S Corp Salaries

[Burke]

The previous thread was getting way too long to add to it, so here is my related question. New client, did personal return. Other CPA did corp return and last quarter 941, where he added a large amt to salary based on distributions taken over the year. I am going to assume that these distributions did not include a reduction for the employee part of FICA (actually only Medicare since salary was over maximum for SS part). So that means the corp paid both parts of the tax when 941 was filed. The employee part should be treated as income for 2008, no? And it should probably have been reported on the 1st quarter 2008 941 as addl salary, no?

[kcjenkins]

No, not if I understand your question. The fact that he has a large enough salary to be over the FICA limit says to me that the distribution should probably not have been added to salary. But I don't know all the facts, and if that is what the client wanted, that is fine. But since it's for money distributed in 2007, it belongs in the 07 941. And if it was treated as 'advances' until year end, then it's OK to put it in the last quarter. In fact, it could simply be not 'distributions' at all, but just that he waits until near year end to decide the total he can take, and he paid himself that extra paycheck then. It could even be taken in Jan, as long as it is authorized in 2007.

[Maribeth]

The previous thread was getting way too long to add to it, so here is my related question. New client, did personal return. Other CPA did corp return and last quarter 941, where he added a large amt to salary based on distributions taken over the year. I am going to assume that these distributions did not include a reduction for the employee part of FICA (actually only Medicare since salary was over maximum for SS part). So that means the corp paid both parts of the tax when 941 was filed. The employee part should be treated as income for 2008, no? And it should probably have been reported on the 1st quarter 2008 941 as addl salary, no?

Burke, you need to look at the journal entry that the CPA made on the books of the corporation to record the salary. The entry should reflect a debit to salary expense, with a credit to taxes payable and the remaining credit to distributions. That way the shareholder has paid in their share of FICA tax and, possibly, income tax. No adjustment would be needed in 2008.

Maribeth

[Burke]

I do not believe there are any "books" unless you count the checkbook for the SCorp account. Maybe I can make it a little clearer. Salary paid was $95,000 subj to FICA/MC and 941 reporting. When completing the 941 for the last quarter of 2007 (in Jan 2008) CPA took all other distributions and withdrawals to sole member taxpayer which totaled another $150,000+ and added them to salary on the W-2, and on the 941 for last quarter. Corp paid the 941 taxes. The reason this was done as far as I can surmise, is to qualify for larger deduction to SEPP plan which is based on salary. SEPP plan contribution is shown on balance sheet (page 4 of 1120S) as liability not yet paid, as well as last quarter FICA. Maximum salary subj to FICA was not affected, since TP was already over limit, but it did increase M/C tax by several $K. Half of this should have been the employee's responsibility, so if the Corp paid it all, isn't that 1/2 of MC taxes paid additional salary to TP? It was paid in Jan 2008, so I am thinking it needs to go in the W-2 for 2008.

[kcjenkins]

If it was paid to the owner in 2007, as you say it was, then just because the payroll taxes were not paid until 2008 would not mean it should not be on the 07 W-2.

[Burke]

I see where you are coming from. The total FICA/MC amts were shown on the W-2, (employee's half) even though they were not withheld from the distributions which were included in wages. The TP received those 2007 distributions in full without reduction for SS/MC. And the TP received them over the course of the year, not at the end. So, effectively, the SCorp paid both halves of FICA on the 2007 distributions in Jan 2008, and I have read somewhere when a company pays FICA taxes for an employee, they are considered addtional wages to that employee. Am I wrong?