W-2 has 0 in Box 1, but $400 in Box 2. Is this correct?

[dmertz]

Given that there is another employee, re-designating the excess to be an employer contribution might not be viable.  If made as a profit-sharing contribution, employer contributions must generally be the same percentage of compensation for both employees.  In your case, though, the employer contribution for you would be limited by compensation.  Since the employer contribution on your behalf would be 10.88% of compensation, so the employer contribution on behalf of the other employee would have to be at least 10.88% of that employee's contribution unless limited by total additions of 100% of their compensation or because the employer contribution is defined in the plan to be a matching contribution and are instead limited by the amount the other employee deferred (but I think the plan would have to have already stated the terms for the matching contribution at the beginning of the plan year).

All of the deposits should have been made from an account of the S corp, either as the employee contribution from a portion of your compensation that was not included in your paycheck (the same as tax withholding) or as the employer profit-sharing or matching contributions.  Since the deposit improperly came from your personal account, yes, the S corp would need to reimburse you since employer contributions are an expense of the employer and do not come from your compensation.

[Critter-3]

If you have not yet filed the 941 for the 4th quarter you can still make a correction since you are an S-corp owner ... seek assistance if needed.  

[pencil123]

@Critter-3 Thanks for the reminder! Unfortunately I already filed 941 for Q4 😓

[Critter-3]

It can be amended ... seek local assistance.

[pencil123]

I see. Thanks again for your detailed explanation, @dmertz! I didn't realize that I needed to withhold Solo 401k contribution from paychecks, so I paid myself without deducting 401K, and then I contributed $13,334 (100% of my gross pay) to 401K out of my personal bank account.

To correct this, should I (1) first write a check of $11,883.76 (my gross pay - withholdings) from my personal bank account to the S-Corp to return the amount of pay I received that is equal to my employee elective deferral amount, and (2) then write a check of $13,334 (100% of my gross pay) from the S-Corp bank account to myself to reimburse me for the total of 401K employee elective deferral and employer contribution I paid out of my personal account?

Thanks a lot for your help!

[pencil123]

I see. Thanks for that information @Critter-3 !

[Critter-3]

@pencil123 

I highly recommend you sit down with a local bookkeeper to get educated on how the "pass thru" nature of the S-Corp really means.  Cutting yourself a formal paycheck is not really needed but reporting that you did is what is the important action.   If you never move a dime to your personal account you will still have the same result on the 1120S in the end.  

[dmertz]

I agree with Critter-3, this is a bookkeeping issue.  The $11,883.76 elective deferral is where it needs to be even though it took a roundabout way to get there.  Doing it the correct way, though, keeps the bookkeeping tidy.  Shuffling money around just to have it end up back in the same place doesn't really accomplish anything more than just correcting the bookkeeping would.

[pencil123]

Thanks you very much, @Critter-3 and @dmertz! I think I understand it now. The wage numbers on the 941s need to be amended to reflect the 401K contributions. Otherwise the 941 numbers won't agree with the 1120S, and that could be trouble. I'm definitely gonna hire a local accountant and get everything straightened out. Thanks again for helping me make sense of this mess. I really appreciate it! 🙏

[Mike9241]

the numbers 

430.2 fed w/h

13334. 401k contribution which should be reported in box 12(d) of w-2

826.70 fica

193.34 medicare

total 14784. 24

so box 1 would need to be 14784.24 -13334 = 1450.24 in box 1 but then fica and medicare are wrong

to end up with a $0 net paycheck and have the numbers be correct

and use 430.20 for withholding and $13334 as 401k contribution

gross would need to be 14904.38

less 401k of 13334 = box 1 or 1570.38

1570.38

less 430.20 federal withholding

less 924.07 fica = 6.2% times 14904.38

less 216.11 medicare = 1.45% times 14904.38

net $0 paycheck.

in effect, it's not possible to end up with box 1 being $0 because of the need to take out at least fica and medicare taxes.

the 401k rules for 2020

employee elective deferral limited to $19,500 (up to an additional $6,500 if age 50 or older at the end of 2020). employer, that is the S-Corp, can contribute up to 25% of gross wages (ie before employees 401k contribution). employer and employee contributions limited to a total of the lesser of 100% of wages or $57,000 (additional $ 6500 for each employee over 50 at year end)

[dmertz]

Mike9241's numbers for the increase-in-compensation method of correction are correct.  As indicated, the S corp would have to increase your 2020 compensation by $1,570.38 to make everything work out using this method.  The S corp would need to file corrected Forms W-2 and 941 to reflect these changes and pay the $120.14 increase in Social Security and Medicare taxes witheld from your pay.  The S corp would also need to pay the corresponding $120.14 increase in the employer portion of Social Security and Medicare taxes.  The total cost to the S corp to do this works out to $1,810.66.