It depends. Here are some guidelines to follow in reporting this.
- Box 1 vs. Box 3 for Officer Compensation: For the purposes of filing Form 1120-S, you should use the amount in Box 1 of the W-2 for officer compensation. Box 1 reflects taxable wages, tips, and other compensation, which aligns with what the IRS considers as reasonable compensation for services rendered.
- 401(k) Amount in Box 12a (Code D): The elective deferrals to a 401(k) plan (reported in Box 12a with Code D) are not included in Box 1 wages but are included in Boxes 3 and 5 for Social Security and Medicare wages. On Form 1120-S, you should report the total compensation paid to the officer, which includes the wages in Box 1. The 401(k) contributions are typically accounted for as part of the corporation's payroll expenses.
- Reasonable Compensation for IRS: The IRS considers Box 1 as the basis for determining reasonable compensation for S-Corp officers. Reasonable compensation is the amount paid to shareholder-employees for the services they provide to the corporation, and it must be reported as wages subject to employment taxes.
Please reach out if you have additional questions or if I haven't fully addressed your question.
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