PR experts - 941 Help please

[BulldogTom]

Looking for some direction please.

Potential client is a next day depositor. Bi-weekly payroll liabilities in excess of 100K. 500+ employees. Pays his taxes every other Monday. Last Payroll of the quarter was on June 17th. Next PR was on July 1. From June 18th to June 30, he cut several manual checks for terminated employees and miscellaneous reasons. Totals about 4K in liabilities. Paid those taxes when he deposited on July 6th (next business day) with his regular PR.

Here are the questions:

1. Because he is a next day depositor, does he have to deposit for every paycheck he cuts outside his normal cycle, or is it OK for him to pick up all those small checks with his next payroll?

2. On his software, the Schedule B is showing those liabilities for the quarter on the day the checks were written. But the payments were made in the next quarter with the payments for the July 1 PR liabilities and coded to the 3rd Qtr in his online payment. Shouldn't those have been split out? How to fix if this is wrong?

Thanks for your assistance. Let me know if the facts are not clear?

Tom

Lodi, CA

[ILLMAS]

1. Because he is a next day depositor, does he have to deposit for every paycheck he cuts outside his normal cycle, or is it OK for him to pick up all those small checks with his next payroll?

If bi-weekly depositor (based on pay dates), then he needs to pay the payroll taxes the next day, so any payroll checks paid outside the normal payroll cycle would required to be paid (payroll liabilities) the next day. What happens if you just wait and pay with the normal payroll cycle deposits, well when you prepare the 941 sch B, if you compare deposits, you will notice that you didn't pay one and other one is over paid, the IRS will send you a notice for the one that was not paid and may charge penalties and interest. To avoid all this hassle, advice your client to make the checks in advance (in prior pay period) or to have employees wait until the next payroll cycle.

2. On his software, the Schedule B is showing those liabilities for the quarter on the day the checks were written. But the payments were made in the next quarter with the payments for the July 1 PR liabilities and coded to the 3rd Qtr in his online payment. Shouldn't those have been split out? How to fix if this is wrong?

The liability is recognized when the check is written out, so if the check date was July 1, 2011 that is considered the 3rd quarter of 2011, so what they did is correct, now if you want to accrue for the days in June, you can do that, but it won't affect your liability deposit, it's still due the next day.

Hope this help.

[rfassett]

Just as in "no means no", next day means next day. He should establish a policy that ALL payroll checks are cut when all other payroll checks are cut. For terminated employees, they will have to come back to get their check or it could be mailed to them. I say all of this to preface this: this guy has a problem. He will incur late payment penalties for those liabilities that should have been paid the next day. The simple fix, although not necessarily the correct fix, would be to do another deposit now dated for the second quarter and reduce the next deposit for the third quarter by the same amount. He will be overpaid for the first third quarter payroll but that will wash out with the next pay. I see no reason the IRS would object to receiving their money early. He will still have to contend with the late payment penalties on the late June paychecks.

[Medlin Software, Dennis]

A. Paychecks are cash basis. Date on the check (constructive receipt, the date the employee could have had access to the funds) is the trigger.

1. Should have deposited based on the check dates. The "regular" payroll cycle is not a factor. In Pub 15, the deposit schedule instructions mention "payments made on" with no reference to a pay cycle or pay period.

2. See A. The 941B is correctly showing the liability based on the check dates.

There could be other issues as well, as "every other Monday" does not not be proper for a 100k+ liability employer.

Based on what is in your message:

June 17 payroll has 100k+ liability, deposit should have been made by June 20.

June 18 through June 30, and out of cycle checks should have had their liability deposited using the semiweekly schedule, unless the accumulated liability topped 100k (trigger for next day)

July 1 payroll had 100k liability, deposit should have been by July 5, not July 6. 2% of a 100k+ deposit (the penalty) is not something to sneeze at.

Added: Any time I hear from someone with deposit timing issues, I ask them if they have the money (if not, that is a whole other issue), and to keep it simple, make the deposits the same or next day as the payroll checks. There are more important things for a business owner to worry about that trying to eek out a few cents of interest hanging on to withheld taxes until the last minute.

[Medlin Software, Dennis]

rfassett,

No can do on the "ALL payroll checks are cut when all other payroll checks are cut", Tom is in CA, so there is a good chance the potential client is in CA. CA requires terminated employees to be paid immediately. For unannounced quits, the CA employer generally has 72 hours to pay.

[BulldogTom]

Medlin is correct on the CA issues. Client cannot hold terminated employee checks till payday. Immediate payment if you fire them, 3 days if they quit.

They made the payment on July 5, not 6. That was a typo. "Every other Monday" is the next business day for the "every other Friday" pay date, and every pay date is a 100K liability.

They have the money to pay.

Client just pulled out from a major payroll processor and brought the payroll in house. Never did the PR taxes. This is the first 941 and the PR manager is not the best at PR, let alone taxes. They have a really good payroll person in house for processing the checks. They are happy with that part but struggling to get the taxes. They just thought the software would spit it out for them. But the numbers are not coming out to their deposits. In playing with their software a little bit, it appears the tax deposit reports can be run on Check Date or Period End Date, and the client has not been consistent in the dates that they have chosen. I think that is what is causing the biggest part of the issue.

Thanks for putting me on the right track. Found some more info in the Circular E.

Appreciate the help.

Tom

Lodi, CA