As a reward for being the top salepeople, our company will be sending two employees and their spouses on a cruise. The IRS requires that the cost of the vacation be included as income subject to payroll taxes and income tax withholding.How do I record payroll and withhold taxes when no cash payment is being made to the employees?
You have to set up 2 payroll items to cover this fringe benefit. First, you set up an 'addition' (expense only) or 'company contribution' (expense & liab). Call it whatever you wish, but under Tax tracking type, click the down arrow and choose Fringe Benefits. This will essentially allow this payroll item amount to increase wages and show on the 940, 941, and W-2. Since the value of the cruise is taxable, this takes care of the first half of the equation. It will also show in Box 14 which is appropriate.
Next you need to set up a deduction. This is the place where you deduct the cruise value back out of the payroll check (since they aren't suppose to receive the cash).
