How to reflect S-corp owner personal use of company vehicle on S-corp tax return IF it was NOT included on the W-2.

[mhkdgal]

S-corporation 50% shareholder used a company owned vehicle.  The payroll person/company did NOT include the value of the personal use of the vehicle on the s-corp owner's W-2 for 2022.

I realize one way to correct this is to prepare and issue a corrected W-2 to this shareholder that properly includes the value of the personal use of the company vehicle.

Is there another way to reflect the personal use of the vehicle on the S-Corp tax return and resulting K-1 to that shareholder instead of issuing a corrected W-2?    

Thanks in advance for your help!

[pacoford]

I have the same question. I will await a response. Thank you!

[IRonMaN · Accepted solution]

You need a corrected W-2.

[mhkdgal]

Thanks IRonMaN,

Additional question:  If I prepare the corrected W-2, then does the S-corp still deduct the full amount of the auto expenses (100%) on the S-corp return?  I am thinking yes, the S-corp deducts the full amount and the shareholder obviously reports the personal use share on personal 1040 through the W-2 numbers.  Is that correct?

Thank you!

[IRonMaN]

Correct

[TaxGuyBill]

But the 1120-S shouldn't be claiming the deduction for personal-use of the vehicle AND the 'extra' wages, right?  So the wage deduction on the 1120-S should be the pre-vehicle wages, right?

Or am I mis-thinking it?

[IRonMaN]

Correct, except there is going to be a little extra deduction to gross up SS and Medicare since it is being done after the fact instead of along with a payroll check.

[mhkdgal]

TaxGuyBill - that's right. The additional wages reported on the W-2 as a result of the personal use of company vehicle, would not actually be included in the wages being deducted on the S-corp tax return.  Right?

[qbteachmt]

It's a wash. There are three parts.

The operations and ownership of the vehicle is 100% business. That's the gross deduction.

The value of the use to the employee is a taxable benefit. But to avoid paying it out as real takehome, there is the addition (so it is taxed) and then the Net is a deduction from the paycheck. And that deduction is the offset for the vehicle use, a contra-expense, or into a benefit expense category.

The deduction is the offset.

[mhkdgal]

Thanks @qbteachmt   Are these the 3 pieces if I am actually processing a payroll for the purpose of just adding the value of the personal use of company vehicle?

I was thinking this would be a payroll correction/adjustment the payroll processor (QB Online Payroll) would facilitate on their "back end".   They have done something similar in the past to add S-corp Owner Health Insurance to the Box 1 wages on the W-2 without me actually processing a payroll.    

I want to make sure I don't misunderstand or miss anything.  Thanks for your help!

[IRonMaN]

But it isn't a complete wash when you do it this late in the game.  With shareholder health insurance there is no Social Security or Medicare to mess with.  Since payroll checks are long gone for 2022, you can't just add the benefit to the existing check.  Now you have to gross up the benefit for Social Security and Medicare to get the net benefit to work.

[mhkdgal]

Ah, yes, @IRonMaN  - I was missing that this IS subject to social security and medicare taxes, unlike the S-corp owner health insurance which is not.    That makes sense.

Thank you!

[qbteachmt]

"Are these the 3 pieces if I am actually processing a payroll for the purpose of just adding the value of the personal use of company vehicle?"

That business (whose 2022 return is likely going to need to be amended) would already have all operating expense tracked. What you are missing is the other two: Gross (grossed up if necessary) taxable additional (typically monthly, quarterly, or at least year end) and then the Net (valued) deduction (to avoid paying it out as money).

As noted, the issues include, when this is paid by itself (resulting in a net $0 check), this is treated as supplemental wages (subject to higher income tax flat withholding rate 22% or more, even). Also, not included with regular pay means nothing to deduct from. If there is no more pay to give the person, there is nothing from which to deduct the employee share of Soc Sec and Medicare, so that is when you Gross Up, and that would be treated as loan to employee, to be repaid as net pay deduction out of one or more later paychecks. Examples:

Paycheck Gross $5,000

Vehicle value benefit $1,000 (gross addition as taxable fringe)

Taxed on gross $6,000 (let's pretend that comes to $1,779)

Deduct any after-tax values, include $1,000 for fringe benefit = $3,221 takehome

Now you see how $1,000 benefit value (cost to the employer) is offset by the $1,000 pay deduction, which you might see like this:

Vehicle expenses for this operating year $23,500

less vehicle expense recaptured -$1,000

QB won't do this for you. Someone needs to value the benefit and figure out how to handle deductions.

I found a great article for you for reference:

https://www.patriotsoftware.com/blog/payroll/personal-use-company-vehicle-car-tax-pucc/

"without me actually processing a payroll."

Example:

Vehicle benefit $1,000 = Gross pay $1,000

Let's pretend withholdings total $300. But, Net Deduction needs to be that same amount of $1,000. You will need a (not taxable) addition of Loan to Employee $300, to be repaid by payroll deduction later.

Or, you need to keep doing the math to gross up the $1,000 value so that the total paid out matches the total deducted after withholding. That means the gross taxable is something around $1422, but split into Fringe Benefit $1,000 and then a wage/bonus of $422.

If it is part of payroll, it impacts 941/944, 940, SUTA, etc.

Fringe Benefit paychecks end at $0, because the employee already got that value in the benefit.

I hope that helps.

[mhkdgal]

@qbteachmt  Thank you SO much!   The examples using real numbers are exactly what my brain needed to see.     That was a big help.  The article was great as well.

Thanks!