How to report 2025 W2 Wages based on 2024 S-Corp Income.

[rabbieBurns]

My single-employee S-Corp receives payments at the beginning of every month from what I will call the Client. My S-Corp received what I thought was the 12th and final payment on Dec. 10, 2024. My online payroll service processed my final W2 wage payment the following week. And then, without notice, the Client paid my S-Corp an unexpected 13th payment on Dec. 31, 2024. My online payroll service then processed my W2 wages for this 13th payment of 2024 in the second week of January 2025. As a result, the first 12 Client payments of 2024 are connected to 12 of the W2 wages paid in 2024. However, the 13th Client payment is connected to 2024, while the W2 wages for this 13th payment are connected to 2025 W2 wages. The total on the 1099-NEC the Client sent my S-Corp includes the 13 payments. I imagine the 1099-NEC is reported to the IRS. As a result, my [2024 W2 wage total] + [2024 K1 Distribution total] do not add up to the total reflected on the 2024 1099-NEC. If I increase the amount of 2024 W2 wages to include the first W2 wage payment of 2025 and its K1 distribution, the 2024 W2+K1 total will match the total on the 2024 1099-NEC. However, if I do this, then the amount of the 13th payment will be taxed in 2024, and then will be taxed a second time in 2025 based on the eventual 2025 W2 from my payroll service including the first 2025 W2 wage payment from the Client's 13th payment of 2024. On the other hand, if I do not increase the 2024 W2 wages (e.g., if I don’t file a corrected W-2C via BSO website), then there will be a mismatch between the amount on the 2024 1099-NEC and the 2024 W2+K1 totals. So, what is the best remedy for this situation? Can I leave the 2024 W2 totals that my payroll service reported as is? And can my S-Corp essentially pull that 13th payment of 2024 into 2025? Any help, advice, or insight is greatly appreciated. 

[PatriciaV · Accepted solution]

If your LLC is on the cash-basis of accounting, it would report only the income actually received during the tax year. This should agree with the Form 1099-NEC sent by your client.

The LLC expenses would likewise include only those wages actually paid during the tax year. Any reporting from the payroll service should reflect this.

As a cash-basis individual taxpayer, you report income when it is received. The W-2 from the LLC should match the payroll deposits you received during the tax year.

The net of this timing difference will be more net income (income less wages) for the LLC in the current tax year. Next year, you'll have more wages and less net income.

[rabbieBurns]

Thank you. It makes more sense now, but I want to make sure I get the W2 and K1 correct.

You stated the following: "The net of this timing difference will be more net income (income less wages) for the LLC in the current tax year. Next year, you'll have more wages and less net income."

It seems to me that you are saying my 2024 W2 wages are based on the first 12 payments, but my 2024 K1 distributions are based on the total 13 payments, right? Hypothetically, let's say the S-Corp received $10,000 per month, or $120,000 for the first 12 payments in 2024, but with the 13th payment, the total comes to $130,000; thus, the 1099-NEC indicates $130,000. Of the $10k/mo received, let’s say W2 wages are $6000/mo, and K1 distributions are $4000/mo.

For 2024 TurboTax business, I believe the following entries would be made: 

* 2024 Sales and services receipts = $130,000 (13 x $10,000/mo)

* 2024 Salaries and wages paid = $72,000 (12 x $6000/mo)

* 2024 Total dividend distribution = $52,000 (13 x $4000/mo)

And so the sum of W2 wages $72k + K1 distribution $52k add up to $124,000, or $6000 less than the 2024 total income of $130,000.

If the total payments received in 2025 come to $120,000, then for 2025 TurboTax business, would the following entries be correct: 

* 2025 Sales and services receipts = $120,000 (12 x $10,000/mo)

* 2025 Salaries and wages paid = $78,000 (12 x $6000/mo + $6000 from 2024)

* 2025 Total dividend distribution = $48,000 (12 x $4000/mo)

And so the sum of W2 wages $78k + K1 distribution $48k add up to $126,000, or $6000 more than the 2025 total income of $120,000. 

[PatriciaV]

Wages and distributions are separate items. In most cases, they are not the same number. 

Report the LLC activity as it occurred. Wages for the LLC are a component of Ordinary Income, not a separate line on Schedule K. Instead, actual wages paid are reported on the W-2.

Schedule K-1 will report distributions paid to you other than wages. Your total cash income from the LLC would be the sum of wages plus distributions, which are reported in different sections of your tax return.