S-Corp Gift Deduction

[Unregistered]

Client usually buys actual gifts for employees each year for Christmas.

In '05, he took out $2600.00 cash and handed each employee money. I do not have an accounting of who got how much.

Is this deductible? Not sure myself.

[Jiggers]

Jiggers

Christmas bonuses are subject to payroll tax withholding. This should be added to the W-2 for the employees.

In situations where the employee got a cash bonus, I just divide by .9235 and get the gross wages. The difference is SS & Medicare. No withholding.

You should get a list of who got what and add to their W-2's. I am sure that this is after the W-2's have been issued so you will have to do W-2c's, and correct the payroll reports.

[geekgirldany]

This was happening alot with my clients too. Thankfully I catched it before W-2s were issued and would add it to each employees payroll. Most of the time the bonus is not that large and the employer will pay the both the employee and employer fica.

Jiggers where does the .9235 come from to get the gross wage?

[Unregistered]

They outsource their payroll. They (shareholder and employees) are actually "leased" employees. I have no control over the W-2's or payroll reporting of any kind.

Is this a deductible expenses the way they have done it?

[Matt Sova]

I've had this before as well

I have always just left it as casual labor expense. There is no way the employer is going to want to pay the payroll taxes on this. Many of my clients I have convinced them to actually put it through their payroll. However, those that do not I usually do not find out until late Feb or early Mar.

[Bees Knees]

There is no way the employer is going to want to pay the payroll taxes on this.

Is that a new exception to the payroll tax rules? The employer doesn't want to put it through payroll, so it isn't subject to payroll tax?

[Matt Sova]

No

That is not the case. You can explain it until you are blue in the face to some employers and they will tell you not to correct the payroll tax reports and W-2's. Again, this is when you find out after the fact.

If you tell your client they have to amend and they say no are you going to go ahead and do it anyway? Are you going to bill them for that? I don't think so. The best you can do when you find out after the fact is explain the situation to your client and let them make the decision.

Matt

[Bees Knees]

I agree Matt. I know all about clients putting up a hissy fit. I've lost a few over the years trying to make them stick to the rules.