W2s through payroll service

Technical topics regarding tax preparation.
#1
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Two questions -- I'm looking at a C corp that pays payroll expenses through a third-party. The W2s the employees receive show the third party listed as the employer and not the C corp.

1) Should the C corp's payments to the third party be shown as subcontractor payments vs. salaries/wages/payroll taxes on the tax return? My initial thought would be yes.

2) In this case, the company is a C corp, so no QBI implications. However, were this a PTE, I would imagine these payments wouldn't qualify as W2 wages. Is my thinking correct?
 

#2
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1. Wages

2. §1.199A-2(b)(2)(ii)
https://www.law.cornell.edu/cfr/text/26/1.199A-2
(ii) Wages paid by a person other than a common law employer. In determining W-2 wages, an individual or RPE may take into account any W-2 wages paid by another person and reported by the other person on Forms W-2 with the other person as the employer listed in Box c of the Forms W-2, provided that the W-2 wages were paid to common law employees or officers of the individual or RPE for employment by the individual or RPE. In such cases, the person paying the W-2 wages and reporting the W-2 wages on Forms W-2 is precluded from taking into account such wages for purposes of determining W-2 wages with respect to that person. For purposes of this paragraph (b)(2)(ii), persons that pay and report W-2 wages on behalf of or with respect to others can include, but are not limited to, certified professional employer organizations under section 7705, statutory employers under section 3401(d)(1), and agents under section 3504.
Dave

Taxation is the price we pay for failing to build a civilized society. ~ Mark Skousen
 

#3
ocdtax  
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#4
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Thanks for pointing me in the direction of the PEO. I looked up some other discussions about the issue on TPT and I think I learned a bit.

1) It sounds like folks somewhat disagree about how to handle showing the PEO wages on the tax return. I found a few conflicting opinions. It sounds like the IRS tends to not match up 940/941 filings with tax returns due to various reasons e.g. accrual vs. cash, fiscal year vs. calendar. Thus, showing officer comp, wages, payroll taxes, etc. on the return when no payroll reports have been filed is less of a red flag than I was originally thinking. Another user made a good point as well, not showing compensation paid on an S corp may trigger a reasonable comp audit, which would be very bad. I'm going with wages.

2) the short answer appears to be yes per Reg 1.199A-2(b)(2)(ii)
 


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