Year-End Bonus

[peggysioux]

Taxpayer paid employees bonuses without withholding any taxes and seprate from payroll. How can this be corrected - file corrected 941 and employer pay employee portion of social security and medicare?

[Burke]

He can, and then the employee's portion of FICA will be income to them in 2011.

[geekgirldany]

Not sure how much the bonus was but what I usually do is "net" up. In QBs I enter in the net of the check and let it calculate the taxes and gross wages. So a $100 net might end up being $150 gross. Hope that makes sense. Haven't done any in awhile since things have been a little harder for folks.

[oceanlovin'ea]

1.08285%

You can multiply the net check by 1.08285 and that will give you the gross amount with social security and medicare tax covered.

Employer will just pay the amount that is owing for the taxes.

But the gross amount would be included in the wages.

Linda

[AJsTax]

We run into this a few times a year

We have used several methods to cover the "oversight".
Add to December payrolls and cover the SS and Medicare on the 941 with the employer paying both shares. Technically the employee share should be added to his gross pay, but....

Book a accounts payable to employees in the month the checks were cut and then add to the payroll on the next available run. Employees pay their share of taxes, etc., though not technically correct does work.

Add the total amounts of the bonuses to the owners draw as personal gifts if they do not want to report the amounts as payroll. that gets their attention real fast as to the rules.

If the amounts are not large and therefor not "material" just let it go for this year and inform the owner of the tax ramifications of such actions.

[BOB W]

Taxpayer paid employees bonuses without withholding any taxes and seprate from payroll. How can this be corrected - file corrected 941 and employer pay employee portion of social security and medicare?

I have warned all my clients about this and if they do it I will consider it a shareholder distribution and a gift from him to the employee. In other words, NO DEDUCTION

[BOB W]

Taxpayer paid employees bonuses without withholding any taxes and seprate from payroll. How can this be corrected - file corrected 941 and employer pay employee portion of social security and medicare?

I have warned all my clients about this and if they do it I will consider it a shareholder distribution and a gift from him to the employee. In other words, NO DEDUCTION.



WOOPSSSS, how did that happen......................

[peggysioux]

Year-End Bonus

Thanks to all - very helpful.

Peggy Sioux

[Burke]

Taxpayer paid employees bonuses without withholding any taxes and seprate from payroll. How can this be corrected - file corrected 941 and employer pay employee portion of social security and medicare?

If bonus was paid year-end, it was in Dec's payroll. 941's not due until 1/31. (Already filed?) I would amend. I forgot about the "grossing up" option. I used to do this all the time with one of my former SCorp employers who continually paid bonuses this way. CFS Tax Tools had an option that handled this calculation. See oceanlovin's post. That would be the easiest way to adjust. The higher amt would be on the W-2 for the employee.

[Burke]

I have warned all my clients about this and if they do it I will consider it a shareholder distribution and a gift from him to the employee. In other words, NO DEDUCTION.
......................

It cannot be considered a gift to the employee. It is treated as wages or compensation and is subject to all taxes. An employer cannot make monetary gifts to an employee (or a member of their family) due to the relationship.

[BOB W]

It cannot be considered a gift to the employee. It is treated as wages or compensation and is subject to all taxes. An employer cannot make monetary gifts to an employee (or a member of their family) due to the relationship.

OK...........I would do it anyway.................because it is from the shareholder not the employer.

[Burke]

That would work only if the payment was made to the shareholder. (Assuming you are talking about an S Corp.) If the payment is made directly to the employee from the business account, it will be treated as wages. Went through an audit on this situation. Payment was reclassified as wages.

[BOB W]

That would work only if the payment was made to the shareholder. (Assuming you are talking about an S Corp.) If the payment is made directly to the employee from the business account, it will be treated as wages. Went through an audit on this situation. Payment was reclassified as wages.

I don't doubt what you are saying and you are correct. But I'm not going to redue a 941 return and all the other eoy returns. I'll leave it up to auditors anyday.

[AJsTax]

It cannot be considered a gift to the employee. It is treated as wages or compensation and is subject to all taxes. An employer cannot make monetary gifts to an employee (or a member of their family) due to the relationship.

It most CERTAINLY can be!!! All he is doing is taking the money as income to the owner who pays all the taxes on it and then makes personal gifts to the persons in questions. You can give a gift to who ever you want as an individual. If you go over too high a level you have to pay gift tax on it, but you just can not take a business deduction for it. There is NO restriction on who can gift PERSONALLY. That is a big difference.

[Burke]

I am not disputing the ability of a shareholder/owner to make a personal gift to an employee. The problem arises when the the payment (i.e, check) is made payable to the employee directly FROM the business. It will be then treated as wages. If the check is made payable to the shareholder/owner, he can do whatever he wishes with it. In the case we are discussing, it was classified as a bonus, and paid directly to the employee.