Payroll earnings don't match W2

Question

I am not sure if anyone else has had this issue or not but I am trying to process our W2's and the dollar amounts aren't matching. The W2s wages match what the autogenerated 941s but neither of them match what our paycheck actually shows or the earnings summary reports. The earnings summary and paychecks match each other. I haven't been able to get much help on trying to fix this as it is a significant difference. I don't understand why if all of the amounts are populated by the software why they don't match each other. Now I will have to file amended returns for all 4 quarters and I guess will have to submit additional payments for the short fall of required tax amount dues. I just followed what the reports reported and indicated for me to file but apparently that doesn't add up to what our actual pay is. If anyone has any suggestions I would greatly appreciate it.

mastertype · Accepted Answer

If the business is an S-Corp, and the S-Corp is paying health insurance premiums for the shareholder, this could also cause some confusion between the payroll earnings and W-2. The health insurance premiums are added to gross payroll (for federal and state withholding purposes) but are not actually "paid" to the shareholder. Certain other benefits are also taxable to S-Corp shareholders (for federal and state withholding but not for FICA - Medicare and Social Security). Pre-tax benefits lower the Box 1 wages (on the W-2), but are included in Boxes 3 and 5 (Social Security and Medicare). Health insurance premiums (paid to shareholders) is included in Box 1, but not in boxes 3 and 5. Retirement contributions (paid by the employee) is not included in Box 1, but is included in Boxes 3 and 5. In most cases, Box 1 wages will be shown in Box 17(?) for state wages. 
 Normally, the W-2s are calculated from the same information that is reported on the 941s. Is it possible that wages were paid that were not reported corrected for the 941s? Or perhaps checks were created and coded to the wrong account(s). I have seen this happen when clients give a payroll advance to one or more employees, but they code the transaction incorrectly, and then the "advance" is not paid back to the employer (even though it really was paid back and taxes properly withheld).

Kristinb · Answer

You should always reconcile your payroll register for the quarter to what the 941 generates. Wages on the 941 (line 2) is calculated (from the payroll register): Gross minus any pre-tax deductions (health care premiums, FSA) and retirement withholdings. Social Security & Medicare wages (lines 5a and 5c on the 941) are gross minus pre-tax deductions. If you have any employees that make over $132,900 per year after pre-tax deductions, then your Medicare wages will be more than your Social Security wages.

Sage 50 US

Payroll earnings don't match W2

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