IRS Form 941 - Income Withholding [S Corp owner]

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tcjbum
Posts: 33
Joined: Tue Oct 15, 2013 8:18 am

IRS Form 941 - Income Withholding [S Corp owner]

Post by tcjbum »

Good morning,

I'm full owner of an LLC filing as an S Corp for tax purposes. I'm due to file my first quarterly 941 by the end of the month. Looking for a little help from those who've done it.

Everything on 941 appears to apply to W-2 wages, and that makes sense - it's my understanding that any distributions (non-W2 income) will be reported on schedule k-1, instead.

I will have substantial W2 wages, as well as distributions, for the 4th quarter of 2013.

Is now my only chance to withhold income taxes (specifically, on line 3)? In other words, should line 3 reflect the income taxes I anticipate owing from salary and distributions, combined?

Simple example: I'm in the 25% bracket - assume no deductions or credits. I made $100k. I paid myself half in wages, half in distributions. I report the wages on line 2. I then withhold $25,000 on line 3 (25% of the full $100k, not just the wage portion).

Any thoughts appreciated!

~ JB
pshonore
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Joined: Sun Jun 28, 2009 2:21 pm

Re: IRS Form 941 - Income Withholding

Post by pshonore »

There's nothing to prevent you from doing estimated payments but it may be simpler to do it in conjunction with your 941 filing instead. Do be aware that you will most likely not owe anywhere near 25% if your "comp" is 100K. There are standard/itemized deduction as well as personal exemptions, retirement plan contributions, health insurance, etc to take into account which will significantly lower your effective tax rate. Find a good tax preparer to explain this.
Topic Author
tcjbum
Posts: 33
Joined: Tue Oct 15, 2013 8:18 am

Re: IRS Form 941 - Income Withholding

Post by tcjbum »

Good info, thanks.

I just said 25% for the sake of simplicity. I'll be coming in much lower with my withholding (and still well above the safe harbor, since my comp jumped so much in 2013).
SeattleCPA
Posts: 456
Joined: Fri Jul 06, 2012 7:06 pm

Re: IRS Form 941 - Income Withholding

Post by SeattleCPA »

This will probably explain how you want to work this: http://evergreensmallbusiness.com/quick ... n-s-corps/
HouseStark
Posts: 324
Joined: Mon Oct 15, 2012 2:31 pm
Location: Minneapolis, MN

Re: IRS Form 941 - Income Withholding

Post by HouseStark »

tcjbum wrote: I'm full owner of an LLC filing as an S Corp for tax purposes. I'm due to file my first quarterly 941 by the end of the month. Looking for a little help from those who've done it.

Everything on 941 appears to apply to W-2 wages, and that makes sense - it's my understanding that any distributions (non-W2 income) will be reported on schedule k-1, instead.

I will have substantial W2 wages, as well as distributions, for the 4th quarter of 2013.

Is now my only chance to withhold income taxes (specifically, on line 3)? In other words, should line 3 reflect the income taxes I anticipate owing from salary and distributions, combined?

Simple example: I'm in the 25% bracket - assume no deductions or credits. I made $100k. I paid myself half in wages, half in distributions. I report the wages on line 2. I then withhold $25,000 on line 3 (25% of the full $100k, not just the wage portion).

~ JB
I'm wondering about your characterization of what you're doing. The 941 you are preparing is to report wages and payroll taxes for the fourth quarter of 2013. That means it's suppose to report payroll transactions that actually occurred in that period. Did you, meaning the S-corp, actually pay yourself wages during that quarter? Meaning did the S-corp issue you a check from its bank account paid you personally for wages? Maybe I'm just confused because you say you "will have" wages and distributions for the fourth quarter and that quarter is in the past, not the future. Not only should you be doing a form 941, but you will also be creating a W-2 for the S-corp to issue to you as its employee, if you haven't done that. All of these amounts need to reconcile. The amounts of Social Security, Medicare, federal and state income taxes withheld can't exceed the amount of gross payroll. You don't use the 941 to increase the amount of federal income taxes withheld after the fact. So, no, line 3 doesn't reflect what you anticipate owing, it reflects what was withheld from the payroll. Your payroll records should reflect that. You can use payroll withholding to cover your overall tax liability from both wages and corporate profits, but you don't do that after the fact. You do it when the payroll check is actually issued.

Payroll is a very easy way to make mistakes and rapidly get in trouble with the IRS. It is monitored on a much more current basis than income taxes and is much less forgiving. If you have a profitable S-corp and will be continuing to have wages and distributions you really ought to have someone walk you though the process for the first quarters to establish the system of procedures and records you really ought to have in place. If you get started doing it right, there should not be problems with doing your own payroll going forward.
Topic Author
tcjbum
Posts: 33
Joined: Tue Oct 15, 2013 8:18 am

Re: IRS Form 941 - Income Withholding

Post by tcjbum »

I'm reasonably certain I'm on the right track. I'd confess that my OP may not have been eloquent.

The S Corp cut me a check in 2013 Q4. This was the first quarter in which I received an income. I paid myself only once in that quarter. The withholding from that paycheck will be due via EFTPS by January 31, and I'll need to file form 941 to reflect the withholding.

Everything reconciles. In a round about way, I was simply asking: For income taxes owed on the distribution portion of my income, should the SCorp withhold those, or should I as the employee instead pay estimated taxes?

My sense is that either is a legitimate route.
HouseStark
Posts: 324
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Location: Minneapolis, MN

Re: IRS Form 941 - Income Withholding

Post by HouseStark »

tcjbum wrote:I'm reasonably certain I'm on the right track. I'd confess that my OP may not have been eloquent.

The S Corp cut me a check in 2013 Q4. This was the first quarter in which I received an income. I paid myself only once in that quarter. The withholding from that paycheck will be due via EFTPS by January 31, and I'll need to file form 941 to reflect the withholding.

Everything reconciles. In a round about way, I was simply asking: For income taxes owed on the distribution portion of my income, should the SCorp withhold those, or should I as the employee instead pay estimated taxes?

My sense is that either is a legitimate route.
Either is a legitimate route. Withholding has the advantage of being treated, for timing purposes, as if it was withheld throughout the year. Estimated taxes are credited when actually paid. This can make a difference for purposes of calculating an underpayment penalty. You just need to do the withholding from wages during the quarter the wages are paid.
Topic Author
tcjbum
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Joined: Tue Oct 15, 2013 8:18 am

Re: IRS Form 941 - Income Withholding

Post by tcjbum »

HouseStark wrote:
tcjbum wrote:I'm reasonably certain I'm on the right track. I'd confess that my OP may not have been eloquent.

The S Corp cut me a check in 2013 Q4. This was the first quarter in which I received an income. I paid myself only once in that quarter. The withholding from that paycheck will be due via EFTPS by January 31, and I'll need to file form 941 to reflect the withholding.

Everything reconciles. In a round about way, I was simply asking: For income taxes owed on the distribution portion of my income, should the SCorp withhold those, or should I as the employee instead pay estimated taxes?

My sense is that either is a legitimate route.
Either is a legitimate route. Withholding has the advantage of being treated, for timing purposes, as if it was withheld throughout the year. Estimated taxes are credited when actually paid. This can make a difference for purposes of calculating an underpayment penalty. You just need to do the withholding from wages during the quarter the wages are paid.
That raises an interesting question.

Isn't this all just paperwork?

Here's my hypothetical: If my S Corp sends out an invoice for its services once a month each month for 2014, and receives payment for those services, can't I just "pay" my salary once a year (say, in December), and file "blank" 941s for the first 3 quarters? As long as my bottom line matches what the contract house sends to the IRS, it's all just cash flow, isn't it? And surely the IRS can't tell an S Corp when to pay its employees.

So, to that end, when you say "You just need to do the withholding from wages during the quarter the wages are paid," I imagine some small corporations are engaging in something of a fiction, and doing just as I've suggested, aren't they?
HouseStark
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Location: Minneapolis, MN

Re: IRS Form 941 - Income Withholding [S Corp owner]

Post by HouseStark »

I don't know of any rule that would prevent doing a payroll in only the final quarter of the year. I suppose some S-corps do such a thing for cash flow management or uncertainties. As long as the 941s are correct I don't know that it would raise any issues. If a business is ongoing with some stability I wouldn't think it would be an advisable thing to do without good reason.
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