The Importance of Tying out 941 to W2s

The new year is an exciting and busy time for small businesses.  You are analyzing and reviewing the past year as well as planning for a successful year.  With all the tasks associated with the new year, it is hard to add another item to the list.  However, it is extremely important for you to take the time to compare your quarterly 941 reports to your W2s.  If there is a problem, it is better to tie out the reports yourself so you can find any issues before the government discovers them.  Most businesses now use payroll services for the convenience and specialty services they provide.  However, even with a payroll service, there can be mistakes in calculations.

To tie out your 941s to your W2s, you need to total the wages in boxes 1, 3, and 5 of each quarter’s 941 to your year-to-date payroll details.  You will need to know what wages and deductions make up each of the boxes.  For example, box 1 is gross taxable earnings minus pre-tax health and retirement plans.  However, box 3 and 5 do not deduct pre-tax retirement so these may differ from box 1.

If you tie out each person from your year-to-date payroll details to ensure their wages are accurate to their W2, and then tie the total of your W2s to your quarterly 941s, you will ensure you are filing accurate W2s to your employees and save yourself time down the road by not having to respond to a government notice later in the year.

Erin Ryan, Controller