the tax period for which the Form 5884-C was filed. Input a CRN 290 transaction to reverse the amount reported on line 12 of Form 5884-C. See (4) and (5) below for required actions with regards to penalties and interest.
    The amount reported due on line 12 of Form 5884-C is more than the net previously posted (non-zero) CRN 290 credit on the tax period for which the Form 5884-C was filed.
    1. Input a CRN 290 transaction to fully reverse the net posted (non-zero) CRN 290 on the tax period for which the Form 5884-C was filed. See (4), (5), and (6) below for required actions with regards to penalties and interest.

    2. Determine the remaining amount of credit reversal to be addressed by subtracting the amount reversed in step 1) from the amount shown on line 12 of Form 5884-C.

    3. Address the remaining amount of credit to be reversed by following the procedures provided in the next row of this table.

    There is no previously posted net CRN 290 credit on the period for which the Form 5884-C was filed
    1. Review the employment tax accounts for the tax periods immediately preceding the tax period shown on the Form 5884-C. Locate the most recent tax period reflecting the allowance of a CRN 290 credit.

    2. Input a CRN 290 to reverse the previously posted credit allowance for the amount shown on Line 12 of the Form 5884-C. See (4) and (6) below for required actions with regards to penalties and interest. If the amount on Line 12 of Form 5884-C exceeds the CRN credit allowed on the most recent tax period, reverse the entire posted CRN 290 on that most recent tax period. If the taxpayer paid the amount due on Line 12 of Form 5884-C, transfer credit as appropriate to the tax period in which the CRN 290 credit reversal was actually made.

    3. If the full amount reported on Line 12 of Form 5884-C has not been fully accounted for by credit reversal(s), repeat steps 1) and 2) until the full amount reported on Line 12 of Form 5884-C has been accounted for by credit reversals.

  4. Special FTP penalty and underpayment interest procedures when reversing CRN 290 credits: Due to systemic limitations associated with use of CRN 290 for administering this credit, the computer is generally unable to accurately calculate the FTP penalty or underpayment interest when CRN 290 credits are reversed in part or whole. See IRM 21.7.2.5.22.2 (3) and IRM 21.7.2.5.22.2 (5). The special procedures in the tables in (5) and (6) below must be followed when reversing CRN 290 credits as per the guidance in (3) above.

  5. Apply the following special procedures for FTP penalty and underpayment interest when reversing a CRN 290 on the same tax period for which the Form 5884-C was filed:

    If And Then
    The CRN 290 amount to be reversed has been paid by the time the adjustment is being input Input the appropriate CRN 290 reversal with a TC 270 for $.00 and close the case. Accurate underpayment interest will be systemically generated with the adjustment.
    The CRN 290 amount to be reversed has not been paid by the time the adjustment is being input
    1. Input the appropriate CRN 290 reversal with a TC 270 for $.00. Accurate underpayment interest will be systemically generated with the adjustment.

    2. Suspend the case for 60 days and monitor the account for the posting of a payment.

    3. Continue processing the case as per the guidance in the last three rows of this table.

    The case was suspended as per instructions in the second row of this table Payment is received within 21 days (10 days for amounts of $100,000 or more) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ of the 23c date for the adjustment No additional penalties or interest are due. Close the case.
    The case was suspended as per instructions in the second row of this table Payment is received but not within 21 days (10 days for amounts of $100,000 or more) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ of the 23c date for the adjustment
    1. Compute FTP on the amount of the CRN 290 credit reversal from the 23c date of the previous adjustment to the date of payment.

    2. Input an adjustment with a TC 270 using the amounts computed in step 1). Accurate underpayment interest will be systemically generated with the adjustment.

    3. Close the case.

    The case was suspended as per instructions in the second row of this table Payment is not received by the close of the 60 day suspense period.
    1. Compute FTP on the amount of the CRN 290 credit reversal from the 23c date of the previous adjustment to the 23c date for the adjustment to be input in step 2) below.

    2. Input an adjustment with a TC 270 using the amount computed in step 1) above. Accurate underpayment interest will be systemically generated with the adjustment.

    3. Close the case.

  6. Apply the following special procedures for FTP penalty and underpayment interest when reversing a CRN 290 on a tax period earlier than the tax period for which the Form 5884-C was filed:

    If And Then
    The CRN 290 amount to be reversed has been paid by the time the adjustment is being input
    1. Compute the underpayment interest due on the amount of the credit reversal from the return due date of the tax period for which the Form 5884-C was filed to the date of payment.

    2. Input the appropriate CRN 290 reversal with a TC 340 for the amount computed in step 1) and a TC 270 for $.00.

    3. Close the case.

    The CRN 290 amount to be reversed has not been paid by the time the adjustment is being input
    1. Compute the underpayment interest due on the amount of the credit reversal from the return due date of the tax period for which the Form 5884-C was filed to the 23c date of your adjustment.

    2. Input the appropriate CRN 290 reversal with a TC 340 for the amount computed in step 1) and a TC 270 for $.00.

    3. Suspend the case for 60 days and monitor for the account for the posting of a payment.

    4. Continue processing the case as per the guidance in the last three rows of this table.

    The case was suspended as per instructions in the second row of this table Payment is received within 21 days (10 business days for amounts of $100,000 or more) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ of the 23c date for the adjustment No additional penalties or interest are due. Close the case.
    The case was suspended as per instructions in the second row of this table Payment is received but not within 21 days (10 business days for amounts of $100,000 or more) ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ of the 23c date for the adjustment
    1. Compute additional interest due on the amount of the CRN 290 credit reversal and the previously input TC 340 amount from the 23c date of the previous adjustment to the date of payment.

    2. Compute FTP on the amount of the CRN 290 credit reversal from the 23c date of the previous adjustment to the date of payment.

    3. Input an adjustment with a TC 340 and TC 270 using the amounts computed in steps 1) and 2).

    4. Close the case.

    The case was suspended as per instructions in the second row of this table Payment is not received by the close of the 60 day suspense period.
    1. Compute additional interest due on the amount of the CRN 290 credit reversal and the previously input TC 340 amount from the 23c date of the previous adjustment to the 23c date for the adjustment to be input in step 3 below.

    2. Compute FTP on the amount of the CRN 290 credit reversal from the 23c date of the previous adjustment to the 23c date for the adjustment to be input in step 3 below.

    3. Input an adjustment with a TC 340 and TC 270 using the amounts computed in steps 1) and 2).

    4. Close the case.

    Caution:

    The guidance in the table above is specific to CRN 290 adjustment situations. Keep in mind when restricting penalties and/or interest that it may be necessary to recompute and adjust penalty and/or interest on the full tax module depending on the account situation.

  7. The following examples are provided to illustrate the application of the procedures discussed in the table above.

    Example:

    The IRS receives a Form 5884-C for the second quarter of 2016 on September 16, 2016 along with a payment of $200 which is posted to the second quarter of 2016. The Form 5884-C reports a balance owed of $200 on line 12. The taxpayer is a quarterly Form 941 filer and previously claimed a CRN 290 credit of $450 on the second quarter of 2016. To record the $200 owed in this example, a CRN 290 reversal transaction for $200 would be input to the second quarter of 2016. No FTP penalty would be owed because the amount due was paid before the credit reversal was made, so a TC 270 for $.00 must be input to prevent the computer from charging the penalty from the second quarter due date to the date of payment. The computer will accurately compute underpayment interest in this example from July 31, 2016 (the second quarter due date) to September 16, 2016 (date of payment) and issue a bill for the correct amount due. The CRN 290 and TC 270 transactions must be input with the same ADJ54.

    Example:

    The IRS receives a Form 5884-C for the third quarter of 2016 on November 15, 2016 along with a payment of $500 which is posted to the third quarter of 2016. The Form 5884-C reports a balance owed of $500 on line 12. The taxpayer is a quarterly Form 941 filer and claimed a CRN 290 credit of $900 on the second quarter of 2016 and a CRN 290 credit of $750 on the first quarter of 2016. To record the $500 owed in this example, a CRN 290 reversal transaction for $500 would be input to the second quarter of 2016 and the $500 payment would be transferred from the third quarter to the second quarter. No FTP penalty would be owed because the amount due was paid before the credit reversal was made, so a TC 270 for $.00 must be input to prevent the computer from charging the penalty from the second quarter due date to the date of payment. Underpayment interest must be manually computed and assessed with a TC 340 on the $500 credit reversal from October 31, 2016 (the third quarter due date) to the November 15, 2016 payment date and manually assessed with a TC 340. The CRN 290, TC 270, and TC 340 transactions must be input with the same ADJ54 on the second quarter account.

    Example:

    The IRS receives a Form 5884-C for the fourth quarter of 2016 on February 16, 2017 without payment. The Form 5884-C reports a balance owed of $1,200 on line 12. The taxpayer is a quarterly Form 941 filer and claimed a CRN 290 credit of $2,500 on the third quarter of 2016 and a CRN 290 credit of $750 on the first quarter of 2016. To record the $1,200 owed in this example, a CRN 290 reversal transaction for $1,200 would be input to the third quarter of 2016. The case is worked on March 9, 2017, so the adjustment will carry a 23c date of April 3, 2017. Because the amount due for the credit reversal was not paid by the time the adjustment is being made, the CRN 290 reversal adjustment will be input with a TC 270 for .00 and a TC 340 for the amount of interest calculated as due from January 31, 2017 to April 3, 2017. The case is then suspended for 60 days (counting days from March 9, 2017). On April 20, 2017, the case is reviewed and it is seen that a payment for the CRN 290 reversal and underpayment interest assessed with TC 340 posted to the account on April 11, 2017. Since payment was received within 21 days of the 23c date (notice date)≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , no additional penalty or interest would be due and the case would be closed with no additional action.

    Example:

    The IRS receives a Form 5884-C for the fourth quarter of 2016 on January 25, 2017 along with a payment of $700 which is posted to the fourth quarter of 2016. The Form 5884-C reports a balance owed of $700 on line 12. The taxpayer is a quarterly Form 941 filer and claimed a CRN 290 credit of $300 on the third quarter of 2016, a CRN 290 credit of $500 on the second quarter of 2016, and a CRN 290 credit of $200 on the first quarter of 2016. To record the $700 owed in this example, a CRN 290 reversal transaction for $300 would be input to the third quarter of 2016, $300 of the payment dated January 25, 2017 on the fourth quarter would be transferred to the third quarter, and penalties and interest associated with this portion of the credit reversal would be restricted to zero amounts (with a TC 270 $.00 and TC 340 $.00 on the same ADJ54 input as the CRN 290 credit reversal) since payment was received before the fourth quarter 2012 return due date of January 31, 2017. The remaining $400 of the amount reported owed on Line 12 of Form 5884-C would be accounted for by inputting a CRN 290 reversal transaction for $400 on the second quarter of 2016, transferring the remaining $400 of the payment dated January 25, 2017 on the fourth quarter to the second quarter, and penalties and interest associated with this portion of the credit reversal would be restricted to zero amounts (with a TC 270 $.00 and TC 340 $.00 on the same ADJ54 input as the CRN 290 credit reversal) since payment was received before the fourth quarter 2016 return due date of January 31, 2017.

  8. Contact the IRM author through the Ogden Accounts Management Campus P & A Staff for guidance in the event that an unusual credit reversal situation is encountered which the special instructions provided above do not address.

IRC Section 132(f) Transportation Benefit Exclusion

  1. Certain fringe benefits, subject to limitations, are excludable from gross income under IRC Section 132, including qualified transportation benefits under IRC Section 132(f)(2). These amounts are also excluded from FICA and federal income tax withholding. See "Transportation (Commuting) Benefits" in Publication 15-B, Employer's Tax Guide to Fringe Benefits, for more information.

  2. As enacted, the excludable limit for combined commuter highway vehicle transportation and transit passes under (A) of IRC Section 132(f)(2) was less than the excludable limit for qualified parking under (B). However, subsequent legislation equalized the excludable amounts (also termed transportation or transit benefit parity) under (A) and (B) of IRC Section 132(f)(2) as follows:

    • Section 1151 of the American Recovery and Reinvestment Act of 2009 (ARRA 2009) equalized the excludable limits for the period March 2009 through December 31, 2010.

    • Section 727 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended the equalization of excludable limits for the period of January 1, 2011 through December 2011.

    • Section 203 of the American Tax Relief Act of 2012 (ATRA 2012) retroactively equalized the excludable limits for the period January 1, 2012 through December 31, 2012 and extended the equalization through December 31, 2013.

    • Section 103 of the Tax Increase Prevention Act of 2014 (TIPA 2014) retroactively equalized the excludable limits for the period January 1, 2014 through December 31, 2014.

    • Section 105 of the Consolidated Appropriations Act, 2016, permanently equalized the excludable limits for periods after December 31, 2014. Due to the date of enactment, the equalization was retroactive for periods within the 2015 tax year.

    Caution:

    The amounts of excludable qualified transit benefits are adjusted annually for inflation. See "Transportation (Commuting) Benefits" in the appropriate year version of Publication 15-B, Employer's Tax Guide to Fringe Benefits, for more information.

  3. The three subsections which follow describe guidance that was provided to employers for applying retroactive transit benefit parity for 2012 under ATRA 2012, for 2014 under TIPA 2014, and for 2015 under the Consolidated Appropriations Act, 2016.

FICA Claims for Calendar Year 2012 Transit Benefit Exclusion
  1. Section 203 of the American Tax Relief Act of 2012 (ATRA 2012) retroactively increased the monthly transit benefit exclusion under IRC Section 132(f)(2)(A) from $125 to $240 per participating employee for the period of January 1 through December 31, 2012.

  2. Notice 2013-8 provided guidance to employers regarding the retroactive application of the increased exclusion for 2012 and provided a special administrative procedure for employers to use in filing Form 941 (or other required employment or railroad retirement tax returns) for the fourth quarter of 2012 to reflect changes in the excludable amount for transit benefits provided in all quarters of 2012 and in filing Forms W-2. This special administrative procedure was for employers that provided transit benefits during 2012 in excess of $125 per month up to $240 per month (excess transit benefits).

  3. Employers who repaid or reimbursed the overcollected FICA on the excess transit benefits for all four quarters of 2012 on or before filing the fourth quarter Form 941 (or other required employment or railroad retirement tax return) were permitted to reduce the fourth quarter Wages, tips, and compensation reported on line 2, Taxable social security wages on 5a, and Taxable Medicare wages and tips on line 5c (or equivalent lines on other required employment tax returns) by the excess transit benefits for all four quarters of 2012. By taking advantage of this special administrative rule, employers could avoid having to file a Form 941-X (or other required "X" form) for each quarter of 2012 and avoid having to file Forms W-2c.

    Note:

    To ensure required tax liability schedules matched the tax reported on employment tax returns, employers following the special administrative procedure provided in Notice 2013-8 were advised to reduce the last liability reported on the tax liability schedule for the fourth quarter by the amount of the correction made to tax. If the correction made under the special administrative procedure exceeded the amount of the last tax liability, additional tax liabilities on the schedule were to be reduced in reverse date order until the full amount of the correction being made was absorbed.

  4. Employers who filed the fourth quarter Form 941 (or other required employment or railroad retirement tax return) prior to the issuance of Notice 2013-8, employers who chose not to follow the special administrative procedure, and employers who were unable to repay or reimburse all or some of the employees within the required time frame, must use Form 941-X (or other required "X" form) to make an adjustment or claim a refund for any quarter with regard to overpayment of tax on the excess transit benefits after repaying or reimbursing employees or, for refund claims, securing consents from its employees.

FICA Claims for Calendar Year 2014 Transit Benefit Exclusion
  1. Section 103 of the Tax Increase Prevention Act of 2014 (TIPA 2014) retroactively increased the monthly transit benefit exclusion under IRC Section 132(f)(2)(A) from $130 to $250 per participating employee for the period of January 1 through December 31, 2014.

  2. Notice 2015-2 provided guidance to employers regarding the retroactive application of the increased exclusion for 2014 and provided a special administrative procedure for employers to use in filing Form 941 (or other required employment or railroad retirement tax returns) for the fourth quarter of 2014 to reflect changes in the excludable amount for transit benefits provided in all quarters of 2014 and in filing Forms W-2. This special administrative procedure was for employers that provided transit benefits during 2014 in excess of $130 per month up to $250 per month (excess transit benefits).

  3. Employers who repaid or reimbursed the overcollected FICA (including Additional Medicare Tax (AdMT)) on the excess transit benefits for all four quarters of 2014 on or before filing the fourth quarter Form 941 (or other required employment or railroad retirement tax return) were permitted to reduce the fourth quarter Wages, tips, and compensation reported on line 2, Taxable social security wages on 5a, Taxable Medicare wages on line 5c, and Taxable wages and tips subject to Additional Medicare Tax withholding on line 5d (or equivalent lines on other required employment tax returns) by the excess transit benefits for all four quarters of 2014. By taking advantage of this special administrative rule, employers could avoid having to file a Form 941-X (or other required "X" form) for each quarter of 2014 and avoid having to file Forms W-2c.

    Note:

    To ensure required tax liability schedules matched the tax reported on employment tax returns, employers following the special administrative procedure provided in Notice 2015-2 were advised to reduce the last liability reported on the tax liability schedule for the fourth quarter by the amount of the correction made to tax. If the correction made under the special administrative procedure exceeded the amount of the last tax liability, additional tax liabilities on the schedule were to be reduced in reverse date order until the full amount of the correction being made was absorbed.

    Caution:

    The ability to repay or reimburse employees for overcollected Additional Medicare Tax which was deducted or withheld in 2014 was an exception to the rule that employers may not repay or reimburse Additional Medicare Tax withholding after the end of the year for which it was withheld. As always, employers may not repay or reimburse federal income tax withholding after the end of the year for which it was withheld.

  4. Employers who filed the fourth quarter Form 941 (or other required employment or railroad retirement tax return) prior to the issuance of Notice 2015-2, employers who chose not to follow the special administrative procedure, and employers who were unable to repay or reimburse all or some of the employees within the required time frame, must use Form 941-X (or other required "X" form) to make an adjustment or claim a refund for any quarter with regard to overpayment of social security and Medicare taxes on the excess transit benefits after repaying or reimbursing employees or, for refund claims, securing consents from its employees. However, employers filing Forms 941-X may not repay or reimburse federal income tax withholding or Additional Medicare Tax withholding after the end of the year for which it was withheld.

FICA Claims for Calendar Year 2015 Transit Benefit Exclusion
  1. Section 105 of the Consolidated Appropriations Act, 2016, retroactively increased the monthly transit benefit exclusion under IRC Section 132(f)(2)(A) from $130 to $250 per participating employee for the period of January 1 through December 31, 2015.

  2. Notice 2016-6 provides guidance to employers regarding the retroactive application of the increased exclusion for 2015 and provides a special administrative procedure for employers to use in filing Form 941 (or other required employment or railroad retirement tax returns) for the fourth quarter of 2015 to reflect changes in the excludable amount for transit benefits provided in all quarters of 2015 and in filing Forms W-2. This special administrative procedure is for employers that provided transit benefits during 2015 in excess of $130 per month up to $250 per month (excess transit benefits).

  3. Employers who repay or reimburse the overcollected FICA (including Additional Medicare Tax (AdMT)) on the excess transit benefits for all four quarters of 2015 on or before filing the fourth quarter Form 941 (or other required employment or railroad retirement tax return) are permitted to reduce the fourth quarter Wages, tips, and compensation reported on line 2, Taxable social security wages on 5a, Taxable Medicare wages on line 5c, and Taxable wages and tips subject to Additional Medicare Tax withholding on line 5d (or equivalent lines on other required employment tax returns) by the excess transit benefits for all four quarters of 2015. By taking advantage of this special administrative rule, employers can avoid having to file a Form 941-X (or other required "X" form) for each quarter of 2015 and avoid having to file Forms W-2c.

    Note:

    To ensure required tax liability schedules matched the tax reported on employment tax returns, employers following the special administrative procedure provided in Notice 2016-6 are advised to reduce the last liability reported on the tax liability schedule for the fourth quarter by the amount of the correction made to tax. If the correction made under the special administrative procedure exceeds the amount of the last tax liability, additional tax liabilities on the schedule are to be reduced in reverse date order until the full amount of the correction being made is absorbed.

    Caution:

    The ability to repay or reimburse employees for overcollected Additional Medicare Tax which was deducted or withheld in 2015 is an exception to the rule that employers may not repay or reimburse Additional Medicare Tax withholding after the end of the year for which it was withheld. As always, employers may not repay or reimburse federal income tax withholding after the end of the year for which it was withheld.

  4. Employers who filed the fourth quarter Form 941 (or other required employment or railroad retirement tax return) prior to the issuance of Notice 2016-6, employers who choose not to follow the special administrative procedure, and employers who are unable to repay or reimburse all or some of the employees within the required time frame, must use Form 941-X (or other required "X" form) to make an adjustment or claim a refund for any quarter with regard to overpayment of social security and Medicare taxes on the excess transit benefits after repaying or reimbursing employees or, for refund claims, securing consents from its employees. However, employers filing Forms 941-X may not repay or reimburse federal income tax withholding or Additional Medicare Tax withholding after the end of the year for which it was withheld.

DOMA (United States v. Windsor) Related Employment Tax Claims

  1. In United States v. Windsor, 570 U.S. 12, 133 S. Ct. 2675 (2013), the Supreme Court held section 3 of the Defense of Marriage Act (DOMA) to be unconstitutional and found that it was impermissible to deny federal recognition to marriages that are valid under state law.

  2. Subsequent to the Court's decision, the Service issued Rev. Rul. 2013-17, effective September 16, 2013, with the following guidance on tax treatment of same -sex spouses:

    1. For federal tax purposes, the terms "spouse" , "husband and wife" , "husband" , and "wife" include an individual married to a person of the same sex if the individuals are lawfully married under state law, and the term "marriage" includes such a marriage between individuals of the same sex.

    2. For federal tax purposes, the Service adopted a general rule recognizing a marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex even if the married couple resides in a state that does not recognize the validity of same-sex marriages.

    3. For federal tax purposes, the terms “spouse”, "husband and wife" , “husband”, and “wife” do not include individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term "marriage" does not include such formal relationships.

    Note:

    On June 26, 2015, the Supreme Court held in Obergefell v. Hodges, 576 U.S. 135 S.Ct. 2584 (2015) that all states must allow same-sex couples to marry on the same terms and conditions as opposite-sex couples. Therefore, for federal tax purposes, the Service recognizes a marriage of same-sex individuals that was validly entered into in any state, regardless of the married couple’s place of domicile.

  3. As a result of the Court's decision, certain amounts previously deemed to be wages for employment tax purposes (also referred to as "imputed wages" ) are no longer taxable for federal tax purposes. Also, although Rev. Rul. 2013-17 was effective September 16, 2013, it allows for the filing of original returns, amended returns, adjusted returns, or claims for refund or credit for prior tax years if the Refund Statute Expiration Date (RSED) has not expired.

  4. The Service also issued Notice 2013-61 to provide guidance to employers regarding the application of United States v. Windsor to employment taxes. Notice 2013-61 included special administrative procedures for employers to use in filing:

    • Form 941 for the third quarter of 2013

    • Form 941, or Form 941-X, for the fourth quarter of 2013 to make corrections for the 2013 tax year.

    • Form 941-X for the fourth quarter of prior tax years to make corrections for that tax year.

    Note:

    These procedures also applied to filers of other employment tax returns and railroad retirement tax returns.

  5. The special administrative procedures provided in Notice 2013-61 were intended to reduce taxpayer burden. However, employers could choose to file separate Forms 94XX for each impacted tax period as per normal procedures. There were no special documentation requirements for Forms 94XX filed in that manner and DOMA related claims issues could be combined with other adjustment issues on the same Form 94XX.

  6. Employers filing DOMA related employment tax claims on Form 941-X using the special administrative procedures in Notice 2013-61 were instructed to write "WINDSOR" in dark, bold letters across the top margin of page 1 of Form 941-X.

  7. Employers could not combine a DOMA related employment tax claim filed under one of the special administrative procedures in Notice 2013-61 with claims for other unrelated claims issues. If the taxpayer files a Form 941-X using one of the special administrative procedures in combination with other claims issues:

    • Reject the Form 941-X using Letter 4384C.

    • Explain in the letter that we are unable to process the Form 941-X because claims filed under the special administrative procedures in Notice 2013-61 cannot be combined with claims for other employment tax issues.

    • Advise the taxpayer to file separate Forms 941-X for the respective claims issues.

    • Also see IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing.

    Reminder:

    Taxpayers not filing a claim using one of the special administrative procedures in Notice 2013-61 may combine DOMA related claims with other adjustment issues on the same Form 94XX.

    Exception:

    Procedures in IRM 21.5.3.4.3, Tax Decrease and Statute Consideration, must be followed if the Form 941-X was received within 180 days of the Refund Statute Expiration Date (RSED).

    Caution:

    When rejecting documents, extreme care must be taken to ensure that only the material relative to the taxpayer(s) to which the correspondence is addressed is enclosed in the envelope. See IRM 21.3.3.4.25, Breaches of Personally Identifiable Information (PII) Caused by Manual Stuffing Errors, for additional information.

  8. Procedures for processing DOMA (United States v. Windsor) related employment tax claims, including special administrative procedures, are provided in the subsections which follow.

DOMA (United States v. Windsor) Related Employment Tax Protective Claims
  1. Many taxpayers filed protective claims for employment taxes in anticipation that a decision by the Supreme Court in United States v. Windsor, 570 U.S. 12, 133 S. Ct. 2675 (2013) would alter the tax treatment of amounts paid to same-sex spouses.

  2. Through July 21, 2013, BMF protective claims related to this litigation were sent to Exam Classification as per normal procedures found in IRM 21.5.3.4.7.3.2, Processing Protective Claims.

  3. On July 22, 2013, Alert 13A0440 was issued requiring all BMF DOMA (United States v. Windsor) related claims to be suspended pending further guidance.

  4. Alert 13A0440 was rescinded on October 22, 2013 with the issuance of Alert 13A0561 in coordination with the addition of these IRM procedures. As a result, routing of DOMA (United States v. Windsor) related protective claims, including those protective claims held in suspense per instructions in Alert 13A0440, resumed in accordance with IRM 21.5.3.4.7.3.2 procedures with the following two exceptions:

    1. When referring DOMA related protective claims CAT-A, select "HQ Reserved 4" from the drop down listing of reasons referred.

    2. Any DOMA related protective claim for tax year 2011 or after with a received date prior to January 1, 2014 is to be rejected with Letter 916C as these claimants have more than adequate time available to submit fully perfected claims for consideration. Include the following text in two open paragraphs:
      "We cannot consider your protective claim(s) filed for the tax year(s) shown above. The Service provided formal guidance on filing claims related to federal recognition of same-sex marriages in Rev. Rul. 2013-17 and Notice 2013-61. There is adequate time on the applicable refund statute of limitations for the tax period(s) of your claim(s)."
      "Therefore, you must file a claim or adjusted return with perfected dollar amounts in order for it to be considered. Please resubmit your requests with all dollar amounts specified."

    Exception:

    Procedures in IRM 21.5.3.4.3, Tax Decrease and Statute Consideration, must be followed if the Form 941-X was received within 180 days of the Refund Statute Expiration Date (RSED).

    Caution:

    When rejecting documents, extreme care must be taken to ensure that only the material relative to the taxpayer(s) to which the correspondence is addressed is enclosed in the envelope. See IRM 21.3.3.4.25, Breaches of Personally Identifiable Information (PII) Caused by Manual Stuffing Errors, for additional information.

    Reminder:

    Untimely, unsigned, or incomplete protective claims are not to be sent to Exam Classification. See IRM 21.5.3.4.7.3.2, Processing Protective Claims, for more information. However, it should be noted that protective claims are not required to include dollar figures for wage or tax changes since these amounts are often contingent on the specific outcome of litigation (or other unresolved matters) and are unknown at the time the claim is filed.

  5. A special process was implemented within the Examination function for the purpose of perfecting and processing DOMA related protective claims for tax years 2010 and earlier. Once those protective claims were received through the CAT-A referral process discussed in (4) above, Exam sent letters to employers requesting the information needed to perfect the claims. However, Exam generally did not open AIMS control bases on these cases. It is possible that letter replies for this issue will be received in Accounts Management rather than being directed to Exam as intended. Therefore, when working any new DOMA related claims filed for 2010 and earlier, check the module for an Exam control base (open or closed) with IDRS number 0260900001. Also check for prior cases on AMS/CIS which were routed CAT-A per (4) above. If the specified Exam control base and/or a previous CAT-A referral of a DOMA related protective claim (tax year 2010 or earlier) is found, route the new case to:
    Internal Revenue Service
    % Terry Brewer
    201 W Rivercenter Blvd
    Covington, KY 41011
    Stop 825G

Third Quarter 2013 DOMA (United States v. Windsor) Related Employment Tax Corrections
  1. Notice 2013-61 advised employers who withheld employment taxes on amounts paid to same-sex spouses in the third quarter of 2013 which were not taxable as a result of the DOMA (United States v. Windsor) decision to repay or reimburse the employee before filing the third quarter Form 941.

    If And Then
    Employees were repaid or reimbursed prior to the filing of the third quarter 2013 Form 941 The related wages and withholding were not to be reported on the third quarter 2013 Form 941.
    Employees were not repaid or reimbursed prior to the filing of the third quarter 2013 Form 941 The employer must report the wages and tax on the third quarter 2013 Form 941.
    The employer reported the wages and tax on the third quarter 2013 return Meets the requirements for the special administrative procedure discussed in IRM 21.7.2.5.24.3, Tax Year 2013 DOMA (United States v. Windsor) Related Employment Tax Corrections The employer may correct amounts overreported for the third quarter 2013 by adjusting wage and tax figures reported on the fourth quarter Form 941, or by filing a Form 941-X for the fourth quarter of 2013 reporting corrections for the entire 2013 tax year.

    Note:

    These procedures also apply to filers of other employment tax returns and railroad retirement tax returns.

    Caution:

    These special procedures are intended to reduce taxpayer burden. However, employers may choose to file separate Forms 94XX for each impacted tax period as per normal procedures.

Tax Year 2013 DOMA (United States v. Windsor) Related Employment Tax Corrections
  1. Notice 2013-61 provided a special administrative procedure for employers who withheld employment taxes on wages paid to same-sex spouses in first three quarters of 2013 which were not taxable as a result of the DOMA (United States v. Windsor) decision to use in filing Form 941 for the fourth quarter of 2013. If all requirements are met, this special administrative procedure allows employers to modify wages and taxes reported on the fourth quarter Form 941 to account for reporting changes for the first three quarters of 2013. Alternately, employers may file one Form 941-X for the fourth quarter of 2013 to report corrections for the entire 2013 tax year.

    If Then
    Employees were repaid or reimbursed on or before December 31, 2013 The employer may reduce the fourth quarter wages, tips, and compensation on the following lines to account for wages and tax overreported during the first three quarters of 2013:
    • Compensation on line 2

    • Income tax withheld on line 3

    • Taxable social security wages on 5a

    • Medicare wages on line 5c

    • Taxable wages & tips subject to Additional Medicare Tax withholding on line 5d

    Employees were not repaid or reimbursed on or before December 31, 2013 The employer may file one Form 941-X for the fourth quarter of 2013 to make adjustments or claim refunds of overpayments of FICA taxes (but not income tax withheld) paid in the first three quarters of 2013.

    Reminder:

    See IRM 21.7.2.5.24.2, Third Quarter 2013 DOMA (United States v. Windsor) Related Employment Tax Corrections, for guidance provided to employers for filing third quarter 2013 tax returns. Also see IRM 21.7.2.5.24 (7) if multiple claims issues are included on the same Form 941-X.

    Note:

    These procedures also apply to filers of other employment tax returns and railroad retirement tax returns.

    Caution:

    These special procedures were intended to reduce taxpayer burden. However, employers may choose to file separate Forms 94XX for each impacted tax period as per normal procedures.

  2. To ensure required tax liability schedules matched the tax reported on employment tax returns, employers following the special administrative procedure provided in Notice 2013-61 were also advised as follows:

    If Then
    Employees were repaid or reimbursed before October 1, 2013 Employers were instructed to reduce the first liability reported on the tax liability schedule for the fourth quarter of 2013 by the amount of the correction made to tax under the special administrative procedure. If the correction exceeded the amount of the first tax liability, additional tax liabilities on the schedule were to be reduced in ascending date order until the full amount of the correction being made was absorbed.
    Employees were repaid or reimbursed after September 30, 2013 and before December 31, 2013 Employers were instructed to reduce the liability reported on the tax liability schedule for the day of repayment/reimbursement and/or the next liability in ascending date order until the full amount of the correction being made was absorbed.
  3. Forms 94XX filed under this special administrative procedure are to be processed as per normal procedures for the form filed (e.g. Form 941-X claim filed, follow procedures in IRM 21.7.2.4.7.6.2, Form 941-X Tax Decrease — Claim).

    Caution:

    The beginning and ending figures on Forms 941-X filed for the fourth quarter of 2013 using this special administrative period may represent the fourth quarter of 2013 only or the 2013 tax year as a whole. Either method of completion by the taxpayer will be deemed acceptable for processing purposes in this specific claims filing situation.

DOMA (United States v. Windsor) Related Employment Tax Corrections for Tax Years 2012 and Earlier
  1. Notice 2013-61 provided a special administrative procedure for employers who withheld employment taxes on wages paid to same-sex spouses in tax years prior to 2013 which were not taxable as a result of the DOMA (United States v. Windsor) decision.

  2. If the Refund Statute Expiration Date (RSED) has not expired, the employer may file one Form 941-X for the fourth quarter of the prior tax year to make adjustments or claim refunds of overpayments of FICA taxes (but not income tax withheld) paid in all four quarters of that tax year.

    Reminder:

    See IRM 21.7.2.5.24 (7) if multiple claims issues are included on the same Form 941-X.

    Note:

    These procedures also apply to filers of other employment tax returns and railroad retirement tax returns.

    Caution:

    These special procedures are intended to reduce taxpayer burden. However, employers may choose to file separate Forms 94XX for each impacted tax period as per normal procedures.

  3. Forms 94XX filed under this special administrative procedure are to be processed as per normal procedures for the form filed (e.g. Form 941-X claim filed, follow procedures in IRM 21.7.2.4.7.6.2, Form 941-X Tax Decrease — Claim).

    Caution:

    The beginning and ending figures on Forms 941-X filed for the fourth quarter of a given tax year using this special administrative period may represent the fourth quarter of that tax year only or the tax year as a whole. Either method of completion by the taxpayer will be deemed acceptable for processing purposes in this specific claims filing situation.

  4. A special process was implemented within the Examination function for the purpose of perfecting and processing DOMA related protective claims for tax years 2010 and earlier. See IRM 21.7.2.5.24.1, DOMA (United States v. Windsor) Related Employment Tax Protective Claims. Once those protective claims were received through the CAT-A referral process, Exam sent letters to employers requesting the information needed to perfect the claims. However, Exam did not open AIMS control bases on these cases unless there were unusual circumstances in play. It is possible that letter replies for this issue will be received in Accounts Management rather than being directed to Exam as intended. Therefore, when working any new DOMA related claims filed for 2010 and earlier, check the module for an Exam control base (open or closed) with IDRS number 0260900001. Also check for prior cases on AMS/CIS which were routed CAT-A per (4) above. If the specified Exam control base and/or a previous CAT-A referral of a DOMA related protective claim (tax year 2010 or earlier) is found, route the new case to:
    Internal Revenue Service
    % Terry Brewer
    201 W Rivercenter Blvd
    Covington, KY 41011
    Stop 825G

DOMA (United States v. Windsor) Related FICA Claims Filed by Employees
  1. Claims filed by employees on Form 843 for FICA taxes withheld from wages paid to same-sex spouses which were not taxable as a result of the DOMA (United States v. Windsor) decision are to be processed as per normal procedures in IRM 21.7.2.4.6.4.2, Excess Social Security and Medicare Tax Withheld — Employee Claims for Refund.

  2. There are no special documentation requirements for these claims:

    • Do not request a copy of the claimant's marriage certificate.

    • Do not request information regarding the locality in which the marriage ceremony took place.

Claims Citing Rev. Rul. 90-72 (SUB-pay)

  1. Rev. Rul. 90-72 provides a limited administrative exception from FICA, FUTA and RRTA taxes for certain payments that supplement state unemployment compensation (sometimes referred to as SUB-pay). The revenue ruling provides for an exception from FICA, FUTA, and RRTA taxes for a stream of payments coordinated with the receipt of unemployment compensation but specifically indicates that lump-sum payments (e.g. severance pay) do not qualify for the exception.

    • For claims citing Rev. Rul. 90-72 received prior to October 1, 2014, see (4) of IRM 21.7.2.5.16, Claims Related to CSX Corp. and/or Quality Stores, Inc. Litigation. Also, see archived versions of this IRM if information on previous handling is needed.

    • For claims citing Rev. Rul. 90-72 received on or after October 1, 2014, route the claim CAT-A. See Exhibit 21.5.3–2, Examination Criteria (CAT-A) — General.

  2. Responses to 105C letters stating the supplemental unemployment plan satisfies all the requirements of Rev. Rul 90-72 require development by Exam prior to acceptance in Appeals. Handle as follows:

    1. Secure the taxpayer's original claim, the taxpayer's original return (or return print), a transcript, a copy of the disallowance letter, and the taxpayer's statement of appeal.

      Note:

      A copy of the disallowance letter may be obtained from Control-D if it is not with the information submitted by the taxpayer or attached to the disallowance DLN. If unable to obtain a copy of the letter, document all attempts to secure letter.

    2. Route the taxpayer’s 105C letter response and the documents identified above in paper form to Exam at the following address:
      Internal Revenue Service
      % Dave Maupin
      201 W Rivercenter Blvd
      Covington, KY 41011
      Mail Stop 5702A

    3. Advise the taxpayer of the transfer via Letter 86C as appropriate.

    4. Close the case.

CP 148A and CP 148B - Dual Notice of Address Change

  1. Beginning in 2015, any address change made on a BMF entity with open employment tax filing requirements generates two notices to the taxpayer:

    • CP 148A: Confirmation of address change mailed to the taxpayer's new address.

    • CP 148B: Confirmation of address change, mailed to the taxpayer's previous address

    Note:

    Paper responses to CP 148A and CP 148B are worked in BMF Entity per procedures in IRM 3.13.2.3.9, CP 148A and CP 148B, Dual Notice of Address Change. Any paper responses received in AM inventory are to be rerouted to that operation for handling.

  2. The following Transaction Codes (TC) can reflect address changes and will trigger issuance of a CP 148A and a CP 148B:

    • TC 013, "Name Change"

    • TC 014, "Address Change"

    • TC 016, "Miscellaneous Change Entity Codes"

    • TC 150, "Return Filed & Tax Liability Assessed" (if showing on ENMOD or BMFOLE)

    Note:

    See (5) of IRM 3.13.2.3.9 if guidance on researching address changes is needed.

    Caution:

    IRS notices for business entities generate with a maximum of four address lines. If there are more than four address elements (Sort Name, Care Of Name, etc.) in the IRS record for the taxpayer’s address, what will print on the second address line of a notice is variable and is determined based on a priority system. So, the address element that was changed may not be present on the notice generated to the taxpayer. Accordingly, it is important to thoroughly research account records to verify the source of any address change to which the taxpayer is responding.

  3. Handle responses to CP 148A and CP 148B received via the toll-free lines as follows:

    If Then
    Taxpayer agrees with address change but is confused/concerned why we sent one or both of the notices Explain to the taxpayer that the IRS is required by law to send employers notices to both their previous address and to their new address if an address change is recorded for their account. These address change confirmation notices are intended to guard against inappropriate address change requests being made against their wishes.
    Taxpayer receives one or both notices, disagrees with address change
    1. Correct the address per the information provided by the taxpayer. See (3) in IRM 21.1.3.20, Oral Statement Authority, and (2) in IRM 21.5.2.4.2, Adjustments With Oral Statement, for more information.

    2. Advise the taxpayer the change was made and that a new CP 148A and CP 148B will be issued to the current and new address.

    Taxpayer receives one or both notices, disagrees with address change and questions the source of address change that was made
    1. Correct the address per the information provided by the taxpayer. See (3) in IRM 21.1.3.20, Oral Statement Authority, and (2) in IRM 21.5.2.4.2, Adjustments With Oral Statement, for more information.

    2. Advise the taxpayer the change was made and that a new CP 148A and CP 148B will be issued to the current and new address.

    3. Conduct online research to determine, if possible, the source of the previous address change:
      • If appropriate, share information for the previous address change with the taxpayer.
      • If the information provided does not satisfy the taxpayer's concerns, advise the taxpayer to respond to the CP 148A and/or CP 148B expressing their concerns in writing.

    Note:

    Responses to Spanish versions of these notices, CP 848A and CP 848B, are to be handled in the same manner as CP 148A and CP 148B.

    Reminder:

    Address any other issue raised by the taxpayer as appropriate.

    Caution:

    If the caller is unable to pass disclosure verification requirements (see IRM 21.1.3.2.3, Required Taxpayer Authentication), advise the caller to respond to the CP 148A and/or CP 148B in writing.

Exclusion of Indian General Welfare Benefits

  1. Indian general welfare benefits are excluded from gross income per provisions of the Tribal General Welfare Exclusion Act of 2014.

  2. Related BMF claims may be received on Form 843 or Form 945-X. These claims can be identified by the presence of one or more of the following key words in the explanation section of the claim or written across the top margin of the form:

    • Tribal General Welfare Exclusion Act of 2014

    • H.R. 3043

    • Notice 2012-75

    • Rev. Proc. 2015-35

    • General Welfare

  3. Do not process these claims. Route any claims identified for this issue to:
    Internal Revenue Service
    GECS M/S 1110 Attn: Sherry Whitaker
    1973 North Rulon White Blvd
    Ogden, UT 84404

Qualified Small Business Payroll Tax Credit for Increasing Research Activities

  1. Section 121(a), Division Q, Title I, Subtitle A, Part 3 of P.L. 114-113 permanently extended the Credit for Increasing Research Activities. This non-refundable credit is generally taken by completing Form 6765, Credit for Increasing Research Activities, and Form 3800, General Business Credit, which are attached to an income tax return. See IRM 21.7.4.4.8.3.4, Form 6765, Credit for Increasing Research Activities, for more information.

  2. Section 121(c) of that same law also added new IRC Section 3111(f) which allows certain eligible small businesses who have made a binding election to carry the credit computed on Form 6765 with their income tax return over to their employment tax returns and reduce the employer’s share of social security taxes.

  3. This new employment tax credit could, in theory, apply to an extremely limited number of eligible taxpayers filing employment tax returns for as early as the second quarter of 2016. However, it is currently expected that most eligible taxpayers will not be able to claim the new credit prior to the filing of their employment tax returns for the second quarter of 2017.

  4. The Service is currently actively working to develop forms, instructions, and official guidance for those taxpayers who will be eligible to take this new employment tax credit. This IRM will be updated as soon as additional information becomes available.

  5. In the meantime, address any contacts received regarding the new employment tax credit as follows:

    If Then
    Taxpayer asks questions about credit eligibility or how to claim the new credit Explain that the Service is currently actively working to develop forms, instructions, and official guidance for those taxpayers who will be eligible to take this new employment tax credit and that they should monitor the irs.gov website for information as it becomes available.
    A claim for the new credit is received in Accounts Management on an employment tax return, Form 94XX, or Form 843 Contact the IRM author through your management chain and the site P&A Staff for guidance on handling the case.

CT-1, CT-2 Railroad Tax Returns

  1. This section contains information on:

    • Form CT-1, Employer's Annual Railroad Retirement Tax Return

    • Form CT-2, Employee Representative's Quarterly Railroad Tax Return

    • Unexplained adjustments to Form CT-1 (CP 177)

    • Railroad Retirement Board (RRB) Employer Status Determinations

  2. A revised Memorandum of Understanding (MOU) was executed by RRB and IRS in March 2010 (Agreement between RRB and IRS (2010)) to govern data sharing between the two agencies.

What are Forms CT-1 and CT-2?

  1. Form CT-1, Employer's Annual Railroad Retirement Tax Return, is used to report and pay railroad retirement taxes (including Additional Medicare Tax (AdMT)) imposed on compensation paid to railroad employees.

    • Form CT-1 is a calendar year return due by the last day of February of the following year.

    • The MFT is 09

    • Tax Class 7

    • Document Code 11

  2. Form CT-2, Employee Representative's Quarterly Railroad Tax Return, is used to report railroad retirement taxes (including AdMT) imposed on compensation received by employee representatives.

    • Form CT-2 is a quarterly return due the last day of the second month following the end of the quarter.

    • It is filed using the representative's Social Security Number (SSN).

    • Forms CT-2 are processed to NMF.

    • The MFT is 72

    • Tax Class 6

    • Document Code 2

  3. Form CT-1 and Form CT-2 are processed at the Cincinnati Submission Processing Campus (CSPC). Claims or other correspondence received at other campuses must be routed or coordinated as detailed in IRM 21.7.2.6.4.1.

Imposition of RRTA Tax (Forms CT-1)

  1. The Railroad Retirement Tax Act (RRTA) imposed two tiers of taxes on employee compensation. Tier I is designed to mirror the taxes imposed by the Federal Insurance Contributions Act (FICA) and Tier II is an additional tax to provide a pension benefit. Both the employer and the employee are subject to Tier I and Tier II taxes.

    • A railroad employer must withhold Tier I and Tier II taxes from each employee’s compensation.

    • A railroad employer who does not withhold the applicable tax is liable for that tax.

  2. Forms CT-1 do not include any listing of employees' names, account numbers, or amount of compensation paid (except for statements attached in certain circumstances to support adjustments to Tier l and Tier ll). The railroad employer provides wage information reports directly to the Railroad Retirement Board (RRB). The railroad employer reports railroad retirement compensation, Tier I tax, Tier II tax, Medicare tax and Additional Medicare Tax in Box 14 of Form W-2.

Imposition of RRTA Tax (Forms CT-2)

  1. RRTA also imposes the same two tiers of taxes described in (1) of IRM 21.7.2.6.2 on employee representatives. The employee representative is liable for both the employer and the employee portion of the Tier I taxes and the employer portion of the Tier II taxes.

Forms CT-1 and CT-2 Research

  1. This section discusses research on Forms CT-1 and CT-2.

Forms CT-1 Are Processed at Cincinnati Submission Processing Campus
  1. Forms, claims or correspondence received at other campuses must be routed or coordinated with:

    IRS
    Large Corp/Technical Unit (LCTU)
    Stop 537G
    201 W. Rivercenter Blvd.
    Covington, KY 41011

    Note:

    For Form CT-1 cases in debit status that are being routed as above, input a STAUP for 8 cycles and send Letter 86C to advise taxpayer the case is being transferred. Notate the routing form that the STAUP and letter action were taken.

  2. For inquiries received via the toll-free line, prepare Form 4442/e4442 and EEFax to the Technical Unit at:

    • 855-307-3066, Team 401, or

    • 855-307-3090, Team 402.

Form CT-1 and Form CT-2 Tax Rates (including Additional Medicare Tax)
  1. There are separate tax rates for Tier l and Tier ll taxes for both employers and employees.

  2. Tier l taxes are equivalent to FICA taxes. Since Tier I and Tier II have separate wage bases, separate lines appear on the return. The Medicare portion of the Tier l tax is 1.45% of all compensation for both the employer and employee (2.9% total).

  3. The Tier l portion equivalent to the social security portion is 6.2% for both employer and employee (12.4% total) except as modified by legislation for particular years (2010, 2011, and 2012) as described in (4), (5), and (6) below. Tier I taxes are withheld from wages and tips only up to a wage limit. The table below shows the Tier I wage limits from year to year.

    Tax Year Taxable Amount
    2007 On the first $97,500
    2008 On the first $102,000
    2009 - 2011 On the first $106,800
    2012 On the first $110,100
    2013 On the first $113,700
    2014 On the first $117,000
    2015 - 2016 On the first $118,500
  4. Section 101 of the Hiring Incentives to Restore Employment (HIRE) Act enacted March 18, 2010 created a payroll tax exemption for the employer's share of social security taxes on wages paid to certain previously unemployed workers from March 19, 2010 through December 31, 2010. This payroll tax exemption also applied to the employers 6.2% share of Tier I railroad retirement taxes for wages paid to qualified employees reported on Form CT-1 (but not to taxes reported on Form CT-2). The employee's 6.2% share of Tier I tax (figured up to the wage limit), and the employer and employee's shares of Medicare Tier I taxes still applied to all wages. See IRM 21.7.2.5.20, HIRE — Payroll Tax Exemption, for more information.

    Caution:

    Credit Reference Number (CRN) 296 was validated for Forms CT-1 (tax period 201012 only) for allowance of the HIRE refundable credit arising from employment of qualified employees for the period of March 19, 2010 through March 31, 2010. However, the Item Reference Numbers (IRNs) 115, 116, and 117 discussed in the IRM cross referenced above do not apply to Form CT-1.

  5. Section 601 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reduced the employee tax rate for social security taxes from 6.2% to 4.2% for wages paid January 1, 2011 through December 31, 2011. This payroll tax rate reduction also applied to the employee's share of Tier I railroad retirement taxes reported on Form CT-1 and on Form CT-2. The employer's 6.2% share of Tier I tax (figured up to the wage limit), and the employer and employee's shares of Medicare Tier I taxes still applied to all wages. Due to late passage of the legislation, employers may have experienced difficulty in promptly implementing the reduced employee Tier I tax rate. Employers were instructed to implement the new 4.2% employee tax rate as soon as possible but not later than January 31, 2011. Employers were further instructed to correct any overwithholding of taxes on a subsequent pay period but not later than March 31, 2011. Since the tax rate reduction was incorporated into the 2011 Form CT-1 and Form CT-2 versions, no special adjustment procedures to account for the tax rate change were required.

  6. Section 101 of the Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extended the two percentage point payroll tax cut for employees discussed in (5) above through February 29, 2012. Subsequently, Section 1001 of the Middle Class Tax Relief and Job Creation Act of 2012 further extended the two percentage point payroll tax cut for employees discussed in (5) above through December 31, 2012. As with 2011, the 2012 Form CT-1 and Form CT-2 reflected the reduced tax rate and no special adjustment procedures are required.

  7. A new Additional Medicare Tax (AdMT) is effective for tax periods beginning after December 31, 2012:

    • The AdMT tax rate is 0.9%.

    • Employers are required to withhold AdMT at the specified tax rate from wages and tips paid to an employee in excess of $200,000 for a calendar year beginning with the payroll period in which the threshold is exceeded and continuing each pay period until the end of the calendar year.

    • AdMT is in addition to the 1.45% Medicare tax rate withheld from employee wages and tips.

    • AdMT is only imposed on the employee. There is no employer share of AdMT.

    • Amounts of AdMT withheld by the employer will be reported on the employee's Form W-2.

    • While employers will begin withholding the Additional Medicare Tax (AdMT) as soon as wages paid to an employee exceed the $200,000 threshold, the final amount owed or refunded will be calculated as part of the individual's income tax return. Employers may not increase or decrease amounts of AdMT withheld from wages/tips paid to an employee based on an employee’s expectation that they will owe more or less tax when filing their individual income tax return. Employees who expect to owe more AdMT than is withheld from their wages should make estimated tax payments and/or use Form W-4, Employee's Withholding Allowance Certificate, to request additional income tax withholding which will be applied against taxes shown on their individual tax return, including any AdMT liability.

    • Lines were added to 2013 and subsequent railroad retirement tax returns for the purpose of reporting amounts of AdMT withheld.

    • IRN 070 will be used to record adjustments to Additional Medicare Tax on Form CT-1 accounts (along with other tax corrections).

    • Although employers are required to calculate, withhold and report Additional Medicare Tax in a manner similar to other RRTA taxes, the tax treatment closely follows income tax withholding procedures. AdMT cannot be corrected after the close of a tax year unless the issue constitutes an administrative error, IRC Section 3509 rates are being applied, or as the result of an Examination. This is true even if AdMT was erroneously withheld. See IRM 21.7.2.4.6.3, Income Tax Withholding, Backup Withholding, and Additional Medicare Tax Adjustments, IRM 21.7.2.4.6.3.1, Administrative Errors, and IRM 21.7.2.5.4, IRC Section 3509, for more information.

    • Information on AdMT is found throughout this IRM, in Publication 15, and instructions for railroad retirement tax returns. Additional information, including a "questions and answers" link to Frequently Asked Questions (FAQs), may also be found on the IRS website under the “Additional Medicare Tax” topic heading at: Understanding Employment Taxes.

  8. Tier ll tax rates are shown in the table below.

    Tax Year Employer %/Employee % On the first:
    2007 12.1%/3.9% $72,600
    2008 12.1%/3.9% $75,900
    2009 - 2011 12.1%/3.9% $79,200
    2012 12.1%/3.9% $81,900
    2013 12.6%/4.4% $84,300
    2014 12.6%/4.4% $87,000
    2015 - 2016 13.1%/4.9% $88,200
  9. Due to expiration of the reduced employee Tier I tax rates described in (5) and (6) above, the employee tax rate for Tier I taxes for 2013 (and thereafter) reverted to 6.2%. Notice 1036 (Rev. January 2013) provided that employers were to implement the 6.2% employee tax rate as soon as possible, but not later than February 15, 2013. After implementing the 6.2% rate, employers were to make an adjustment in a subsequent pay period to correct any underwithholding of tax as soon as possible, but not later than March 31, 2013.

  10. See IRM 21.7.2.5.23, IRC Section 132(f) Transportation Benefit Exclusion, for information regarding exclusion of qualified transit benefits from income.

Forms CT-1 and CT-2 Procedures

  1. This section contains procedures for working common railroad retirement issues.

Form CT-1 Tax Adjustments
  1. IRN 070 is necessary for adjusting the total of railroad retirement tax (including Additional Medicare Tax for calendar years beginning after December 31, 2012).

  2. Returns for 199412 and subsequent do not reflect the taxpayer's original liability (assessed with TC 150) in the field ADJ-RR-RETIRMNT.

    If Then
    A TC 290 is input Field reflects the TC 290 amount only.
    A TC 291 is input Field shows nothing (unless a previous TC 290 was input).
    Adjusting these returns Do not rely on this field to determine current tax liability, add the original assessment plus all increases; and then subtract all decreases to compute taxpayer's current tax liability.
  3. Credit Reference Number (CRN) 296 was validated for Forms CT-1 (tax period 201012 only) for allowance of the HIRE refundable credit arising from employment of qualified employees for the period of March 19, 2010 through March 31, 2010. See IRM 21.7.2.5.20, HIRE — Payroll Tax Exemption, for more information.

    Caution:

    Item Reference Numbers (IRNs) 115, 116, and 117 discussed in the IRM cross referenced above do not apply to Form CT-1.

Form CT-1 Duplicate Filing Cases
  1. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. Use approved local procedures when working duplicate filing cases involving tax decreases.

  3. Input TC 29X with IRN 070 in appropriate BS.

  4. Route claims received involving large case controls to the area office where the railroad is located.

Interest-Free Adjustments
  1. If an employer has made an undercollection and underpayment of taxes for a prior period under the IRC sections listed below, the employer may be entitled to an interest-free adjustment, per Treasury Regulations Section 31.6205-1. See IRM 21.7.2.4.6.2, Interest-Free Adjustments (Employment Tax Returns), for additional information.

    • IRC Section 3101, FICA tax on employees

    • IRC Section 3111, FICA tax on employers

    • IRC Section 3201, RRTA tax on employees

    • IRC Section 3221, RRTA tax on employers

  2. The interest-free adjustment rules under section 6205 do not apply to the employee representative tax under IRC 3211 reported on Form CT-2.

Form CT-1 Deposits
  1. Federal tax deposits of RRTA taxes reported on Form CT-1 are due based on a pre-determined deposit schedule under which the frequency of deposits generally remains consistent throughout the year. See IRM 20.1.4, Failure to Deposit Penalty, for more information on deposit requirements.

    Note:

    Tax liabilities are incurred when compensation is paid, not when the payroll period ends.

  2. For tax periods 200112 and subsequent, federal tax deposits are required if the tax reported on Form CT-1 is $2,500 or more. See IRM 20.1.4.6, De Minimis Exception to Deposit Requirements, for more information.

  3. Prior to January 1, 2011, many employers were permitted to make their federal tax deposits at an authorized financial institution accompanied by an FTD coupon. As of January 1, 2011, taxes must be deposited by using Electronic Funds Transfer (EFT). See IRM 20.1.4.2.1, Electronic Funds Transfer (EFT), for more information.

    Note:

    RRBLINK was used to make payments until December 31, 2007 when that processing system was discontinued.

Form CT-1 Discrepancy Report
  1. RRB performs a yearly reconciliation of tax, and reports any discrepancies using CT-1 Discrepancy Report to the SB/SE Speciality Tax Program Analyst. See Agreement between RRB and IRS (2010), Section 6.1(d).

  2. Forward any inquiries related to this procedure to the CT-1 specialist at the address cited in IRM 21.7.2.6.4.1. Forms CT-1 are Processed at Cincinnati Submission Processing Campus.

Unexplained Adjustment on Form CT-1 (CP 177)
  1. CP 177 (and CP 175/875) are no longer generated. See archived IRM 21.7.2 if information is needed on CP 177 (or CP175/875).

Claims filed on Form CT-1X and Form 843
  1. Forward all excess Tier I and Tier II claims filed by employees or employers on Form CT-1X or Form 843 to the Large Corp/Technical Unit at the Cincinnati campus at the address shown in IRM 21.7.2.6.4.1. The instructions which follow are for the Large Corp/Technical Unit at the Cincinnati campus.

  2. Forward claims on Form CT-1X (or Form 843) which meet CAT-A criteria specified in Exhibit 21.5.3–2 (only) as follows:
    Internal Revenue Service
    % Elizabeth Goodwin
    201 W Rivercenter Blvd
    Covington, KY 41011
    Mail Stop 5702A

  3. Route claims involving large case control (taxes of $1,000,000 or more) to the area office where the railroad is located.

  4. Excess Tier I and Tier II tax claims filed on Form 843 by employees are worked following the procedures outlined in IRM 21.7.2.4.6.4.2, Excess Social Security and Medicare Tax Withheld — Employee Claims for Refund.

RRB Employer Status Determinations
  1. The RRB may determine that a railroad has been reporting and paying FICA taxes in error. The employer may then file a claim or make an adjustment using Form 941-X to remove the FICA taxes in previous years and request they be applied to their Railroad Retirement Tax account (Form CT-1). Employers are instructed to file Form CT-1X, Adjusted Employer's Annual Railroad Retirement Tax Return or Claim for Refund. If the employer had not filed Form CT-1 for the prior period, see IRM 21.7.2.6.5.9, Incorrect Type of Return Filed – RRTA vs. FICA. They may also file an amended Form 940 for refund of FUTA taxes based on the RRB determination.

  2. Do not work these claims or correspondence in sites other than Cincinnati. If a claim or correspondence is received, forward to CAMC as indicated in IRM 21.7.2.6.4.1.

Incorrect Type of Return Filed – RRTA vs. FICA
  1. There are instances where taxpayer files Form 941/944 but should file Form CT-1, or vice versa.

  2. If the employer should have filed a Form CT-1 to report RRTA taxes, the employer can make an interest-free adjustment by filing an original return, Form CT-1, reporting the correct amount of RRTA tax and attaching an adjusted return (Form 941-X/944-X/CT-1X) to correct the erroneously reported FICA tax.

    Example:

    Taxpayer files Form 941 for the 201503, 201506, and 201509 quarters. At the end of the year, the taxpayer realizes they filed incorrect Forms 941 for the first three quarters of 2015 and should have filed Form CT-1. Instruct the taxpayer to file an original Form CT-1 for 201512 and include RRTA for the entire year (including what was previously reported on Forms 941 as FICA tax). Also, instruct the taxpayer to file Forms 941-X for each of the first three quarters of 2015.

    Note:

    Reapply credits as appropriate when adjusting accounts for the situation described above.

Form CT-1X — Adjusted Employer's Annual Railroad Retirement Tax Return or Claim for Refund
  1. Form CT-1X is filed to correct taxes previously reported on Form CT-1. Taxpayers can choose to either file:

    • An adjusted railroad retirement tax return, or

    • A claim for refund or abatement

    Note:

    If the taxpayer does not check a box in Part 1 (or checks both boxes) and the Form CT-1X reflects a tax decrease, make two attempts to contact the taxpayer by phone to determine whether they intended to follow the adjustment process or the claim process. If unable to contact the taxpayer by phone, verify which set of certification box(es) were checked. If the taxpayer checked the adjustment certification(s) or checked both the adjustment certification(s) and the claim certification(s), process as an adjusted employment tax return. If the taxpayer checked only the claim certification(s), process as a claim for refund.

    Reminder:

    When contacting the taxpayer or authorized representative, follow taxpayer authentication guidelines in IRM 21.1.3, Operational Guidelines Overview.

  2. Taxpayers are required to complete the applicable certification box based on their selection in Part 1 of Form CT-1X.

    Example:

    If the taxpayer checks box 1 in Part 1, then they must check the applicable certification box(es) on line 4. If the taxpayer checks box 2 in Part 1, then they must check the applicable certification box(es) on line 5.

    Note:

    If the certification box checked in Part 2 is inconsistent with the process selected in Part 1, continue processing the Form CT-1X based on the information provided in Part 1.

Form CT-1X Decreases — Adjusted Employment Tax Return
  1. Verify all required items on Form CT-1X are complete, such as:

    • Name, address, and EIN

    • Calendar year being corrected

    • Box 1 in Part 1 is checked

    • Box 3 and the applicable certification is checked on line 4a, 4b or 4c in Part 2

    • Detailed explanation (see IRM 21.7.2.4.6 (11))

    • Signature

  2. If a certification box is not checked, make two attempts to secure the information by phone if a telephone number is available. Otherwise, follow procedures in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Use Letter 4384C to reject the claim and identify the missing information in the letter.

    Exception:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Caution:

    The individual contacted by phone must be authorized to prepare taxpayer's employment tax returns. Document the case history with the date, time, name of individual contacted, and information obtained from the individual.

  3. If a taxpayer files an adjusted employment tax return within 90 days of the expiration of the period of limitations, the adjustment must be converted to a claim for refund and the taxpayer must be notified. Take the following actions:

    1. Notate the Form CT-1X with the following text: "90 day - Claim" .

    2. Process the Form CT-1X per procedures in IRM 21.7.2.6.5.10.2, Form CT-1X Decreases — Claim, and refer to IRM 21.7.2.4.6.5, 90 Day — Claim, for additional information.

    3. Generate Letter 4384C to the taxpayer explaining the adjustment has been converted to a claim.

  4. Math verify all Tier I and Tier II tax adjustment items reported on the Form CT-1X.

    Exception:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  5. Process adjusted employment tax returns as follows:

    1. Input TC 291, HC 1, BS 20 for the amount of decrease along with IRN 070.

      Note:

      Overpayments arising from adjustments made under these procedures are subject to offset. Omit Hold Code 1 with the adjustment and allow the computer to systemically offset the credit if it will be fully absorbed by an outstanding balance due. Otherwise, if conditions prevent the computer from completing the offset, or if only part of the credit needs to be offset, manual offsets using TC 820/TC 700 transactions will be required.

      Caution:

      For tax decreases with an unreversed FTD penalty, see (4) of IRM 20.1.4.21.5, Adjusted Returns (Forms 941-X, 943-X, 944-X, and CT-1X).

    2. Transfer the applicable overpayment using TC 830/710 to the period in which the Form CT-1X was filed.

      Caution:

      To prevent either debit or credit interest from generating, use the later of the return due date of the tax period being adjusted or the availability date of the overpayment as the transaction date of the TC 830 and use the due date of the return the credit is being applied to as the transaction date of the TC 710. See IRM 21.5.8.4.3(3), Determining Correct Credit Transfer Format, for more information.

    3. If the entire credit is not available to be transferred, generate Letter 4384C to the taxpayer. Explain why the entire amount was not available (for example, there was a balance due on the tax period being adjusted or the credit is being offset to a balance due on another tax period).

Form CT-1X Decreases — Claim
  1. Verify all required items on Form CT-1X are complete, such as:

    • Name, address, and EIN

    • Calendar year being corrected

    • Box 2 in Part 1 is checked

    • Box 3 and the applicable certification is checked on line 5a, 5b, 5c or 5d in Part 2

    • Detailed explanation (see IRM 21.7.2.4.6 (11))

    • Signature

  2. If a certification box is not checked, make two attempts to secure the information by phone if a telephone number is available. Otherwise, follow procedures in IRM 21.5.3.4.2, Tax Decrease or Credit Increase Processing. Use Letter 4384C to reject the claim and identify the missing information in the letter.

    Exception:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Caution:

    The individual contacted by phone must be authorized to prepare taxpayer's employment tax returns. Document the case history with the date, time, name of individual contacted, and information obtained from the individual.

    Exception:

    Claims filed without consent. If taxpayer has not checked a box on line 5 and states (in the explanation or in response to our contact) they are not required to obtain the consents prior to filing the claim and the claim is ≡ ≡ ≡ ≡ ≡ ≡ ≡ , send claim CAT-A. Exam will correspond with the taxpayer to secure applicable certifications. In certain situations, taxpayers may not have repaid or reimbursed their employees or obtained their consents prior to filing a claim (Form CT-1X). However, they must certify they have repaid or reimbursed their employees or obtained consents before the Service can allow the claim. See Instructions for Form CT-1X for more information.

  3. Math verify all Tier I and Tier II tax adjustment items reported on the Form CT-1X.

    Exception:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. Input TC 291, BS 20 for the amount of the decrease along with IRN 070.

    Caution:

    For tax decreases with an unreversed FTD penalty, see (4) of IRM 20.1.4.21.5, Adjusted Returns (Forms 941-X, 943-X, 944-X, and CT-1X).

  5. If the entire credit is not available to be refunded to the taxpayer, generate Letter 4384C to the taxpayer explaining the discrepancy.

Form CT-1X Increases — Adjusted Employment Tax Return
  1. Verify all required items on Form CT-1X are complete, such as:

    • Name, address, and EIN

    • Calendar year being corrected

    • Box 1 in Part 1 is checked

    • Box 3 is checked in Part 2

    • Detailed explanation (see IRM 21.7.2.4.6 (11))

    • Signature

    Note:

    See (3) and (4) of IRM 21.5.3.4.1, Tax Increase or Credit Decrease Processing, if the Form CT-1X is missing required information. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  2. Check for the date the taxpayer discovered the error. If not entered on page 1, review the explanation.

    Note:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ , if the ascertained date is not provided and a telephone number is available, make two attempts to contact taxpayer by phone to obtain the information. If the ascertained date cannot be obtained by phone, input the adjustment as a TC 290.

    Exception:

    If you receive a Form CT-1X for the immediately preceding tax year prior to the due date for the current tax year (for example, a Form CT-1X reporting a tax increase for tax year 2013 received on or before February 28, 2015), it is not necessary to contact the taxpayer for an ascertained date. In that situation, input a TC 298 with the applicable interest computation date. See IRM 21.7.2.4.6.2, Interest-Free Adjustments (Employment Tax Returns), for more information.

    Reminder:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  3. Math verify all Tier I and Tier II tax adjustment items reported on the Form CT-1X.

    Exception:

    ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

  4. Use the table below to make your adjustment(s).

    If Then
    Return is filed by the due date of the return for the period in which the taxpayer discovered the reporting error Input TC 298, IRN 070, BS 20 and the correct interest computation date (INTCMP-DT). See IRM 21.7.2.4.6.2 and example below for additional information.
    Return is not filed by the due date of the return for the return period in which the error was ascertained or "date you discovered errors" was blank or the date error was discovered was not furnished in Part 4 Input TC 290 and IRN 070 with BS 20.

    Example:

    An employer discovers an error on February 1, 2016 and files a Form CT-1X which is received by the IRS on March 1, 2016 for the 09/201412 tax period. The interest computation date would be March 1, 2016.

  5. Adjust the FTD penalty when using either a TC 290 (see IRM 20.1.4.21.3, Amended or Supplemental (Tax Decrease or Non-Interest-Free Tax Increase)) or a TC 298 (see IRM 20.1.4.21.5, Adjusted Returns (Forms 941-X, 943-X, 944-X, and CT-1X)).

    Note:

    See IRM 20.1.4.21.5.1, Amended ROFTL (Forms 941-X, 943-X, 944-X, 945-X, and CT-1X), when using a TC 298 or TC 290 and an amended ROFTL was provided with the adjusted return.

  6. Be sure any payments are credited to period(s) where the tax is being assessed.