We often get calls the W2 boxes 1, 3 and 5 have different amounts from what the payroll summary report states and help is needed to figure out why. In some cases the different amounts are correct. In other instances, they are not and a review of the year’s payroll processing is needed. Let’s look at some common payroll situations and examples that can affect these boxes.
Your employee has a pre-tax deduction, fringe benefit, or company contribution with improper tax setup.
Does your employee have any of the following?
- Retirement deduction like a 401(k) or IRA
- Group Term Life Insurance (GTLI)
- A taxable fringe benefit like Personal Use of Company Car (PUCC)
- A taxable company contribution like a Health Savings Account (HSA)
You will want to review the setup of your Gross Pay deductions to ensure they have the correct taxes assigned to them. Only list those taxes and liabilities that are exempt from calculating on the deduction. The most common mistake we see in setup are taxes being excluded which are not exempt by federal and/or state guidelines. If there are questions about what is or is not exempt, it is advised to speak with your accountant.
Earnings do not have all applicable taxes, liabilities, and deductions associated.
Do your earning setup contain the correct amount of taxes associated?
You will want to review the setup of your earnings to ensure they have the correct taxes assigned to them. List all taxes and liabilities which are to calculate on the the earning. The most common mistake we see in setup are taxes being excluded which are not exempt by federal and/or state guidelines. Review your employee tax setup and make sure the appropriate taxes are included from their Form W4. If there are questions about whether an employee’s exemption status, it is advised to speak with your accountant. 9.9 times out of 10, unless you plan to pay them less than $2,500 for the year, they are not exempt.
Troubleshooting the 941 and W2s
When determining where the numbers are pulling from, we will use the 941 as the W2 is a year end summary which shows how well you processed payroll throughout the year. The 941 is reported quarterly to the Internal Revenue Service where the W2s are provided to the Social Security Administration annually.
Federal Forms and Instructions
941 Forms
941 Form: http://www.irs.gov/pub/irs-pdf/f941.pdf
Schedule B (Form 941): https://www.irs.gov/pub/irs-pdf/f941sb.pdf
941 Form Instructions: http://www.irs.gov/pub/irs-pdf/i941.pdf
Schedule B (Form941) Instructions: https://www.irs.gov/pub/irs-pdf/i941sb.pdf
Draft 941 Form: https://www.irs.gov/pub/irs-dft/f941–dft.pdf
Draft Schedule B (Form 941): https://www.irs.gov/pub/irs-dft/f941sb–dft.pdf
W2/W3 Forms
W2 Form: https://www.irs.gov/pub/irs-pdf/fw2.pdf
W3 Form: https://www.irs.gov/pub/irs-pdf/fw3.pdf
W2/W3 Form Instructions: http://www.irs.gov/pub/irs-pdf/iw2w3.pdf
Draft W2 Form: https://www.irs.gov/pub/irs-dft/fw2–dft.pdf
Draft W3 Form: https://www.irs.gov/pub/irs-dft/fw3–dft.pdf
Data to Review and Reports Needed
When verifying information on the 941, you may need to reference the following information:
- Company Information (Company | Company Information)
- Payroll Summary (Reports | Payroll)
- Run for the reporting quarter.
- Run for the periods prior to the reporting quarter.
- Run for specific periods within the reporting quarter.
- Payroll Item Detailed History (Reports | Payroll)
- Run for the reporting quarter.
- Employee Time Sheets (Reports | Payroll)
- Run for the 12th day of the month for the last month in the reporting quarter.
- Payroll Earning and Deduction Setup (Employees | Lists | Payroll Items List or Lists | Payroll Items )
- Employee Payroll Earning, Deduction, and Tax Setup (Employees | Employee List | Right Click | Employee Payroll Items).
Form Access
To access the 941 in Total Office Manager, navigate to Employees | 941 (Employer’s Quarterly Fed Tax Return). Select the Year and Quarter for the period you are filing.
Form Header
Employer Identification number (EIN) – This is found on the Other Information tab of the company information form. The Federal Identification field is a text field that will be parsed into the nine fields. If more than nine characters (alpha, numeric, and/or special) are entered, only the first nine numeric digits will be utilized.
Name – This is found on the General tab of the company information form. The Name field will populate to the Name field on the 941.
Address – This is found on the General tab of the company information form. The Address 1 and Address 2 will populate into the first line of the address on the 941. The first field in City/State/Zip will populate into the second line city on the 941. The second field in City/State/Zip will populate into the second line state on the 941. The third field in City/State/Zip will populate into the second line zip code on the 941.
Report for this Quarter 20XX – This is populated based on the Year and Quarter selected when generating the 941 under Employees | 941 (Employer’s Quarterly Fed Tax Return).
Page 1
Box 1 – Total number of Employees that received a paycheck where they worked on the 12th day of the month of the last quarter month as listed below for the reporting quarter.
Verification: Run the Employee Time Sheet report for the 12th of the month for the last month of the quarter you are reviewing. Include in your count any employee that received a paycheck in the last month of the quarter that worked on the 12th of the month.
Label on the form: Number of Employees who received wages, tips, and other compensation for the Pay Period including Mar. 12th (1st qtr), Jun. 12th (2nd qtr), Sept. 12th (3rd qtr), or Dec. 12th (4th qtr)
Box 2 – Total Wages for the reporting quarter. These wages are the total of all Earnings where the FIT and/or Federal Income Tax is assigned to the Earning less any Deduction that is exempt from the FIT and/or Federal Income Tax. These Earnings are pulled from Paychecks and YTD Adjustments.
- Label on the form: Total wages, tips, and other compensation
YEAR END RECONCILIATION: The wages are to match the total of what is reported in Box 1 of the W-2 (individual) and W-3 (summary) forms.
Box 3 – Income Tax withheld from wages, tips, and other compensation. This this information is the total FIT and/or Federal Income Tax withheld from Paychecks, entered on YTD Adjustments, and Employee Liability Adjustments during for the reporting quarter.
- Label on the form: Total Income Tax (FIT) withheld from wages, tips, and other compensation
YEAR END RECONCILIATION: The taxes are to match the total of what is reported in Box 2 of the W-2 (individual) and W-3 (summary) forms.
Box 4 – Wages exempt from FICA SS and/or FICA Med. No computation is required.
- Label on the form: Check this box if there are no wages subject to the Social Security and/or Medicare tax.
Check and go to Line 6. (label next to checkbox)
Box 5a – Total FICA SS wages for the reporting quarter. These wages are the total of all Earnings where FICA SS is assigned to the Earning less any Deduction that is exempt from the FICA SS tax (Column 1). These Earnings are pulled from Paychecks, Payroll Liability Adjustments to the Employee, and YTD Adjustments. Column 2 is the result of Column 1 X 0.124.
- Label on the form: Taxable Social Security Wages
YEAR END RECONCILIATION: The Column 1 wages are to match the total of what is reported in Box 3 of the W-2 (individual) and W-3 (summary) forms. Column 2 taxes are to match the total of what is reported in Box 4 of the W-2 (individual) and W-3 (summary) forms.
Box 5b – Total FICA SS tips for the reporting period. This is a free form box that the user can enter a value into Column 1. Column 2 is the result of Column 1 X 0.124.
- Label on the form: Taxable Social Security Tips
YEAR END RECONCILIATION: The Column 1 wages are to match the total of what is reported in Box 7 of the W-2 (individual) and W-3 (summary) forms. Column 2 taxes are to match the what is reported in Box 8 of the W-2 (individual) and W-3 (summary) forms.
Box 5c – Total FICA Med wages for the reporting period. These wages are the total of all Earnings where FICA Med is assigned to the Earning less any Deduction that is exempt from the FICA Med tax (Column 1). These Earnings are pulled from Paychecks, Payroll Liability Adjustments to the Employee, and YTD Adjustments. Column 2 is the result of Column 1 X 0.029.
- Label on the form: Taxable Medicare Wages and Tips
YEAR END RECONCILIATION: The Column 1 wages are to match the total of what is reported in Box 5 of the W-2 (individual) and W-3 (summary) forms. Column 2 taxes are included in what is reported in Box 6 of the W-2 (individual) and W-3 (summary) forms.
Box 5d – Total of excess FICA Med wages for the reporting period. These wages are the total of all Earnings where FICA Med is assigned to the Earning less any Deduction that is exempt from the FICA Med tax that exceeds $200,000 (Column 1). These Earnings are pulled from Paychecks, Payroll Liability Adjustments to the Employee, and YTD Adjustments. Column 2 is the result of Column 1 X 0.009.
- Label on the form: Taxable Medicare Wages and Tips subject to Additional Medicare Tax withholding
YEAR END RECONCILIATION: The Column 1 wages are included in what is reported in Box 5 of the W-2 (individual) and W-3 (summary) forms. Column 2 taxes are included in what is reported in Box 6 of the W-2 (individual) and W-3 (summary) forms.
Box 5e – Total FICA SS, FICA Med, and Additional Medicare taxes from Column 2 (Column 2 lines 5a + 5b + 5c + 5d = line 5e).
- Label on the form: Add Column 2 from lines 5a, 5b, 5c, and 5d
YEAR END RECONCILIATION: The taxes are to match the total of what is reported in Box 4 + Box 6 + Box 8 of the W-2 (individual) and W-3 (summary) forms.
Box 5f – Section 3121(q) Notice and Demand – Tax Due on unreported tips (see instructions). This is a free form box that a user can type a value into. Value can be positive or negative.
- Label on the form: Section 3121(q) Notice and Demand – Tax Due on unreported tips (see instructions)
Box 6 – Total taxes before any adjustments are made. This is the total form Line 3 + Line 5e + Line 5f.
- Label on the form: Total taxes before adjustments (Line 3 + Line 5e + Line 5f)
YEAR END RECONCILIATION: The taxes are to match the total of what is reported in Box 2 + Box 4 + Box 6 of the W-2 (individual) and W-3 (summary) forms.
Box 7 – Current fractions of a cent adjustment. This is a free form box that a user can type a value into. Value can be positive or negative.
- Label on the form: Current quarter’s adjustment for fractions of cents
Box 8 – Current quarter’s adjustment for sick pay. This is a free form box that a user can type a value into. Value can be positive or negative.
- Label on the form: Current quarter’s adjustment for Sick Pay
Box 9 – “Current quarter’s adjustments for tips and group-term life insurance” – This is a free form box that a user can type a value into. Value entered can be positive or negative.
- Label on the form: Current quarter’s adjustment for Tips and Group-Term Life Insurance
Box 10 – Total taxes after all adjustments are entered. This is a calculated box that sums Lines 6 through Line 9.
- Label on the form: Total taxes after adjustments (Line 6 + Line 7 + Line 8 + Line 9)
Box 11 – Qualified small business payroll tax credit for increasing research activities. This is a new line added to the form for 2017 tax year. This is a free form box that the user can enter a value into.
- Label on the form: Qualified small business payroll tax credit for increasing research activities. Attach Form 8974
Box 12 – Total taxes after adjustments and credits. This is a calculated box that subtracts Lines 11 from Line 12.
- Label on the form: Total taxes after adjustments and credits. (Line 11 – Line 10)
Box 13 – Total Deposits including overpayments. This box should total all Payroll Liability Checks and Employee Payroll Liability Adjustment amounts for FIT and/or Federal Income Tax, FICA SS, FICA Med, FICA SS Employer, and FICA Med Employer that were made during the reporting period.
- Label on the form: Total Deposits, including prior quarter overpayments
Box 14 – Balance Due. If Line 12 is more than Line 13, difference is calculated here.
- Label on the form: Balance Due
Box 15 – Overpayment. If Line 13 is more than Line 12, difference is calculated here.
- Label on the form: Overpayment
Part 2: Deposit Schedule and Tax Liability
Box 16 – Tax Liability for the Quarter
Option 1: Checkbox
- Label on the form: Check this box if Line 12 is less than $2,500 and you did not have more than $100,000 in next day deposits.
Option 2: Checkbox
- Label on the form: Check this box if you are a monthly schedule depositor. Once checked, you will need to recalculate the 941 to calculate the total taxes for FIT and/or Federal Income Tax, FICA SS, and FICA Med on Paychecks, entered on YTD Adjustments, and entered on Employee Liability Adjustments for the reporting period.
Option 3: Checkbox
- Label on the form: Check this box if you are a semiweekly schedule depositor. Checking this option generates the Schedule B.
Part 3: Notifications to the IRS
Box 17 – Notification to the IRS the business has closed.
- Label on the form: Close of business. Check this box if your business has closed. Select the date that wages were last paid.
Box 18 – Notification to the IRS the business does not have year-round employees.
- Label on the form: Seasonal Employer. Check this box if you only hire employees seasonally. Checking this box lets the IRS know you will not be filing four Form 941s throughout the year.
Box 19-28 – Qualified wages and credits which deal with COVID relief measures. These boxes will be available until otherwise notified by the Internal Revenue Service..
Part 4: Third Party Designee
This section is used to designated someone else to speak to the IRS about the information contained in the 941 form. This person may be an employee, accountant, or anyone that has knowledge of your company and payroll processing.
Part 5: Signatures
This section is used to sign for acknowledgement to the IRS. A person can only sign the 941 if they are an approved role by IRS definition. For a list of the approved roles for an entity, please reference the Part 5: Sign Here (Approved Roles) section on page 11 of the 941 instructions.
