S-Corp owner with W-2 reasonable wage salary

[bwcland]

My wife and I are equal share owners of a small S-corp.  We established a reasonable wage salary of $2,000 per month for each persons W-2  total $4K/month.  We made monthly EFTPS payroll related tax payments and filed quarterly Form 941's.  

While reviewing 2022, realized I made a mistake.  

The monthly EFTPS tax payments included federal income withholding + 12.4% for Social Security + 2.9% for Medicare.

I did not withhold the federal income + employee 6.2% Social Security + employee 1.45% Medicare amounts from monthly paychecks.  The monthly checks were $4,000 and should have withheld the federal income, 6.2% Social Security, and 1.45% Medicare. 

I understand the IRS can apply overpayments of 941 to future balances or issue refund.

I'm not sure how to correct this for the W-2's?  

Any help appreciated, thank you Turbotax. 

[JamesG1]

You wrote checks and cashed checks for 12 X $4,000 = $48,000.  You generated EFTPS payments for the correct amount federal withholding, Social Security and Medicare.  You have prepared and balanced all four 941's.

I think you are saying that you:

• Remitted the correct amount of the 941's, but
• You overpaid each check to your spouse and yourself by the amount of the withholding, SS and Medicare.

Do I understand correctly?  Please clarify.

@bwcland

[bwcland]

Hello @JamesG1 

Yes wrote checks and cashed checks for 12 x $4,000 = $48,000.

Yes generated EFTPS payments for correct amount of federal withholding ($2,481 joint married) + 12.4% social security ($6,200) and 2.9% medicare ($1,450)

This should of been federal withholding, 6.2% Social Security & 1.45% Medicare for employer 

Yes prepared and balanced all four 941's.

Yes the mistake made was overpaying the amount of the withholding, SS, and Medicare.

I should of withheld the federal withholding, and employee half of SS, and Medicare. 

$4,000 - federal withholding ($206.75) - Social Security 6.2% ($258.33)  - Medicare 1.45% ($60.42) = $3,474.50

Does this help clarify?  thank you. 

[AliciaP1]

The remaining overpayment you made to yourselves can be classified as distributions if you have not exceeded the 50%/50% rule for the year.  So, you would report your W-2s to match the 941s filed, but the excess of the $4,000/month checks would get booked to Shareholder's Distributions.

For example, each check written was for $2,000 but $153 should have been deducted for Social Security & Medicare and assume $200 for federal withholding.  The net check you wrote would have been $1,647.  That would classify $353 from each check as a distribution to the shareholder.  For the year, that would result in you each having $24,000 gross wages, $1,488 in Social Security tax, $357.60 in Medicare tax, and $2,400 in federal withholding.  The distribution balance (if these were the only distributions taken for the year) would total $4,236 each.

[bwcland]

Hello AliciaP1 thank you for the explanation, does the 50%/50% rule for the year mean 50% salary and 50% distributions?   

I'm not familiar with the 50%/50% rule.  Thank you.  

[AliciaP1]

Yes, the rule is that you are required to report at least 50% of all the money you take out of the business as payroll.  The remaining amount is considered Shareholder Distributions.

@bwcland