How to treat wages paid in 2019, but not received by employee until 2020 on cash basis

[coeurdejoie]

I am on a cash basis, and I use Gusto for payroll. Gusto withdrew salary and payroll taxes from my business bank account on 12/31/2019, but it was not deposited until 01/2020 (official "check date" is 01/02/2020). Being on a cash basis, I'm not sure which year I should report the deduction on my federal return for the business (S Corp). I don't want to create an issue with the IRS where it was reported as a deduction in 2019, but is not reported as wages until 2020. But I figure this has to be a common situation with those on a cash basis? Between the number of tax reference books I read this summer and scouring the internet, I haven't found much helpful guidance on this specific situation. Can anyone help?

[RobertG · Accepted solution]

If it was deducted from your account in 2019 it should be deducted as an expense in 2019.

In 2019 you no longer had the use of the money.

The employee will report it in 2020 because that's when it became available to the employee. 

This is a common situation, but since you are both on a cash basis, you should both report on a cash basis.  This should not be an issue with the IRS.