[cpaherewego]

Quick Question – If you have commissions that are due for December Sales. As the employer, can you recognize them as an expense in December or do you have to wait until January when you actually pay them. Also as far as W-2’s go, if you do recognize them as an expense in December should they be included in the W-2’s of the employee.

There are a couple accountants at my office that feel strongly one way, and I am just trying to get other peoples opinions.

Thanks!

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[jm962011]

matching principal – those December commissions contributed to December revenue, yes? you should recognize them in December and since you're not paying them out until January, it is an accrued liability

the accrued payroll as of December 31 would include all of the wages that the hourly-paid employees have earned as of December 31, but will not be paid until the following pay day (perhaps January 5). The employer's portion of the FICA, unemployment taxes, worker compensation insurance, and other benefits pertaining to those wages should also be included as accrued payroll

[cpaherewego]

jm962011 – Thank you! My thoughts exactly. Just wanted someone else to agree with my opinion. While I don't have my CPA yet, I am studying/sitting for the exams and thought that this was Accounting 101!!!

Thanks!

FAR - 10/13(retake)
AUD - TBD
BEC - TBD
REG - TBD

You can do anything you put your mind too!!!

[jm962011]

I'm not sure about the W-2 question but I would say no, you don't include them in the employee's W-2.. just my thought based on personal experience.

For example, I quit my last job on Dec 23 but my unused vacation and salary for Dec 14-23 was paid to me on Jan 8. The income taxes will be on a W-2 I get for 2016 and included when I file my 2016 return.

[Missy]

Expense in December yes. Not on W2 in December. If you got paid on Jan 7 for working Dec 28-31 it will be on the 2016 W-2 NOT on 2015.

Old timer,  A71'er since 2010.

Finance manager/HR manager

 

 

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[FIFOisbetterthanLIFO]

Yes, you recognize in December for the company's books. No, you can't put wages on an employee's W-2 if they haven't been paid. Pretty basic.

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[Anonymous]

Yep…like everyone else has said, on the company's books in Dec, on the W-2 for the following year. W-2 is cash basis, company's books are accrual.

Though I guess we're all assuming the company's books are accrual-basis…but they should be…if not, they don't need accountants, they can just use their bank statements. 😀

Edited to add: Taxes may view it differently, though, depending on how the company reports for taxes. I can't remember my book-to-tax conversions enough to help out here…I work in a non-profit, so my tax knowledge is pretty fuzzy. But as far as book expenses and W-2's, it's like everyone's saying, but tax expenses may need to match to W-2's or something like that, not sure. Someone else be able to clarify for certain…?

[jm962011]

the tax piece is caught when they file the income tax return. accrued commissions, accrued vacations, accrued wages, and accrued payroll taxes are deductible on their 2015 return if they are paid out within 2.5 months of 12/31/2015. This of course assumes they are a calendar year tax payer. This is why if you get a bonus for 2015, they try to pay it out by Mar 15.

this is a really good example for book purposes: https://ccba.jsu.edu/accounting/PAYROLLENTRIES.HTML

I would just add a “C. Employer pays the payroll taxes next month with their payroll tax filings” and it would look like this:

Dr $7650 FICA Taxes Payable
Dr $1500 State Unemp. Taxes Payable
Dr $ 500 Federal Unemp. Taxes Payable

Cr $9650 Cash

[Anonymous]

@jm962011 Thanks for that explanation! I always feel so clueless on the tax side of things (which is what people think all CPAs know, of course! haha), so appreciate detailed explanations, like the 2.5 months rule. If I ever learned that, I had most certainly forgotten that – maybe this time I'll remember it! 🙂

[Mehow]

If you owe commissions in December because that is when they were earned then you should be recognizing them in December. It should be on the W-2 for those receiving the commission if commissions go on their, I'm not sure. It's like bonuses, you may not know what the bonus is at year, but you accrue for them at year end.

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[FIFOisbetterthanLIFO]

Actually, the IRS requires you to determine the amount of bonus you are going to pay out at year-end. You can't over accrue at the end of 2015 in order to reduce income (this is what they are afraid companies will do) in 2015. If you accrue more than you pay and the IRS audits you, they can disallow the entire bonus amount – not just the amount you didn't pay. Have to be very careful!

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[jm962011]

this is true but since most companies extend.. or won't actually be filed by 3/15 if they don't extend, they will have an actual number

we've officially hijacked her/her GAAP accounting question and turned it into a tax issue 😉

[Author]

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