Employer sent in $15,500 and CPA did not run it through payroll

[Jim Chad]

Once again this year, an employer sent $15,500 to the investment company 11-2-08 and told his CPA. The CPA who doesn't do the payroll personally, never thought to tell his staff to run this through payroll. W-2 is wrong and so are medicare taxes.

This is a 5 year old plan. The employer blames me, because his wife told me about it and asked if there was anything else for her to do. I never thought of payroll and said no.

Everything will be fixed through amending. But my question is: how do other people prevent or at least diminish this occurrence?

[MARYMM]

Once again this year, an employer sent $15,500 to the investment company 11-2-08 and told his CPA. The CPA who doesn't do the payroll personally, never thought to tell his staff to run this through payroll. W-2 is wrong and so are medicare taxes.

This is a 5 year old plan. The employer blames me, because his wife told me about it and asked if there was anything else for her to do. I never thought of payroll and said no.

Everything will be fixed through amending. But my question is: how do other people prevent or at least diminish this occurrence?

This would not affect Medicare taxes. If they are wrong, something else was done incorrectly. This only affects FIT and SIT wages.

How to avoid this in the future ? Can you insist on getting a payroll report of some sort (such as a withholding register) when contributions are submitted?

I would also be concerned about constructive receipt. Was the entire $15500 deducted from one paycheck? Or did owner write a personal check ?

[Lou S.]

But my question is: how do other people prevent or at least diminish this occurrence?

Don't let people write personal checks to the plan unless they are self-employed. I tell them it needs to run thorugh their payroll and be reflected on the W-2, then of they don't do that way it is their problem not mine. If you let the owner write a check when he/she wants then you have a problem when some non-owner comes in and wants to write a check to the plan and call it a deferral.

[austin3515]

Since 401k is subject to medicare and SS, not running the 401k through payroll does create a medicare and ss tax problem. For example, to get a $15,500 401k contribution, you need at least like $17,000 of wages to cover all those payroll taxes.

So I would suggest amending W-2's and all your payroll tax returns and sending in the missed withholdings. Since the $15,500 was actually depositted and the failure to run through payroll was clearly a clerical error, I see no problem with this personally. The amended W-2 COULD be a red flag for audit, but I would suggest that your goose would only be cooked if you amended the w-2 today, and deposited the 15,500 today. Since the $15,500 was already deposited before year-end, I really don't think this would be a problem under audit.

But of course, avoiding the audit altogether would also be desirable...

[david rigby]

Anyone check the ADP test?

[Jim Chad]

I am sorry I didn't make something clear. To use round numbers, w-2 shows $100,000. But in fact he received $100,000 plus the $15,500 went in to the investment company. I guess the $15,500 was supposed to be part of a bonus check where the gross was just enough to equal $15,500 plus taxes =0

Also it is a SHNEC plan so no ADP test problems.

Austin makes a good case for amending the paperwork now.

My next question brings to mind pigs and hogs.

They actually sent in $31,000 but paid his wife -0- this year to save on medicare taxes. She has always been in the plan and because of all of her office duties has been paid $25,000 in prior years. I was going to use this $15,500 for the SHNEC plus a discretionary non-elective, which he did not want to do. But what do you all think of amending things to get her a net comp of zero and $15,500 plus required taxes?

[austin3515]

Just one more big thing to defend on audit... I suppose the exact same logic applies, but two is more than one!

[K2retire]

At this point they are also subject to late penalties on the deposit of the FICA and Medicare taxes.

If the client didn't want to use those funds as an employer contribution, he (as the employer) should not have deposited them to the plan.