I recently received a few questions based on earlier blog posts, discussions with colleagues, and Slack conversations, and thought it might be helpful to readers to share them all here.

1. Q: I attended the Compass seminar you recommended and it was super-helpful.  I noticed that she didn’t have anything on row 30 of her 941-X,  but on the other example we discussed, there were Line 30 entries on her 941-X that was generated by Gusto. Should I have something on line 30?

A: The Compass seminar presenter made a couple mistakes and they issued corrected pdfs afterwards – if you took the course, make sure you have the file called “Corrected_Forms_941-X_for_Case_Study.pdf” to refer to as you are preparing amended 941s to claim the Employee Retention Credit.

The first correction was that column 4 on the 941-X should be negative (even though that math makes no sense on the face of the form).

The other correction was that Lines 30 and 31 are blank in their original examples and should have totals on them. In the seminar, they had entered amounts on the Worksheet 1, Step 3, Line 3a (and 3b if there was health insurance), but then I think they just forgot to also enter them on the face of the form. (In the Worksheet it says these numbers come from Form 941, Lines 21 & 22 – and those correspond to Form 941-X, Lines 30 & 31.)

We built our own Excel version of Worksheet 1 to make all these calculations easier — not hard to do: just copy the last page of the IRS Form 941 instructions, paste into Excel, and set it up to do the simple math. We also made the following notes in Step 3:
a) For Step 3a, “This data will come from the ERC spreadsheet Total Wages row 20 (make sure to add Q1 + Q2 when preparing Q2). Enter on 941-X line 30.”
b) For Step 3b, “This data will come from the ERC spreadsheet Total Benefits row 21 (make sure to add Q1 + Q2 when preparing Q2). Enter on 941-X line 31.”.
c) For Step 3d, “Enter on 941-X line 27 *make sure amount in column 4 is a negative.”
d) For Step 3h, “Enter on 941-X line 18 *make sure amount in column 4 is a negative.”
e) For Step 3i, “Enter on 941-X line 26 *make sure amount in column 4 is a negative.”

2. Q: Let’s say your PPP2 window is March 1 through August — it sounds like you’re not required to use wages from March 1-31 for your PPP2 forgiveness? You can take all of 1Q 2021 towards ERC and then use wages from April 1 and beyond for PPP2 forgiveness?

A: Yes, exactly – what we are doing in our firm is this: we calculate the minimum amount of wages + health insurance that are needed for PPP – and we use SUTA and retirement first, so that we use as few actual wage + health insurance dollars as possible (because ERC doesn’t use SUTA & retirement). That gives us a “target” that we use in our ERC calculations.

Then we assign wages + health insurance for the PPP period to each employee so as to maximize what’s left over for ERC. The difference has been really amazing, and worth the extra work.

So rather than picking wages to use for ERC based on which quarter they’re in to make it easier for filing, we’re picking them based on what maximizes the amount for ERC.

But the point is — that you can do it however you want, which was the second-to-last big piece of guidance I needed to make this system work to my clients’ advantage the most. (The other piece, whether 50%+ shareholder-EEs count for ERC, is something we’re still waiting on the IRS for. No one can believe they haven’t shared this yet.)

Follow-up question: Where did we land if we have to use every employee for the same duration for PPP forgiveness? So let’s say in the 24-week window you only need 13 weeks to get to forgiveness if you’re including everyone. Instead, could you use 3 employees for 24 weeks and then 2 employees for just 8 weeks (as an example off the top of my head). Or do you have to use all 5 employees for 13 weeks, or whatever it takes? Because in option 2, you’d have 3 extra weeks for the lower paid employees to use for ERC. If that makes sense what I’m asking.

A: There’s no requirement for PPP on a per-employee basis – it’s just a total dollar amount. Amazingly flexible. This analysis is accurate.

3. Q: The Compass presenter mentioned something about the more than 50% shareholder and whether those wages count. I’ve got two clients who have employee shareholders, and I hadn’t really considered this yet. Do I count their wages?

A: We don’t know! We’re helping clients decide what to do on a case-by-case basis, using this approach (I wrote this up for RRF but it’s still valid for anyone who’s left):
Restaurant Revitalization Fund: Client Options for Tax & ERC Filings | The Dancing Accountant

Follow-up question: Regarding the Shareholder wages— Let me see if I understand it. I have a C-corp where one employee was the founder and basically has 90% of the stock. Is it a question as to whether he counts? And his wife works there as well. So it sounds like either way I cannot include her? Another employee has 10% of the stock. So he counts for sure, right?

A: The 10% employee counts for sure, and we don’t know about the 90% C-corp owner or the spouse that works there, which is why I’m making my clients choose Option 1 or 2 in the blog post I referenced. By coincidence, they reiterated in today’s AICPA Town Hall that we still don’t freaking know the answer here.

4. Q: What date do I date the JE for “ERC Receivable”?  Is it the last date of the quarter for that 941X? (Rather than the date I send the amendment.)

A: Yes, because the IRS decided to be massive jerks and require this to be subtracted from deductible wages in the year of the payroll, rather than the year of the amendment, even for cash-basis tax filers.

Personal rant: after the past two tax seasons, have to admit that I hate Chuck Rettig with a passion.

5. Q: So if I do form 941Xs, do I need to also send 7200s? Or is that an either/or situation? We definitely want refunds (not just applying refund towards future payments.)

A: No, the Form 7200 is only for advance payments — you would file it to get an advance payment of the refund before the end of the quarter in which you qualify. Once the quarter ends, you claim the credit on the Form 941, and reconcile the amount you’ve already applied to receive in advance. By all accounts I’ve heard, it’s not worth the trouble.

6. Q: Finally–if I do the 941x’s myself, then do I need to notify that particular payroll company what I’ve done?

A: Not according to Gusto, because it only affects the cash paid, not the liabilities or reported amounts. It’s treated as an overpayment that will be refunded, so it doesn’t change things on their end — but I’m not sure about other payroll companies.

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