From: Trenton, NJ
Dear TaxMama,
If a small subchapter S company paid its employees' December
salaries on 12/31/04 and will pay payroll taxes on 1/15/05
(they are a monthy depositor), should these payments be
credited in 2004 or 2005 W-2s? (I want to credit it in 2004).
Thanks for your help,
Victoria
Hi Victoria,
Thanks for the hint. I always try to give you
the answer you want.
Actually, one of the exceptions, when it comes to
cash basis taxpayers, is how you handle payroll and
sales taxes that are due in January.
Even though you haven't paid them yet, since the
expense is directly related to the payroll in the
previous year, you already owe that money to the
government.
So, yes, you may deduct the full expense due in
2004 (or the previous year).
Make sure not to deduct the amount you paid last
January for the 2003 payroll taxes.
Remember, you don't deduct the employee's portion
as taxes - only the part the employer pays.
(The employee's portion should already be included
in their total wages. )
A good way to make sure you're using the right amount is
to test your payroll tax expense using this formula:
Multiply your wages by the following amounts:
| FICA |
6.2 % |
multiply all wages up to Social Security limits per employee |
| MEDICARE |
1.45% |
multiply all wages - no limits per employee |
| FUTA* |
0.8% |
multiply up to $7,000 wages per employee |
| SUTA* |
?? |
Multiply your state-assigned rate up to $7,000 wages per employee |
| Other |
?? |
If your state has other employer-paid taxes - check for limits |
| * note: FUTA/SUTA are federal and state unemployment taxes |
Chapter 9 of THE BOOK explains
how to treat payroll and payroll accounting. Incidentally, this doesn't just
apply to S-Corps. It applies to all cash basis businesses.
I hope this doesn't make it more confusing.
Best wishes,
Eva Rosenberg, MBA, EA
