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TaxGuyBill
Level 14

If the worker really was an employee the entire time (such as a shareholder/owner of the corporation, based on your comment on another question), yes payroll forms need to be filed for all quarters that the employee receive wages.  The shareholder never was a "1099 contractor".

If that is not your situation, you need to add some more details about the situation.

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Just-Lisa-Now-
Level 15
Level 15
There's no such thing as a "1099 payment". A 1099 is issued to independent contractors for services rendered.

Youre saying someone that is actually an employee was paid throughout the year with a straight check, no payroll taxes withheld?

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qbteachmt
Level 15

"1099 contractor payment meaning direct deposit via a payroll company, but not as employee"

Direct Deposit is Banking, not "reason" they got paid. Handing this off to a payroll company doesn't make them responsible. The payroll processing company does what the business hires them to do, so they are not the place this went wrong. However, anyone can fix it.

Do the hiring paperwork (State and Fed) for this person.

Treat all payouts as Loaned.

Do "payroll" as year end (if this is for the prior year) or, for 2020, catch it up now. The amount they already is treated as Takehome, so this requires the amount to be Grossed Up. That means you back-calculate what the takehome would be based on and run the Gross through payroll. Then, treat the amount taken as a Payroll Deduction post-taxes, the same as a wage garnishment, only without requiring to forward the funds to an outside agency. If you do this right, the paychecks end at $0 takehome. Do that until all previously taken funds = $0 net, or at the least, until you can prove Reasonable Wages has been met.

 

Amend all payroll forms impacted. File anything never filed. Pay State and Fed agencies anything never paid, including penalties and interest.

Amend the corporate return. Issue amended K-1.

Amend personal returns.

All of this includes worker comp and any retirement plans, health and benefits where this person now is considered qualified or otherwise is a participant.

It's a lot to review; an HR consultant might be helpful.

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sjrcpa
Level 15

"So what is the CPA’s responsibility here if he recommended 1099 for owners comp or just Corp check to owner.  "

Malpractice.

Intentional disregard of IRS rules.


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IRonMaN
Level 15

From the 1120S instructions:

Distributions and other payments
by an S corporation to a corporate
officer must be treated as wages
to the extent the amounts are reasonable
compensation for services rendered to the
corporation.
Enter on line 7 the total compensation of
all officers paid or incurred in the trade or
business activities of the corporation. The
corporation determines who is an officer
under the laws of the state where it is
incorporated.

Wages = W-2.

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TaxGuyBill
Level 14

@Anonymous wrote:

So what is the CPA’s responsibility here if he recommended 1099 for owners comp or just Corp check to owner.  

still trying to understand how the funds on line 7 of 1120s owners comp would be classified if there was no w2.  Is it considered business income ? SE tax was applied to the full amount 


 

The tax preparer is responsible for correctly preparing the tax return(s) they are being paid for.  If they give wrong advice, they could be responsible for paying any costs to correct the situation, such as penalties.

The shareholder received compensation.  That is wages.  If a W-2 was not prepared, one needs to be prepared, along with the other employer forms.  There will be late penalties.

qbteachmt
Level 15

"So what is the CPA’s responsibility here if he recommended 1099 for owners comp or just Corp check to owner."

There is no Owner; there is an Employee-Shareholder for purposes of an S Corp, for a person that owns the Shares and also works for the business. That CPA should fix everything for free, and paying any penalties and interest would be nice, and amending everything would be nice, to avoid the risk they will be called out for errors and omissions. Fortunately, the IRS likely will not see this as Fraud but as Incompetence on the part of the CPA. The customer might not see it that same way.

"still trying to understand how the funds on line 7 of 1120s owners comp would be classified if there was no w2."

"if there was no w2" would be a mistake. The regulation is Reasonable Compensation for services performed = what it would cost to hire someone to do the same work as a "regular" employee.

"Is it considered business income ? SE tax was applied to the full amount"

The business would pay an Independent Contractor and other Businesses as Expense. The person who is running their own business (as Corporation, partnership or Sole Proprietorship) does their own tax returns per the same regulations.

 

SE is the Employer's share of FICA + the Employee's share of FICA, so at a minimum, it would seem payroll taxes are mostly paid for this person's error.

Remember that Sched C Sched SE is a reduced value, because it is a circular reference that takes into consideration the "employer" share is reportable as Expense for the Sole Proprietorship's business. That is why, instead of a total 15.3% (a typical amount for FICA in aggregate), the Sched SE process results in approximately 14% paid in.

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sjrcpa
Level 15

No threshold. If shareholder is performing services he is to be paid reasonable compensation for those services, as W-2 compensation.

What the CPA is doing is not OK.

 

If this whole operation is so small that this is not worth it, perhaps the business should not be an S Corporation at all.


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qbteachmt
Level 15

"how is ok schedule c is used for scorp owner,"

You are mixing up two different Tax Reporting Entities.

You are asking: "How can I drive a Truck and also drive a Prius at the same time for the same trip?"

Corporations are their own Entities; they get their own FEIN. The people that do the work for the Corporation are Employees; that means Payroll for these services.

A Person who is Self-Employed is working for themselves as the business. There is no separate Entity. This is a Sole Proprietorship. That is not the same as "only one employee" for a Corporation.

"and owner is not very involved with the business?"

Remember that a Corporation is its own entity. If there is only one employee of that Corporation, it isn't necessarily also a shareholder. If it is one employee and that is the only shareholder, that still counts as Two: the person and the Corporation. The person is Not the Corporation. In a Sole Proprietorship, you are your own business. "Not very involved" means you judge the value of Services Provided per the Reasonable Wage requirement.

"Is there a base dollar amount for s Corp gross sales to require paying owner a wage"

Stop using "Owner." That will help you stop being so confused.

Obviously, an employee who works over 2,000 hours for the year when the corporation only has $1,000 gross income, is going out of business very soon.

"in other words, above 15 k or 30 k or?"

 

Yes, the IRS would look at the performance of the business to determine reasonable wage. Example: The business has $10 million net income for purposes of the 1120-S K-1. That means payroll should be a lot more than Minimum Wage for that one employee. The IRS reserves the right to declare what Reasonable Wage should be. Example:

You take $25,000 as Wages and $500,000 as Distribution. The IRS can declare $525,000 is payroll, and accuse you of attempting to avoid payroll taxes with that split, which is illegal. You would need to prove this level of success can be done in the marketplace paying only $25,000 annual salary meets the Reasonable level.

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IRonMaN
Level 15

"I am asking how a CPA could put owners comp (paid via check and/or listed as 1099) on line 7 of 1120S of the s-corp and then carrying that over to the Schedule C"

We keep telling you that he can't but you don't appear to be listening.  Why not have this conversation with that CPA?

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abctax55
Level 15

 

I'm copying the entire post, since the OP is going back in and deleting things.

********************

Corp is a separate entity.

I am asking how a CPA could put owners comp (paid via check and/or listed as 1099) on line 7 of 1120S of the s-corp and then carrying that over to the Schedule C. 

If the "officer / owner / shareholder" of the s-corp is getting the Schedule C but does not have any other business aside from the S-Corp.  Is the CPA making a mistake in putting this business income on a schedule C? 

It is also possible that an S-Corp has gross revenue from past projects like a film release.  So if there is residual gross income that is

Corp is a separate entity.

I am asking how a CPA could put owners comp (paid via check and/or listed as 1099) on line 7 of 1120S of the s-corp and then carrying that over to the Schedule C. 

If the "officer / owner / shareholder" of the s-corp is getting the Schedule C but does not have any other business aside from the S-Corp.  Is the CPA making a mistake in putting this business income on a schedule C? 

It is also possible that an S-Corp has gross revenue from past projects like a film release.  So if there is residual gross income that is not connected to the current officers / owner/ shareholder's time how is this classified as income?

**************

not connected to the current officers / owner/ shareholder's time....

So now you are saying there's a change in ownership?

Again, I repeat - you need to find local, professional help.  NOW, before it's too late to try to fix 2020.

 

 

 

 

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sjrcpa
Level 15

How about discussing it with  the payroll company? Telling them person should have been employee all along.


ex-AllStar
BobKamman
Level 13

@TaxGuyBill 

I don't see anything that says the employee is a shareholder.  You're right, we need a lot more information here.  

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IRonMaN
Level 15

Exhibit A:

Solved: Re: OFFICER COMPENSATION 1120 - Intuit Accountants Community

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BobKamman
Level 13

@IRonMaN 

I don't see anything that says the employee is an officer, either.   

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IRonMaN
Level 15

"or just Corp to owner"

Owner kinda sounds close enough to me.

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abctax55
Level 15

@Anonymous 

Are you the "CPA" that created this mess, or are you the owner of this 'One person very small s Corp, minimal income'.

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abctax55
Level 15

Hi there,

You’ve come to an Intuit site supporting tax professionals, and you may be looking for support as an individual taxpayer. Please visit the TurboTax Help site for support.

*************

@Anonymous  You have a mess on your hands, one that can't easily be solved by on-line chatter.  Seek local, professional help before the penalties eat up what little profit you may have.

 

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IRonMaN
Level 15

This dead horse has been kicked so much it is starting to whimper.  To sum up the eulogy - a W-2 needs to be prepared and payroll tax returns need to be filed for the year ----------------- anything other than that is wrong.  RIP dearly departed pony.

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qbteachmt
Level 15

"Is the CPA making a mistake in putting this business income on a schedule C?"

Yes. You cannot be in That Specific Business two different ways. Either this is a Corporation or it is the Sole Proprietorship. The business cannot be Both at the same time.

"It is also possible that an S-Corp has gross revenue from past projects like a film release. So if there is residual gross income that is not connected to the current officers / owner/ shareholder's time how is this classified as income?"

Royalty income still is income. If it belongs to the Corporation, that makes it Corporate income. It doesn't have to be connected with any Person. Corporate Income means it is part of the business.

You seem to be overlooking that the corporation cannot run itself; it hires one or more employees, who will run the corporation, do its business, and generally keep it "in" business. Whether or not there also are new products or services performed each year, is part of Operations.

"what is the penalty for filing Payroll at the end of December for Q1, Q2, Q3, Q4?"

You would typically do one Year End payroll, perhaps. For example, right now, if all of 2020 was overlooked. your Next payroll will include all Year To Date. Or, sure, you could go back by backdating and do 1 per quarter. For any payroll being done late, there is interest and penalties. You can look that up through the web. There are some ways to apply for penalty waiver, too.

"How does estimated quarterly payments factor into this if the s-corp officer has already paid all estimated taxes thinking he is self employed per the CPA's recommendation."

Estimated 1040 is a Personal Income tax issue. I would (and do) submit a W4 showing no income tax withholding, which allows those payments to stand as they are. What you need to do is catch up for FICA, though (and FUTA/SUTA). Because 1040ES is "these stand as credits against all personal income tax total owed" you might not have an overpayment condition by year end. It depends on the Corp return as a pass-through entity, as well as their other Personal Life financial issues. No one on the internet can answer that part. If they don't intend to continue 1040ES, they need to determine their W4 Withholding requirement, then. And they still might need to send 1040ES, due to those other Personal Life financial issues. Not filing a Sched C does not eliminate the possibility that a person falls in the 1040ES requirement category. Just like filing a Sched C won't require 1040ES, as long as W2 withholding helps meet their prepayment requirement.

The things you asked are not requirements against each other; they are part of the full picture.

"How do do Payroll when the State Labor and Withholding office states there is a 30-90 day delay in getting the state # to even file set up Payroll and with holding /unemployment."

Well, the sooner you start, the sooner you are in compliance.

"Can this be done in Jan or Feb retroactively?"

Not for the Prior year without also being considered Late. That's because Payroll is based on the Pay Date. Not the Pay Period. If I pay you in Jan 2021 for all of 2020, that still is 2021 payroll.

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View solution in original post

qbteachmt
Level 15

@Anonymous 

You can try to Sanitize your topic, but notice some of your input was copied for the responses. This is a peer user community; your topic might have been helpful to the next person, too.

That's not how to play nice on the internet.

 

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abctax55
Level 15

Copied:

yes that seems to be the general consensus here.  If that is the case, what is the penalty for filing Payroll at the end of December for Q1, Q2, Q3, Q4?  How does estimated quarterly payments factor into this if the s-corp officer has already paid all estimated taxes thinking he is self employed per the CPA's recommendation.

How do do Payroll when the State Labor and Withholding office states there is a 30-90 day delay in getting the state # to even file set up Payroll and with holding /unemployment. 

Can this be done in Jan or Feb retroactively?

*************

Again - seek professional help.  There are ways to mitigate/reduce some of the penalties.  Knowing that is what I get paid for.

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IRonMaN
Level 15

That certainly was a lovely visit.  As long as he/she/it/whatever is deleting things, is it possible to delete my time here so I can recoup it and use it someplace else more worthy?

Armpit sniffer. Yup, checked out the help wanted ads and found the job. With my nose, how can I go wrong?
abctax55
Level 15

Again, I state that you need to seek professional help..... oh, wait you aren't @Anonymous.

I agree with you, Mr. Yote - another waste of time trying to help someone that NEVER should have been allowed to post in the first place.

And I have serious doubts that the "CPA" is the one at fault here.

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