Fun with payroll !

[TaxmannEA]

One of my co-workers has a restaurant client who was visited by the wage-hour people. Seems that they had a system where the employees could eat on site and have the value of the meals deducted from their paycheck.  The problem is that the employer took the deduction by reducing the hours worked instead of simply reducing the net check. (Example; $10 per hour employee has $10 in meal cost. Reduce the time by 1 hour.) They have been ordered to clean this up back to 2013. I am assuming that this means that the payroll will have to be amended for the last 2 years with the correct hours, FICA, unemployment, etc.  My co-worker seems to think that she can just show the adjustmemts for this year and not go back and amend.

  Basically, I'm looking for opinions on the correct way to handle this. I do think that amending is the proper way to go.

[Abby Normal]

I would ask the wage & hour folks if they would let you do it this year to save a ton of work and so employees don't have to amend their taxes. They might be sympathetic.

[kcjenkins]

Yes, don't do anything until you ask Wage & Hours what they will accept.  And by all means, stress the benefit to the employees, rather than the convenience of the employer.  

[Catherine]

Yes, don't do anything until you ask Wage & Hours what they will accept.  And by all means, stress the benefit to the employees, rather than the convenience of the employer.  

​Telling them they will NOT have to amend their OWN prior-year tax returns should be enough all by itself to get them on board!

[Lee B]

One of my co-workers has a restaurant client who was visited by the wage-hour people. Seems that they had a system where the employees could eat on site and have the value of the meals deducted from their paycheck.  The problem is that the employer took the deduction by reducing the hours worked instead of simply reducing the net check. (Example; $10 per hour employee has $10 in meal cost. Reduce the time by 1 hour.) They have been ordered to clean this up back to 2013. I am assuming that this means that the payroll will have to be amended for the last 2 years with the correct hours, FICA, unemployment, etc.  My co-worker seems to think that she can just show the adjustmemts for this year and not go back and amend.

  Basically, I'm looking for opinions on the correct way to handle this. I do think that amending is the proper way to go.

​I am skeptical as to how this would work. You have several different years with different rates and possibly different max $ limits.

In my state you have to file amended returns.

[jklcpa]

​I am skeptical as to how this would work. You have several different years with different rates and possibly different max $ limits.

In my state you have to file amended returns.

​I agree with you, and with restaurants that have a fairly high rate of turnover, some of the affected people may no longer be employed there. Amended returns and corrected W-2s is the way to proceed.

[Jack from Ohio]

I would ask the wage & hour folks if they would let you do it this year to save a ton of work and so employees don't have to amend their taxes. They might be sympathetic.

​You obviously work with wage-hour auditors with a totally different outlook on their job.  There is no way such a request would fly with the wage-hour people here.

[Terry D EA]

I gotta go with Judy on this one. While it will be a major pain to do this it is the only proper way and do hope the folks at the IRS who are processing the amended or correct 941's (used to be form 941C) that they can add and understand your explanations. BTW, do as an IRS agent advised me, keep your explanations simple so a 10th grader can read them. Took me three years to convince the IRS one of my clients had over paid his payroll tax for the first quarter of the tax year and the overpayment was applied to the second quarter of the same tax  year (correct way to do this according to the IRS regs at the time) which started the snowball rapidly moving down hill. Office audits, penalties, penalty abatements and even visits from IRS agents and all a bunch of crap but finally settled when someone inside the IRS took the time to go Oh, I see what happened here. Good luck and charge accordingly.

[jklcpa]

Definitely keep the explanation simple. Since gross wages and taxes will be increasing on these returns, I'd simply state something like "amending to properly include fringe benefits and related tax effect."

[Jack from Ohio]

I gotta go with Judy on this one. While it will be a major pain to do this it is the only proper way and do hope the folks at the IRS who are processing the amended or correct 941's (used to be form 941C) that they can add and understand your explanations. BTW, do as an IRS agent advised me, keep your explanations simple so a 10th grader can read them. Took me three years to convince the IRS one of my clients had over paid his payroll tax for the first quarter of the tax year and the overpayment was applied to the second quarter of the same tax  year (correct way to do this according to the IRS regs at the time) which started the snowball rapidly moving down hill. Office audits, penalties, penalty abatements and even visits from IRS agents and all a bunch of crap but finally settled when someone inside the IRS took the time to go Oh, I see what happened here. Good luck and charge accordingly.

​Change the 10 to a 6 and I will agree with you. 

[Medlin Software, Dennis]

When a random compliance check happens, I am always happy if the result is a single issue, with a clear path to solve.  The random compliance people likely have pressure to "find" something.  There are easy to find bad practices which are very common...  Just finished talking about two with a potential customer (they sometimes look elsewhere because I refuse to give bad advice).  Income shifting, paying an owner/employee once a quarter in CA, and creating separate bonus checks manually changing FWH and SWH to zero.