S-Corp owner with W-2 reasonable wage salary

Forum|Forum|3 years ago
January 23, 2023
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My wife and I are equal share owners of a small S-corp. We established a reasonable wage salary of $2,000 per month for each persons W-2 total $4K/month. We made monthly EFTPS payroll related tax payments and filed quarterly Form 941's.

While reviewing 2022, realized I made a mistake.

The monthly EFTPS tax payments included federal income withholding + 12.4% for Social Security + 2.9% for Medicare.

I did not withhold the federal income + employee 6.2% Social Security + employee 1.45% Medicare amounts from monthly paychecks. The monthly checks were $4,000 and should have withheld the federal income, 6.2% Social Security, and 1.45% Medicare.

I understand the IRS can apply overpayments of 941 to future balances or issue refund.

I'm not sure how to correct this for the W-2's?

Any help appreciated, thank you Turbotax.

JamesG1

You wrote checks and cashed checks for 12 X $4,000 = $48,000. You generated EFTPS payments for the correct amount federal withholding, Social Security and Medicare. You have prepared and balanced all four 941's.

I think you are saying that you:

Remitted the correct amount of the 941's, but
You overpaid each check to your spouse and yourself by the amount of the withholding, SS and Medicare.

Do I understand correctly? Please clarify.

@bwcland

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bwclandAuthor

Hello @JamesG1

Yes wrote checks and cashed checks for 12 x $4,000 = $48,000.

Yes generated EFTPS payments for correct amount of federal withholding ($2,481 joint married) + 12.4% social security ($6,200) and 2.9% medicare ($1,450)

This should of been federal withholding, 6.2% Social Security & 1.45% Medicare for employer

Yes prepared and balanced all four 941's.

Yes the mistake made was overpaying the amount of the withholding, SS, and Medicare.

I should of withheld the federal withholding, and employee half of SS, and Medicare.

$4,000 - federal withholding ($206.75) - Social Security 6.2% ($258.33) - Medicare 1.45% ($60.42) = $3,474.50

Does this help clarify? thank you.

AliciaP1

The remaining overpayment you made to yourselves can be classified as distributions if you have not exceeded the 50%/50% rule for the year. So, you would report your W-2s to match the 941s filed, but the excess of the $4,000/month checks would get booked to Shareholder's Distributions.

For example, each check written was for $2,000 but $153 should have been deducted for Social Security & Medicare and assume $200 for federal withholding. The net check you wrote would have been $1,647. That would classify $353 from each check as a distribution to the shareholder. For the year, that would result in you each having $24,000 gross wages, $1,488 in Social Security tax, $357.60 in Medicare tax, and $2,400 in federal withholding. The distribution balance (if these were the only distributions taken for the year) would total $4,236 each.

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