Hey yall! In October of 2021, I processed two paychecks to an owner (paid as an employee) with the filing status as 'Exempt' thinking it would prevent withholding federal taxes from his paychecks and only withhold SS and Medicare. Later I realized that I could just zero out the withholding for federal taxes section under 'Employee Summary' during payroll, and it would keep that section zeroed out going forward. So I changed his filing status to "single filing separately" in the employee setup window, and zeroed out the withholding for federal on his paycheck. I *thought* I was SO smart and accomplished the mission then proceeded to remove any long-term memory of what I did here from my already overloaded brain.
Fast forward to now - W2's have been processed, printed, distributed, and filed with the IRS. I am now trying to file the annual 940 return, and something is wrong. I pulled a 'Tax Forms Worksheets' report to try and figure out what is happening, and those checks that were processed as 'Exempt' are showing under exempt from FUTA, when they shouldn't be. The reason I think they shouldn't be under 'exempt payments' is because none of our other owners salary checks have this problem.
Here be the questions :
1: Is there a way to fix this so that the amounts already reported on W2's match the amounts on the 940 tax form, and I can move on?
2: If you are paying an owner as an employee - are federal income taxes covered in his personal taxes, or should I be deducting federal income taxes based on his personal W4? What if he doesn't know his personal filing status?
I appreciate ANY help because I am so far in this worm-hole, I don't know how I got here, or how to get out and now I feel weird. I don't think I can successfully explain all of this to a QB support person and have them understand it. I attached a screenshot of the error message in the 'Tax Form Worksheets' if that helps. I am using Quickbooks Desktop Enterprise Solutions 2021, with enhanced payroll.
