Discussion:Amending PR tax returns
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Discussion Forum Index --> Tax Questions --> Amending PR tax returns
| May 4, 2006 | |
| Nonprofit organization messed up its payroll BIG time in 2004 and 2005. Finally got them to use a payroll service in 2006, but I need to amend 2004 and 2005 payroll tax returns. Client does not have copy of W2 for one or two of the employees. Would you bother to try to get copies from IRS . . . or simply leave original reported amounts blank on the W2cs?
Here's part of the rest of the story: Per review of paychecks, client did not withhold any FICA, medicare or FWT. (Or, I guess conversely one could say FICA, medicare and FWT were withheld since part of the liabilities were paid.) Client did withhold some SWT for several months, then simply paid the SWT on the behalf of employees later. Client reported net amounts as gross on PR tax returns. I know some of you would say not to bother amending, but I couldn't just let this go. If I left it the way client booked payroll, payroll taxes would be about 30%, which just doesn't make sense. I prepare compiled financial statements and the 990. And since client will most likely need audited statements next fiscal year, I wanted to make sure liabilities are properly reflected. (Yes, I have already informed client to expect penalties and interest.)
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| May 4, 2006 | |
| Actually in this case there aren't any taxes to get back from the employees. I'm grossing up their W2s to cover the FICA/medicare and state withholding. | |
| 4 May 2006 | |
| I might first sit down with employer and see to what extent employee could have been reimbursed for something. Increasing w-2's can have unpleasant side effects. | |
| 4 May 2006 | |
| I think you might get in trouble grossing up their W-2s. The employees tax returns will be wrong. You are opening a can of worms. I would leave it all alone. Don't worry about the audited financial statements. They have very little to do with income tax laws. The clients messed up and will pay extra payroll taxes instead of paying you for corrections with penalties and interest. | |
| May 4, 2006 | |
| Don't you think reporting payroll taxes at 30% of gross pay will raise a flag with the IRS? For this particular organization, payroll taxes should be about 10%. | |
| May 4, 2006 | |
| Total FWT per 941s does not agree with W3 for 2005. Amount is not significant, however. But I think the IRS will still send a letter, and the letter will probably come about two months prior to the expiration of the statute of limitations.
Quite a while ago (> 15 years) I had an employer who erroneously withheld FICA/medicare from a reimbursement check I received from them. I told them they were not required to withhold any taxes on the reimbursement, but they did not correct the check. The amount was included in my W2s. Since I knew it was wrong, I claimed the excess FICA withholding on my 1040 and included a note with my return. During the fall of the third year after the year of the reimbursement, the IRS sent me a notice stating I had under paid my taxes. I then went to my previous employer and showed them the rules, and they amended their payroll tax returns. The total amount over-withheld was only about $130. As far as grossing up the W2s, it's not a significant amount for most of the employees -- only about $200 - $300. The most is about $2,000 for one employee. So, my thought is that I should amend these returns now and be done with it. | |
| 4 May 2006 | |
| Ah, that red flag. Where is that thing? No, no red flags flying just because the pr tax % is high. We notice it, but IRS won't. And you'll kick up notices to every employee because their returns are in error. Think about that. You'll put them thru some aggravation...for what? I would not amend W2's at this point unless it's a very small group, and most family members involved who you can explain it to. | |
| May 4, 2006 | |
| Okay, I just spoke with the client again and they would like to take chances on getting a letter from the IRS. (I didn't really want to prepare all of those amended returns anyway.) | |
| 5 May 2006 | |
| If you are still worried, put 1/3 of the payroll taxes in another category like....."other taxes". Deal with the Feds when they write. | |
| July 4, 2006 | |
| And the saga continues. Client did not file W2s for 2003 but did file 941s and just received a notice from the IRS with a potential penalty of $2,000. Total "wages" for the year ~$19,000. Wages reported on 941s are actually net pay, not the gross. Four employees affected -- two are directors of the nonprofit organization. No federal withholding but some state. Question -- would you recommend client bite the bullet, gross up wages and prepare W2s with proper information? Or something else? | |
| 4 July 2006 | |
| I would begin amending the w-2's myself and 941's if applicable. When it then affects the individual's personal returns then they will have to amend those. Your responsibility as I see it is for the nonprofit that you are engaged to do the work for. If it were me, I would fix the p/r tax returns and w-2's and I would be able to sleep at night :) | |
| July 5, 2006 | |
| Thank you, Sandy. That's actually what I had planned on doing (except that I think I'll be preparing W2s rather than amending them). | |
| 31 July 2006 | |
| AS A DIRECTOR OF A NON-PROFIT--WE INSIST THAT OUR RECORDS AND
TRANSACTIONS BE AS SQUEAKY CLEAN AS POSSIBLE--ERRORS NEED TO BE CORRECTED AS SOON AS DISCOVERED--THINK ABOUT THE PR YOU WILL RECEIVE IF YOU GET SOME BAD PUBLICITY--AND HOW ABOUT THE DIRECTORS LIABILITY NOW THAT THEY HAVE KNOWLEDGE?? | |
| July 31, 2006 | |
| I'm sure all CPAs and tax preparers wish they had clients like you, Kingfish. The reality is some clients (via the board of directors) like to take chances there won't be any consequences. | |
| 16 January 2007 | |
| I am having to amend the 941's for 2006 because the Simple IRA and Health Insurance deductions were (incorrectly) deferred from FICA and Medicare taxes. I have calculated the amount under collected for each employee. How do I try to collect it now that it is after the end of year? Should the company simply pay the employee's portion as well? If so, the W-2 will not reflect the payment made by the company on behalf of the employee. Could I include a note identifying the error for them to correct and pay the difference when they file their tax return and simply submit the 941c with the companies payment? Please help if you can. Thank you. | |
| 16 January 2007 | |
| You could still conceivably collect the underage. There is no law that it can't be collected after the fact. The w-2's will reflect the 941C; that is the reason for the change after all, isn't it? You make the w-2's what they SHOULD BE...file the 941C with the 1st quarter 2007 941 to correct the prior year w-2's and request that the employees reimburse the monies inadvertently not collected. Or the company simply just pays them with the 941C... | |
| January 17, 2007 | |
| Michelle, are you aware that some health insurance deductions are 100% pretax? Please note that if the company pays the employee portion of the taxes, that amount is required to be reported as compensation as well. If the employees still work for the company, it may be easier to treat the employee portion of taxes as advances and have them deducted from current paychecks. | |
| 17 January 2007 | |
| Natalie and Sandy,
Thank you for your input. Yes, I am aware that if there is a spending account or Cafateria plan, these are tax deferred. Unfortunately this is not the case. Still not sure how I am going to handle this, but at least I have some options. Thanks again. Michelle | |
