Can I Get a Refund If I Overpaid Payroll Taxes Due to the ERTC?

December 12, 2023
Dayes Law Firm

The Employee Retention Tax Credit, or ERTC, has helped thousands of struggling business owners keep their doors open during and after the COVID-19 pandemic. If you’ve taken advantage of this tax credit but believe you miscalculated your tax liability, it’s possible to request a refund from the IRS.

IRS repayment rules can be complicated, so many employers are unsure how to claim their ERTC tax refund. Dayes Law Firm explains the refund process and how to recover money if you overpaid your taxes.

Requesting Your Tax Refund from the IRS

Generally, the IRS only allows you to correct federal income tax withholding errors if you discover the overpayment in the same year you paid the wages. Additionally, according to revenue procedure, you can only make corrections if you repaid or reimbursed employees in the same year.

For previous years, you can correct administrative errors to your federal income tax withholding, for which section 3509 rates apply. The IRS Employer’s Tax Guide has more detailed information about corrections (see section 13). To learn more about section 3509 rates, refer to section 2 of the guide.

To request your refund, you must complete Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund. For overpaid payroll taxes, you can file 941-X up to three years after you filed Form 941, Employer’s Quarterly Federal Tax Return, or two years after you paid the tax, whichever is later.

On Form 941-X, you’ll need to report the amount of tax originally paid, the correct amount, and the difference between them. You will also need to explain the discrepancy in section 43.

Note that if the error only affects your portion of payroll taxes, you must certify this on Form 941-X. If you also overpaid employee tax withholding, you must certify that you reimbursed your employees or include signed letters from employees indicating they’re not asking for a refund.

Once you’ve made your corrections, send Form 941-X to the IRS by mail. 

Interest Calculation for Your ERTC Tax Refund

The IRS may owe you interest if you’ve overpaid your payroll taxes. Interest rates vary depending on whether you have a standard, corporate, or large corporate overpayment (overpayments exceeding $10,000). Rates are as follows:

  • Standard: Federal short-term rate plus three percentage points
  • Corporate: Federal short-term rate plus two percentage points
  • Large corporate: Federal short-term rate plus 0.5 percentage point

Prevent Tax Filing Overpayments

Requesting a refund from the IRS can be a real headache. Not only do you have to deal with the confusing Form 941-X, but you’ll also have to wait for the IRS to process the refund, which could take several weeks or even months.

It’s much easier to prevent overpayments in the first place. One thing you can do is pay attention to state unemployment insurance (SUI) rate revisions. If rates are revised in favor of the employer, this could lead to a tax overpayment.

Also, be aware of mid-year wage base carryover. Sometimes, when employers take on employees as part of a mid-year acquisition, they treat these employees as new hires and restart annual taxable wage base limits. However, if your company acquires another company mid-year, you may qualify for “successor” employer status, so you might not need to use wage base restarts.

Let Dayes Law Firm Help With Your Tax Refund Claims

Figuring out your ERTC tax refund can be confusing, but Dayes Law Firm is here to help. For a free consultation, call (800) 503-2000.