Taxpayer paid employee $400 a month for "housing" but did not run through payroll for 2018. Taxpayer now realizes should have run through payroll and has asked me to assist in the correction. My question has to do with the employee portion of FICA that will be paid through the 941X for 2018. If employer does not collect the employee portion of FICA for 2018, is the proper handling to create a paycheck for that amount grossed up in 2018 or 2019? (I think it should be 2018 but want confirmation.) And then a side question is that if I create a grossed up check to cover the unpaid FICA taxes from 2018, that creates additional FICA taxes from the grossed up amount.....do I add the additional FICA taxes from the gross up as well?
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You said you were doing a 941-X. For each quarter or time period in which the TP was paid? Or just the last quarter of 2018? Calculate the grossed-up amount and report it on the 941-X as to what it was and what it should have been. If a W-2 has already been issued without this increased amount as wages, you will have to do a corrected W2/W3 for 2018 as well. If it is not a household employee, this reflects in Boxes 1, 3, and 5 plus the state wages. (The employer could collect the employee part of the FICA from the taxpayer.) If not, the employer has to pay both halves. In the past, when there was imputed income such as for a leased vehicle which had not been accounted for, I just put the entire amount on the last quarter of the year. I don't think you have to get involved with 2019, and I can't see where you would issue any check to the TP. The TP will be reporting the correct amounts on 2018 tax return by way of the increased W-2. -
Thank you Burke for the response; very much appreciated. Employee was paid on a monthly basis for 2018 so I assumed I would need to completed a corrected 941x for each quarter of 2018. When I asked about the grossed up check I should have worded differently; it was the accounting side of handling the additional income via the employee taxes paid by employer. Employee would not actually get an additional paycheck, but I have to account for the employee portion of taxes that the employer paid as wages, hence the "paycheck" that I was referring.Comment
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I would say 2018. The employee did not have the required withing in 2018, which means the employee had a benefit in 2018, so the employer essentially paid the employee that in 2018.
However, the employer does have the OPTION to ask the employee to pay that amount. If I remember correctly, because it is the next tax year, the employee has no obligation to make the repayment, so it is probably best if the employer just pays it.
That is what "gross up" means (adding FICA to the employer paid FICA, which in turn you pay FICA on that added FICA, which in turn ....). If the employee is under the Social Security wage limit, you take the wages and divide by 0.9235. So the $400 per month will result in $433.13 per month on the W-2.
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