Contact UsOur company uses a Professional Employment Organization (PEO) to pay all employees, including officers. In past years on form 1120S I have been putting zeros for lines 7 and 8 (compensation of officers, and salaries and wages) since it is not our company that pays them - the PEO pays them and reports that on W-2s that they send out. I include an item on the statement for line 19 other deductions for "PEO services" that includes all payments to the PEO. Is this the correct way to handle this?
Tax Professional Answers
Line 7 requires the total compensation of all officers paid or incurred in the trade or business activities of the corporation.
Line 8 requires salaries and wages paid or incurred.
The instructions to 1120s state that "Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation"
If the employees and officers you mentioned are employees of your company, payments to them for services to the company must be reported on Line 7 and Line 8. In this case the Professional Employment Agency is just making the payment on behalf of your company.
Payment to the PEO for their services should be separately identified and reported.