W-2 with no taxable income in box 1

[KJ Judd]

Client had wages of $10,500 which she elected to contribute all to a SIMPLE plan. So her W-2 shows $0.00 in box 1 but $10,500 in box 3 & 5, along with $10,500 code S in Box 12a.

Lacerte wants an amount (other than zero) in Box 1 or for me to check the third party sick pay box in order to process the e-file. If I leave off this W-2 when I e-file the return, will there be any red flags? Or does the IRS just look at box 1 on the W-2, see zero & move on?

I put a call into Lacerte yesterday, they haven't gotten back to me. Client wants to e-file. So I'm starting to think of my alternatives.

(BTW the client's employee share of social security taxes is removed from her loan to the company so all is well.)

[dkss]

I do not have lacerte - just an idea. Perhaps you can put in an amount less than 50 cents which would round down to zero, but trick the program into believing there is an actual quantity in box 1.

just a thought.....

[ecb34691]

W-2 and payroll is wrong. You can only defer 92.65% of salary, must show total SS/Med as wages in box 1. I know, because I do this with my "tax work". Don't know what you should do except point out to customer. When we have had this on 3rd party sick pay in the past, just used $1 for box 1 and filed. Very seldom would it make a taxable difference.

[Matt Sova]

ecb is correct

The W-2 should have box 1 Gross Wage of 869.79 and boxes 3 & 5 11,369.79. The total SS and Med tax W/H is 869.79 and 10500 for the SIMPLE Plan.

[KJ Judd]

She is reimbursing the company for her share of Social Security & Medicare. She's the sole shareholder and has loaned a ton of money to the S corporation. So the company is taking her portion of the social security taxes out of her loan to the company.

This is a new client for me done by a larger CPA firm in the area. It's been done this way the past 2-3 years.

If she reimburses the company, why can't she contribute 100%? I thought the max was $10,500. (Of course, I always tell my clients to check with their financial advisors on retirement plans.)

[gkaiseril]

Limitation for Owner Employee

This is limitation because you have an owner that is treated as an employee.

[JoshinNC]

I don't think she can do that.

She is reimbursing the company for her share of Social Security & Medicare. She's the sole shareholder and has loaned a ton of money to the S corporation. So the company is taking her portion of the social security taxes out of her loan to the company.

This is a new client for me done by a larger CPA firm in the area. It's been done this way the past 2-3 years.

If she reimburses the company, why can't she contribute 100%? I thought the max was $10,500. (Of course, I always tell my clients to check with their financial advisors on retirement plans.)

The IRS is still going to want to see enough to cover the SS/Med w/h and the SIMPLE deferrals on the W-2. Don't take this wrong, but just because a "large" firm has been doing it doesn't make it right. I have a similar situation where my client's only wages are enough to cover his deferrals and the w/h associated. Everything else flows through as dividends.

[KJ Judd]

I agree that the "large firms" aren't always correct. But TTB p. 13-2 says SIMPLE contributions are limited to the lessor of $10,500 or 100% of compensation.

So in this case, she's deferring 100% of compensation. If I go to her, I'll need to have something in writing to show her. She's fairly well read & knows of the $10,500 max. I don't mean to make this difficult, but I don't see in TTB or on the IRS website about needing to have enough to cover withholding. Is there a cite?

[ED SMITH]

Override field

Lacerte wants an amount (other than zero) in Box 1 or for me to check the third party sick pay box in order to process the e-file. If I leave off this W-2 when I e-file the return, will there be any red flags? Or does the IRS just look at box 1 on the W-2, see zero & move on?

The way to override a field in Lacerte is to put in -1

[JoshinNC]

You've got to have somewhere to WITHHOLD from.

I agree that the "large firms" aren't always correct. But TTB p. 13-2 says SIMPLE contributions are limited to the lessor of $10,500 or 100% of compensation.

So in this case, she's deferring 100% of compensation. If I go to her, I'll need to have something in writing to show her. She's fairly well read & knows of the $10,500 max. I don't mean to make this difficult, but I don't see in TTB or on the IRS website about needing to have enough to cover withholding. Is there a cite?

If total compensation is $10,500 there is nothing left over to WITHHOLD from, so how do you get the box 4 and 6 numbers (I understand she is reimbursing, but that's not WITHHOLDING)? That's the way I would explain it to her if she were my client.

[KJ Judd]

Ed

Ed, I've used the -1 in Lacerte before to show none. In Box 1 for wages, it actually put "-1" on the wages statement. So my only thought is to leave the W-2 off. But will that throw up red flags??

What does the IRS computer look for? Box 1 or does it check the other boxes too?

[fliszt]

As KJJudd agreed, Large firms

are not always correct. I have a client that had a large CPA firm in MPLS (several years ago) list on client's sched C in part V "Other Expenses" large dollars of "auto travel expense". The firm calculated the mileage correct. They also did not fill out Section IV. I explained to the client why it was not correct and showed them a copy of the IRS Pub.