941: Reporting Simple IRA on line 2

[ACS41]

Client is the sole shareholder of an S corporation. Takes a salary of $7,500 a quarter. Also had health insurance of $4,000 for the year and in late December put $12,000 into his Simple IRA. The dilemma is box 2 on the 4th quarter 941: $7,500 + $4,000 health insurance - $12,000 is a negative number so that cannot go on line 2. The sum of the four 941s line 2 should agree to box 1 on the W2. The only thing I can think of is to amend a prior 941. Anyone have this issue?

[mircpa]

For health insurance I believe box 2 of 941 should read $ 11,500.00 and line 29 of 1040 should read $ 4,000.00

[ACS41]

mircpa, I'm good with that except my understanding is that deferred compensation (401k, simple,..) has to be subtracted form box 2 on the 941. When you add the four 941s (box 2) they should agree with the box 1 on the W2. I'm surprised this never happened before. Huh....

[kcjenkins]

"box 2 on the 4th quarter 941: $7,500 + $4,000 health insurance - $12,000"

If box 2 is negative, it's negative. The 941's will total correctly.

[ACS41]

Thank you kcjenkins.

[kcjenkins]

You're welcome. It's always hard to see any form that has a normal positive value, with a negative, it just "looks wrong". But if it is, because of a situation such as yours, that's still "what it is", so that is what you report. May get a letter questioning it, but your explanation makes sense, so should be no problem.

[jklcpa]

This is interesting and I've never seen this reporting of negative wages on the 941. I know that the IRS computers only reconcile the W-2/W-3 reporting back to the 941s for 4 lines (SS wages, SS tips, Medicare wages/tips, and federal withholding), so if this reporting of negative wages on line 2 of the 941 is correct then maybe I've learned something new.

What I'm wondering though, using the definition of "compensation" for purposes of SIMPLE IRA deferrals, how is it possible in any given quarter for an employee to defer more compensation than is paid to him or is subject to withholding? Isn't this employee's deferral limited to the $11,500 for the 4th quarter?

[kcjenkins]

Judy, his limit is based on his annual compensation, so the fact that he put it all in the last quarter, while awkward, is legal, according to my reading of the rules.

[jklcpa]

Yes, I know about the annual limit, I've just never seen a negative on line 2 of the 941. Do you have a reference you could link so that I have this for future use?

[kcjenkins]

only the instructions themselves, plus personal experience

Completing and Filing Form 941

Make entries on Form 941 as follows to enable accurate
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Leave blank any data field (except lines 1, 2, and 10) with
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