13. Reporting Adjustments on Form 941 There are two types of adjustments: current period adjustments andprior period adjustments to correct errors. See the instructions forForms 941 and 941c for more information on how to report theseadjustments. Maastricht hôtelsCurrent Period Adjustments In certain cases, amounts reported as social security and Medicaretaxes on lines 6b, 6d, and 7b of Form 941 must be adjusted to arriveat your correct tax liability (e.g., excluding amounts withheld by athird-party payer or amounts you were not required to withhold).Current period adjustments are reported on line 9 of Form 941 andinclude the following: Adjustment of tax on tips.If, by the 10th of the month after the month you received anemployee's report on tips, you do not have enough employee fundsavailable to withhold the employee's share of social security andMedicare taxes, you no longer have to collect it. Report the entireamount of these tips on lines 6c (social security tips) and 7a(Medicare wages and tips). Include as an adjustment in the "Other"space on line 9 the total uncollected employee share of the socialsecurity and Medicare taxes. Adjustment of tax on group-term life insurance premiums paidfor former employees.The employee share of social security and Medicare taxes ongroup-term life insurance over $50,000 for a former employeeis paid by the former employee with his or her tax return and isnot collected by the employer. However, include all social securityand Medicare taxes for such coverage on lines 6b and 7b (socialsecurity and Medicare taxes), and back out the amount of the employeeshare of these taxes as an adjustment in the "Other" space online 9. See Pub. 15-A for more information on group-term lifeinsurance. Note: For the above adjustments, provide a brief supportingstatement explaining the nature and amount of the adjustments (see theexample of reporting current period adjustments below). Do not useForm 941c as the supporting statement for current period adjustments. Adjustment of tax on third-party sick pay.Report both the employer and employee shares of social security andMedicare taxes for sick pay on lines 6b and 7b of Form 941. Deduct online 9 the social security and Medicare taxes withheld on sick pay bya third-party payer. Also enter the sick pay tax adjustment in the"Sick Pay" adjustment entry space. No additional statement forthis adjustment is required. See section 7 of Pub. 15-A for moreinformation. Fractions of cents adjustment.If there is a small difference between net taxes (line 13) andtotal deposits (line 14), it may have been caused, all or in part, byrounding to the nearest cent each time you computed payroll. Thisrounding occurs when you figure the amount of social security andMedicare tax to be withheld from each employee's wages. If you payyour taxes with Form 941 instead of making deposits because your totaltaxes for the quarter are less than $1,000, you also may report afractions-of-cents adjustment. To determine if you have a fractions-of-cents adjustment, multiplythe total wages and tips for the quarter subject to: Social security tax (reported on lines 6a and 6c) by 6.2%(.062). Medicare tax (reported on line 7a) by 1.45% (.0145). Compare these amounts (the employee share of social security andMedicare taxes) with the total social security and Medicare taxesactually withheld from employees for the quarter (from your payrollrecords). The difference, positive or negative, is yourfractions-of-cents adjustment. If the actual amount withheld is less,report a negative adjustment in parentheses in the entry space for"Fractions of cents." If the actual amount is more, report apositive adjustment. No supporting statement is required for thisadjustment. Example of reporting current period adjustments.Cedar Inc. was entitled to the following current periodadjustments: Third-party sick pay. Cedar included taxes of$2,000 for sick pay on lines 6b and 7b for social security andMedicare taxes. However, the third-party payer of the sick paywithheld and paid the employee share ($1,000) of these taxes. CedarInc. is entitled to a $1,000 sick pay adjustment (negative). Fractions of cents. Cedar Inc. determined thatthe amounts withheld and deposited for social security and Medicaretaxes during the quarter were a net $1.44 more than the employee shareof the amount figured on lines 6b, 6d, and 7b (social security andMedicare taxes). This difference was caused by adding or droppingfractions of cents when figuring social security and Medicare taxesfor each wage payment. It must report a positive $1.44fractions-of-cents adjustment. Life insurance premiums. Cedar Inc. paidgroup-term life insurance premiums for policies in excess of $50,000for former employees. The former employees must pay the employee shareof the social security and Medicare taxes ($200) on the policies.However, Cedar Inc. must include the employee share of these taxeswith the social security and Medicare taxes reported on lines 6b and7b of Form 941. It is entitled to a negative $200 adjustment. Cedar Inc. reported these adjustments on line 9 of Form 941 asshown in the Current Period Adjustment Example on page 24.A brief supporting statement was filed with Form 941 explaining thelife insurance adjustment. Prior Period Adjustments Generally, you can correct errors on prior quarter Forms 941 bymaking an adjustment on the Form 941 for the quarter during which theerror was discovered. For example, if you made an error in reportingsocial security tax on your second quarter 1999 Form 941 anddiscovered the error during January 2000, correct the error by makingan adjustment on your first quarter 2000 Form 941. The adjustment increases or decreases your tax liability for thequarter in which it is reported (the quarter the error is discovered)and is interest free. The net adjustments reported on Form 941 mayinclude any number of corrections for one or more previous quarters,including both overpayments and underpayments. Prior Period Adjustment Example You are required to provide background information andcertifications supporting prior quarter adjustments. File with Form941 a Form 941c, Supporting Statement To CorrectInformation, or attach a statement that shows: What the error was. Quarter in which the error was made. The amount of the error for each quarter. Date on which you found the error. That you repaid the employee tax or received from eachaffected employee a written consent to this refund or credit, if theentry corrects an overcollection. If the entry corrects social security and Medicare taxesovercollected in an earlier year, that you received from the employeea written statement that he or she will not claim a refund or creditfor the amount. Do not file Form 941c or the equivalent supportingstatement separately. The IRS will not be able to process youradjustments on Form 941 without this supporting information. See theinstructions for Form 941c for more information. Income tax withholding adjustments.Venecia HotelCorrect prior quarter income tax withholding errors by making anadjustment on line 4 of Form 941 for the quarter during which youdiscovered the error. Note: You may make an adjustment to correct income tax withholdingerrors only for quarters during the same calendar year.This is because the employee uses the amount shown on FormW-2 as a credit when filing the income tax return (Form 1040,etc.). You cannot adjust amounts reported as income tax withheld in aprior calendar year unless it is to correct an administrativeerror. An administrative error occurs if the amount you enteredon Form 941 is not the amount you actually withheld. For example, ifthe total income tax actually withheld was incorrectly reported onForm 941 due to a mathematical or transposition error, this would bean administrative error. The administrative error adjustment correctsthe amount reported on Form 941 to agree with the amount actuallywithheld from employees. Social security and Medicare tax adjustments.Correct prior quarter social security and Medicare tax errors bymaking an adjustment on line 9 of Form 941 for the quarter duringwhich you discovered the error. You may report adjustments on thecurrent quarter Form 941 for previous quarters in the current andprior years. Reporting prior quarter adjustments on the record of Federaltax liability.Adjustments to correct errors in prior quarters must be taken intoaccount on either Form 941, line 17, Monthly Summary of Federal TaxLiability, or on Schedule B (Form 941), Employer's Recordof Federal Tax Liability. If the adjustment corrects an underreported liability ina prior quarter, report the adjustment on the entry spacecorresponding to the date the error was discovered. If the adjustmentcorrects an overreported liability, use the adjustmentamount as a credit to offset subsequent liabilities until it is usedup. Example of reporting prior period adjustments:Elm Co., a monthly schedule depositor, discovered on January 9,2000, that it overreported social security tax on a prior quarterreturn by $5,000. Its total tax liabilities for the first quarter of2000 were: January--$4,500, February--$4,500, andMarch--$4,500. Elm Co. completed line 17 of Form 941 as shown inthe Prior Period Adjustment Example on page 26. The adjustment for the $5,000 overreported liability offset theJanuary liability, so the $4,500 liability was not deposited and a -0-liability was reported on line 17, column (a). The remaining $500 ofthe $5,000 adjustment credit was used to partially offset theliability for February, so only $4,000 of the $4,500 liability wasdeposited and reported on line 17, column (b). Note: Do not make any changes to the record of Federal tax liabilityfor current quarter adjustments. The amounts reported on the recordreflect the actual amounts you withheld fromemployees' wages for social security and Medicare taxes. Because thecurrent quarter adjustments make the amounts reported on lines 6b, 6d,and 7b of Form 941 equal the actual amounts you withheld (the amountsreported on the record), no additional changes to the record ofFederal tax liability are necessary for these adjustments. Filing a claim for overreported prior period liabilities.If you discover an error on a prior quarter return resulting in atax overpayment, you may file Form 843, Claim for Refundand Request for Abatement, for a refund. This form also can be used torequest an abatement of an overassessment of employment taxes,interest, and/or penalties. You must file Form 941c, or an equivalentstatement, with Form 843. See the separate Instructions for Form843. Collecting underwithheld taxes from employees.If you withheld no income, social security, or Medicare taxes orless than the right amount from an employee's wages, you can make itup from later pay to that employee. But you are the one who owes theunderpayment. Reimbursement is up to you and the employee.Underwithheld income tax must be recovered from the employee onor before the last day of the calendar year. There are specialrules for tax on tips (see section 6) and fringe benefits (see section5). Refunding amounts incorrectly withheld from employees.If you withheld more than the right amount of income, socialsecurity, or Medicare taxes from wages paid, give the employee theexcess. Any excess income tax withholding must be reimbursed to theemployee prior to the end of the calendar year. Keep in your recordsthe employee's written receipt showing the date and amount of therepayment. If you do not have a receipt, you must report and pay eachexcess amount when you file Form 941 for the quarter in which youwithheld too much tax. Knokke-Heist hotel roomsCorrecting filed Forms W-2 and W-3.When adjustments are made to correct social security and Medicaretaxes because of a change in the wage totals reported for a previousyear, you also may need to file Form W-2c, Corrected Wageand Tax Statement, and Form W-3c, Transmittal of CorrectedWage and Tax Statements. Wage Repayments If an employee repays you for wages received in error, do notoffset the repayments against current-year wages unless the repaymentsare for amounts received in error in the current year. Repayment of current year wages.If you receive repayments for wages paid during a prior quarter inthe current year, report adjustments on Form 941 to recover income taxwithholding and social security and Medicare taxes for the repaidwages (as discussed earlier). Report the adjustments on Form 941 forthe quarter during which the repayment occurred. Repayment of prior year wages.If you receive repayments for wages paid during a prior year,report an adjustment on the Form 941 for the quarter during which therepayment was made to recover the social security and Medicare taxes.Instead of making an adjustment on Form 941, you may file a claim forthese taxes using Form 843. You may not make an adjustment for incometax withholding because the wages were paid during a prior year. You also must file Forms W-2c and W-3c with the SSA to correctsocial security and Medicare wages and taxes. Do notcorrect wages (box 1) on Form W-2c for the amount paid in error.Give a copy of Form W-2c to the employee. Note: The wages paid in error in the prior year remain taxable tothe employee for that year. This is because the employee received andhad use of those funds during that year. The employee is not entitledto file an amended return (Form 1040X) to recover the income tax onthese wages. Instead, the employee is entitled to a deduction (orcredit in some cases) for the repaid wages on his or her income taxreturn for the year of repayment.