Discussion:How report officer comp if all payroll is leased?
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Discussion Forum Index --> Tax Questions --> How report officer comp if all payroll is leased?
| 23 January 2007 | |
| What is the concensus here of how to report officer comp in a corp. if all payroll is done through a payroll leasing company? | |
| 23 January 2007 | |
| Simple,
Check your books and classify that as Officer Comp. It should be included in Salaries and Wages and you should back that out for Officer Comp. The payroll leasing company has nothing to do with Officer Comp. They just pay salaries and do with holdings for you. | |
| 23 January 2007 | |
| My question is because with a payroll leasing company the payroll is under the leasing co. ID number. I thought I had seen somewhere that officer comp should tie into the company payroll and I would think that means under the company ID number. | |
| 23 January 2007 | |
| It doesn't matter. If the company chose to outsource payroll, they don't get their ID number on it.
1120 L12 Officer Compensation (SCH E L4) 1120 L13 Salary and Wages Your total salary and wages for the corp should be split between the lines 12 and 13. Sch E will list the officers, percentage ownership, time spent, stock class holdings, and compensation package. I personally believe is to help the IRS easily identify substantial compensation deficiencies. | |
| 23 January 2007 | |
| Also I'm not a EA or CPA so It's only my opinion which I can be dead wrong. Maybe others here can give you better insight. | |
Actionbsns (talk|edits) said: | 23 January 2007 |
| What Pegoo says makes sense. In Hawaii there is a lot of employee leasing going on but there are few guidlines that I have been able to find on how to treat the major players. One of my clients, who leases his employees as well as himself, has his taxes prepared by another individual and I watch it carefully to see if I can learn anything from them. On the leased employee issue, they don't separate out the stockholder's wages at all, it all goes into Employee Leasing Expense. I have asked questions here about leased employees, have done considerable research on the topic and talked to local CPA's because in addition to the S-Corp doing this, I have two Sole Proprietors leasing themselves out also. Last year I found a very small comment about leased employees in regards to pension planning. One very tiny paragraph in the middle of a lengthy publication (I'm at home and don't remember the publication number), and that's the only reference I've been able to find concerning employee leasing. IRS' position would most likely be the same as stated in that publication, be it so small, as far as a pension plan is concerned, when applying rules for discrimination, participation and qualifying, the leased employees are deemed to be statutory employees and all rules that apply generally, apply in the same manner. This is a little off topic, but it's an issue I would love to see discussed a little more since it arises every year for me, especially with the sole proprietors who now have a W-2 from the leasing company. | |
| 23 January 2007 | |
| Rick: The 1120 info will not necessarily tie to the payroll reports. For instance, bonuses paid within 2 1/2 months of year end may be deductible on the 1120, but will not show up on the payroll report until the year actually paid.
For state apportionment purposes most states want the payroll numerator to equal the payroll reports for that state. As others have pointed out, the fact that the payroll leasing company's ID number is on the report is irrelevant. | |
| January 23, 2007 | |
| Good question! If a company leases employees, all of the related payroll taxes and benefits would be reported under the same expense, wouldn't they? If officer compensation is split as suggested above, isn't the IRS going to try to match payroll tax returns with "wages" reported, as Rick asks above? | |
| January 23, 2007 | |
| Surprisingly enough, I don't believe that there's any matching of PR reports to the 1120S, until audit, and in this case the explanation would be simple enough. I like the idea of sticking it the Officers Salary line, too. | |
| 23 January 2007 | |
| If I had any clients in that situation, I would do the breakout for officer and other wages on the returns as well. There is always a chance that a blank officer compensation line would help invite an audit.
I did find one thing odd in Actionbsns' message though, ie: sole proprietors leasing themselves to their companies. Perhaps I'm misunderstanding the message, but proprietors should not be taking salaries. | |
| 23 January 2007 | |
| Thanks everybody - I guess i like the idea of showing it on officer comp line. If they question it they can look at SSN on K-1 and then the personal. | |
| 23 January 2007 | |
| Rick...I have an S corp client who is a leased employee for workers compensation insurance; he can't get it with only 4 employees....I report his wages as Officer Salaries, the other wages as direct labor costs and report the W/C insurance and taxes on the 1120S...never had a problem with it. I may though in the coming year as I want to bonus the officer each quarter due to high revenue and he does not want it going through the leasing company because he doesn't want to pay w/c on the bonus....now he will have 2 w-2's in the coming year one from the S corp; one from the leasing agency and the totals may confuse IRS :) | |
Actionbsns (talk|edits) said: | 24 January 2007 |
| Taxref - that is exactly the situation and why I would be interested in more discussion on leased employees. It's also why I keep doing the research and asking the question. There is a CPA in town who does payroll and I asked them about it with no satisfactory answer, they don't put sole proprietors on payroll in their office. I'm not involved until the tax return, then I have a W-2. I've talked to the clients and told them that as a sole proprietor, they can't have a payroll for themselves. The main reason to do this is for the health insurance. Natalie, do you ever run into this? Sandysea, where can you not get workers comp because there aren't enough employees? I only have a part timer and I have to carry both workers comp and TDI. | |
| January 24, 2007 | |
| Sandysea, watch out for that "f" word in those activities you mention.
Actionbsns, while I worked for a local firm, we had a client that paid himself wages even though he was a sole proprietor. One partner of the firm thought it was no big deal at the time because it was an easy way to get the personal income taxes paid. I recently had a member of an LLC paying himself wages. The state audited the unemployment taxes, and the member had to be taken off payroll, retroactively. Now, as far as the health insurance, are you saying that this sole prop. is covered under the company's health ins. plan simply because he has a W2? If that is the case, I suggest you read the plan. The client may actually be excluded from coverage because he is a sole prop. and is supposed to get separate coverage. At least that's my understanding. I did a lot of research into health insurance when I started my firm almost four years ago. Sole proprietors CAN get coverage. The issue is that the plans are not as good, do not cover as much and cost more than if the owner were an employee under a corporation. The insurance providers will tell you they have to charge more because sole proprietors are big risks -- they only take coverage when they have something major coming up and then they drop it after the medical event is done. (My argument is that if someone is going to do that, they'll do it whether they are a sole prop. or not.) For me, the main reason I incorporated was so that I could get a good health insurance plan. It even comes with life insurance . . . something that I'm pretty sure is not an option for sole proprietors. By the way, as far as W/C, TDI, and health insurance go, remember that Hawaii is not very business friendly. It's policies tend to favor employees, which is why a company is not only allowed to get these coverages for employees but required to do so. That is a big difference from other states. This is a big issue to me, and there will be bills proposed this session that address this issue. If you are interested in keeping up with the status of the bills, please let me know. | |
| 24 January 2007 | |
| If you are high risk in Fl, you will find it impossible to get W/C insurance....most of my clients are high risk 30% W/C insurance and the underwriters will not draw up a policy for these :) | |
Actionbsns (talk|edits) said: | 25 January 2007 |
| In California I was required to carry workers comp for my part timer, the same as here in Hawaii. Have I only been lucky enough to live and work in states that require Worker's Comp? High risk WC in California also comes with a high premium.
Natalie, with a leased employee situation, the health insurance is provided by the leasing company, they are the employer and the issuer of the W-2 (check Pro Services and/or Altres Staffing). It's become nearly impossible for a sole proprietor to farm out their payroll with these companies lately if there is only the one employee, they still don't seem to have an issue with the Sole Proprietorship, mostly just the fact that the "group" is too small. Believe me, I know about not being able to get coverage for myself or only at reduced benefits and/or increased premiums. Were you able to get a group plan for a single member? Most of what I've seen still requires at least 2 unrelated individuals and one of them can actually decline the coverage if it's not needed. The Chamber of Commerce is a good source for a small group plan - they go through Kaiser or HMSA, I looked at them recently and the benefits were good, but the cost was high. | |
Ekwftmyers@aol.com (talk|edits) said: | 25 January 2007 |
| Under the new rules for a 1120S, the line for officer's salary must have an amount paid to the Officer(s)/owner(s). Any 1120s that is older than 2 years must have officer/owners salary amount or the IRS will impute it's own number based upon the industry code average selected and assess the payroll taxes due with penalty. | |
Actionbsns (talk|edits) said: | 25 January 2007 |
| EKW - If IRS were to impute the SH wages based on the industry code average, will they reduce the Leased Employee Expense by that same amount? Just because it's not clearly indicated doesn't mean the dollar amount hasn't been taken into consideration. In the case of the leased employees, would a line item something like "Leased Officer Expense" cover that base? Unlike the sole proprietorship, the corporation would be paying the officer on a W-2, but through the leasing company. | |
Msmith7305 (talk|edits) said: | 25 January 2007 |
| EKW-
Maybe I've been in outer space, but where are you getting this "new rule" that there MUST be an entry on the line for Officer Comp? Please provide citation. Thanks | |
| 25 January 2007 | |
| I don't know of the rule either; I DO know that if the S/H is taking distributions and no salary, then they can impute the salary from the distributions....but I hope EKW can give me a clue about this new rule....it would affect some of my clients sad to say :) | |
Bottom Line (talk|edits) said: | 26 January 2007 |
| I haven't heard of it either. How about taking the amount shown in box 5 of the owners W-2 and putting that on the 1120S? | |
| 28 December 2007 | |
I have a new client with 3 small corporations (C corps). One of the corporations does all of the payroll for all 3 corps eventhough workers work specifically for one company or another. This seems like a employee leasing situation to me, however prior accountant was taking all payroll expenses on the 1120 of the company doing the payroll.
I assume that if the other 2 corps "reimbursed" the other for their leased employees then it should be deductible on the returns. Does anyone have any experience with this? | |
| 28 December 2007 | |
| Common paymaster is not quite the same as employee leasing. There are a variety of ways to address the situation, however the first step is to make sure it makes a difference. | |
| 28 December 2007 | |
| The issue is that 2 of the companies have had large net incomes and loss on the other doing all of the payroll. Unfortunately the client in the past has not been working with CPA to address this before year end. We will change that in 2008. What would be the best way to handle the common paymaster issue for correct tax reporting purposes and do you know where there is any guidance on this? | |
| 28 December 2007 | |
| a bit off subject but i'm new here. If I just received a w9 and feel i do not need to fill it out due to me not making over 600 this year, is it likely i'll get audited or the company can penalize me? for instance, I received a w9 requesting my SS number and I do not want to give that out. Can I refuse and then they will just no longer contact me or further and more payment to me or am I required by law to fill the w9 out? whose shoulders does it rest on? mine or the company that sent it when it comes to tax time? | |
| 28 December 2007 | |
| Just fill it out. Why are you so troubled over this form? The company can fire you if they wish. Why burn bridges? | |
| 28 December 2007 | |
| With regard to leased payroll, where a leasing company files under their id number, I have for years filed an other deduction item calling it leased payroll and leased officer payroll. Under the scenario I just described, there will be no W2 under the taxpayers's EIN number for the IRS to match to. Also there will be no payroll taxes. Filing the amounts on lines 12 and 13 will confuse IRS. I had an audit a couple of years ago and the Auditor agreed with this method. | |
| 28 December 2007 | |
| The IRS does not match any of the lines. No problem showing the compensation amounts on any line you wish. | |
| December 29, 2007 | |
| Kk2100, if you do not complete the W9, the company is required to withhold income tax (28%) from any payments they make to you. In addition, you will be subject to a penalty of $50 if you do not provide a correct ID number unless you have reasonable cause.
| |
| 29 December 2007 | |
| Do you have any information they do? Have you ever received a notice due to a miss match line? I have never seen one in 30 years. | |
| 29 December 2007 | |
| I at least can state that, based upon experience, this would be insufficiently productive for the time involved. IRS needs a major compliance problem before it becomes economical to do a 100% scan for some discrete thing on every filing, even if aided by computer. | |
| December 29, 2007 | |
| DZ, with technology the way it is today, it just seems like matching W2s to the tax returns would be an easy thing to do -- at least for returns that are under audit or otherwise questioned. | |
| 29 December 2007 | |
| Nothing is easy with the IRS. There would be so many matching errors that would only create more work for the IRS. More work adddressing the miss match would, most of the time, genarate ZERO additional revenue. That is probably why they have not done it yet. | |
| 29 December 2007 | |
| Ryan, type in "common paymaster" in the search box. There's two discussions that will probably answer your questions. I'd link to it but I keep forgetting how to link discussions. | |
