Question

Business tax return - form W3 - should I use box 1 or box 2 number when reporting salaries & wages?

Forum|Forum|4 years ago
February 20, 2022
1 reply
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I started an IRA plan this year for the employees. When I received the W3 form, box 1. Wages is less than Boxes 3 & 5, social security and Medicare wages respectively - which I clearly understand the reason why. I also understand the business expense side of a matching contribution. However, I need help in figuring out what number to use for Salaries & Wages when filing my business tax return. After all, my expense as business was the full earnings amount from which then the employees decided to contribute to their own retirement plan.

Example:

Form W3

Box 1 Wages: $10,000

Box 3 & 5: $8,800

Total amount employees contributed to their IRA is $2,200

Business Tax Return Form 1120-S

Lines 7 and/or 8: Should I use number in Box 1 (which matches W2's) or number in Box 3 & 5 (which matches total earnings)

and if it's boxes 3 & 5 number $8,800, where does the $2,200 go? Note the $2,200 is the employee contribution, NOT the employer match.

I appreciate the help. Thank you in advance.

Not A Product Question

PatriciaV

Employee

Yes, you should report wages that you actually paid. This number usually ties to Form W-3 Box 3. The employee retirement contributions are taxed for Social Security or Medicare purposes, but not FIT, which is why Boxes 3 & 5 are more than Box 1.

[Edited 2/20/2022 | 7:06 am PST]

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M

Mari_3251Author

Ok. So where do I report the $2,200? The portion of the gross wages that employees decided to put in their IRA.

PatriciaV

Employee

Please note the edit to my previous post - you will report Gross Wages (Box 3) on Form 1120S Line 8. The difference between Box 3 and Box 1 is due to tax differences from retirement contributions.

Employee contributions to a tax-deferred retirement plan are included in Gross Wages, but are not expenses to your business that are reported separately on Form 1120S. But matching funds paid by the business would be a compensation expense under Benefits. Payroll taxes (employer portion only) are also business expenses.

In summary:

Employee wages, employer portion of taxes, and employer-paid benefits are considered Employee Expenses reported on the business return.

Employee deductions for employee portion of taxes and employee-paid benefits (health insurance, retirement, etc.) are included in gross wages, but not recorded as business expenses. Most businesses record these items as liabilities until they are paid to the appropriate agency.

For more info, see IRS Instructions for Form 1120S, Line 7 & 8.

[Edited for clarity and to include IRS link 2/20/2022 | 7:39 am PST]

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