941 overpayment - 1120 balance sheet

[Gretel]

I feel somewhat embarrassed but I don't seem to be able to figure this out.

Employer deposited too much for SS for 941 for 4th 2010 and is now requesting overpayment. Entry on 1120 BS as other current assets $1,000, employer $500, employee $500. Once IRS pays back in 2011entry will go away.

However, employee will get reimbursed $500 and I just can't figure out the debit side of the equation. It's not an expense and there is no debit entry on the BS either.

SS expenses in 2010 on pg 1 of 1120 were recorded with correct amounts not including employer share for overpayment. Maybe this is what I am doing wrong?

[ehill]

What do you mean reimburse the employee? The over deposit would not have anything do to with the employee. Was there over withholding of SS/Medicare on the employee or was just too much deposited.

[Edsel]

How did it happen?

especially with respect to the employee's share?

If too much was taken from the employee, this should be reimbursed to the employee immediately, and not depend on the IRS to refund. If this had not been done by year-end it is a separate liability to the employee.

Example: Employers share FICA/Med $500
Employees share FICA/Med $500
Employees share FIT $700 Total $1700.

But overdeposited as follows:
Employers share FICA/Med $600
Employees share FICA/Med $600
Employees share FIT $1000 Total $2200 (overpaid $500).

The overpayment of $500 should show on the balance sheet as a Receivable. As long as the $500 withheld for FICA/Med and the $700 for FIT were proper, the employer owes nothing to the employee, and the entire $500 is shown as a Receivable. The fact that they overpaid the employee's amounts by $400 is a matter of attribution and doesn't mean they owe the employee.

If the employee were improperly withheld that is another matter entirely.

[Gretel]

Yes, the employee (also one of the shareholders) paid to much FICA (over withheld) on the year-end bonus, which brought him above the FICA limit. So, $500 from employee withheld too much and $500 correspondent employer share were deposited too much for 4th quarter.

This was discovered this month and will need to be paid back. Of course you are right about paying back right away and not waiting for IRS refund. Since this is one of the shareholders I wasn't too concerned when it will be paid back and it was 2011 already anyway.

[BHoffman]

Hi Gretel - They debited the Other Asset account for $1000. What account(s) did they credit?

I think the correcting entry should have been like this:

Other Asset - debit - $1000 to record receivable from IRS for overpaid taxes.
Payroll Expense - credit - $500 to correct overpaid employer portion
Due to Employee - credit - $500 to record amount due to employee for overpaid portion.

Then, when the employee is reimbursed:

Due to Employee - debit - $500 to record payment to employee
Cash - credit - $500 to record check written to employee

And, when the IRS pays:

Cash - debit - $1000 to record IRS check deposit
Other Asset - credit - $1000 to record IRS payment

[Gretel]

Yep, these would be the entries on the books if we had any. Thank you so much for spelling the scenario out. I finally called my client asking her again if and when the employee portion was paid back and it was paid back with a back dated check in 2010. So I was under the wrong assumption that it was paid back in 2011.

Now everything jives.Thanks everyone. I hate not having actual books.