"Paying the taxes, penalty and interest."

No; that means Payroll filing was an error. You don't pay taxes and penalty and interest on $1,000 of payroll. You file the corrected form that nothing ($0) was paid at all. And you remove it from the Expenses for the business data.

"Will then file 941x for the principal to be returned."

No; all of it needs to be returned. That is not Payroll tax. There is no such thing as Payroll Tax for this entity. It goes back to the owner.

Look at this similar topic:

https://proconnect.intuit.com/community/proconnect-tax-discussions/discussion/re-paying-taxes/01/138...