Payroll for S-Corp

[pmedders]

Client is a cash basis taxpayer and has total payroll (has several employees) paid from checking account at $976,943 (includes all payroll taxes), but 941 quarterly forms only add up to $934,053. Should I use the figure from checking account figures or does IRS match the 941 to tax return. Any guidance would be appreciated!!

Thanks!

[oceanlovin'ea]

Isn't the figure on the 941 wages only? You said that the amount from the checking account included payroll taxes paid. So the difference would be the payroll taxes. The amount on the 941 is actual wages and the total payroll should be actual wages only. Payroll taxes shouldn't be included in the payroll amount.

Linda F

[pmedders]

Payroll Taxes

Both figures include all taxes. I added all the taxes into the 941 figure and still have the difference. Any other ideas??

[veritas]

Was there some type of wage deferral or emplyee benefit program in place. For instance dependent care benefits do not show up on 941. This would be reflected on their form 940.

[S T]

Another Thought

Although I don't think there would be that much difference as what you are stating, are the reports being run "Accrual" rather than "Cash"

As Linda ? what line are you adding up on the form 941 reports. Line 2 (wages tips and compensation) would be wages, Also as Veritas stated, is their some type of deferral such as 401K or dependent care, etc, although it should be reflected in the accounting as well as the 941/940 forms.

Line 3 is Federal withholding which you would NOT include in your figures

I usually enter under wages on the income tax return, what equals Line 2 (wages and compensation) . Line 5d is the total of fica and mcare taxes (employer and employee portion) which only 50% should be the employer's portion. Your "line item" for taxes paid on your income tax return would reflect the employer portion of the fica/mcare, plus any state employer taxes.

Seems like your client "lumped all together" and you need to separate for the Income Tax Form. Actually if you do the math $934,000> wages times 7.65% rate of employer portion would equal about $71,000+, not accounting for the State employment taxes. So it would seem you might be short on your employer portion of the payroll taxes.

Big difference but part of it could be cash vs accrual, plus also state employment taxes.

Sandy

PS LIne references are to the new 2006 form 941

[Bees Knees]

If the client did their own books and 941s, you need to reconcile the checkbook payroll and payroll tax accounts to the 941, because nobody ever gets this right on their own.

When you go through each line item in their check register that fed into the payroll account, you will notice they also have a habit of slipping state unemployment taxes in their, sometimes sub-contract labor that should not be included in payroll, and maybe their workman’s comp payments. That explains why your checkbook amount is higher than the 941 figures. They might even be inconsistent in that one quarter the state withholding tax is included in that account, and in the next quarter they stuck it under miscellaneous.

Bottom line is you never trust a client’s payroll figures from their checkbook. The checkbook accounts need to be reconciled to the 941 with a fine tooth comb before you can continue. Look at each and every entry, and you will find your answer. Sorry there is no easier way to do this.

[pmedders]

Payroll for S-Corp

After further research, I reviewed client paperwork supplied by Paychex, the company that handles clients payroll, and it looks like they have 941's and W-2's based on year end figures for employees through 12/18/05; however, looking at December 2005 bank statements from client, they have paychecks written by Paychex dated 12/26/05 that were cleared on clients checking account prior to 12/31/05. I am going to call payroll company tomorrow, but do you know a valid reason why Paychex would not include the 12/26/05 checks in the year-end figures??? Appreciate your input!!

[fliszt]

941 difference

Have you looked at whether client has a Simple IRA? I don't believe employer has to pay S/S tax on the 3% (or whatever) portion contributed. Then would that be where the difference may lie?
Larry M.

[BOB W]

Pmedders.....

...while you have them on the phone, see if the last December pay date was put in January of '06 or not.

This could end up causing a lot of employee problems if you try to fix 2005 at this late date.

I would just carry the G/L figures to the tax return for 2005 if that last P/R is in January of '06. And do the same for the '06 tax return.

[pmedders]

Bob,

To clarify and clear up my slow mind this evening, you are telling me to use the figures supplied by the payroll company as my wages and carry the 12/26/06 payroll figures to 2006? Would I put the 12/26/06 figures in wages receivable for 2005 being payroll was set aside in 2005, but not applied to 2006??? Do I have it correct?

[Uncle Sam]

Payroll for S Corp.

You've got to find out from your client and Paychex, what was the intent of management of paying the 12/26 payroll? Was it an advance of the next payroll (1st payroll of 2006) or was it intended to be 2005 payroll?
When you have that question answered, then you can make a determination as to how to handle the difference.
If the intent was to include the payroll in 2005, then the W-2s SHOULD BE W-2C'd, with corrections to 941s.
If the intent was to advance money as part of the next payroll, then the discrepancy should be set up as a Prepaid Expense, NOT a Receivable.. A receivable is for an UNBOOKED transaction. Also, since you're on the CASH basis, there should be no receivable anyway.

[pmedders]

Uncle Sam,

Thanks - I meant prepaid expense - just misworded - this S-Corp is driving me CRAZY!!! I know the missing payroll is for the week of 12/12/05 to 12/18/05 and checks were issued on 12/26; many of the checks cleared the corporate account the last week in December. Just unsure why the payroll company wouldn't include in 2005 figures.

[S T]

Something still not right

If the payroll period ended on 12/18/05 and the checks issued on 12/26/05 they should be included in the W-2 income for 2005 and reflected on the 941 reports.

Payroll always goes by "Pay Dates" not by payroll period. I would think Paychex is correct, they are pretty reputable in payroll processing.

Does your t/p have the end of 12/04 included in their checkbook for the beginning of 1/05?

Were the payroll tax expenses for the 12/26/05 not entered in their checkbook until 1/06?

If you add up the wage line on all 4 quarters of the form 941, that should be your wages and match to your W-2 forms.

So many scenarios?

Sandy

[BOB W]

PMedders...

.... It is now Monday, have you been in touch with Paychecks yet? When you know what happened with the last pay check and what year it was applied to, let us know. Only then can a choice be made as to how to handle this issue.

[pmedders]

Bob W and

all others who have tried to help me - it was determined that the date on Paychek's report was ending pay period of 12/18 and checks were cut on 12/26 just as Sandy had suggested. However, payroll and taxes through checking account is still higher than adding up the 941's and all the employer taxes that apply to employee payroll. What I did determine after matching the checking account entries to the reports issued by Paychek is that the difference is a matter of cash vs. accrual.

Thank you all!!!