941 Reconciliation

Stephanie Jauch Updated by Stephanie Jauch

Many auditors request a reconciliation of certain payroll expenses against quarterly tax filings, i.e. a 941 reconciliation.

The salary amounts listed on the federal 941 form often do not match the Salaries & Wages & FICA/Medicare expenses recorded in the member’s fiscal year for a variety of reasons:

  • Taxable income vs gross wages: the 941 reduces taxable wages by certain employee deductions (retirement contributions, health benefit deductions, etc.)
  • Tax filings are based on pay date, while fiscal year expenses are based on pay period end date:
    • The accrued portion of the first payroll of a member’s fiscal year will be included in prior year expenses but will be reported in the  tax filings for the first quarter of the year being audited.
    • In BeyondPay, the pay date is the Thursday following the pay period end date. If a member’s fiscal year closes between these days (i.e. pay period end date is in June/December/etc but the pay date is in July/January/etc, the expenses for the full pay period will be included in current year expenses but will be reported in the tax filings for the first quarter of the following year.

To help identify these variances for the auditor, complete a 941 reconciliation using this template.

  1. Make a copy of the template and name it [MEMBER]: 941 Reconciliation - FYXX
  2. Move the worksheet to the Workforce folder in the member’s shared audit folder in Google Drive.
  3. In cells C2 - C5, update the quarters and years to match the calendar year quarters that fall within the year being audited, i.e. if the member’s fiscal year ended 6/30/25, the tax filings quarters are:
    1. 3rd Quarter 2024
    2. 4th Quarter 2024
    3. 1st Quarter 2025
    4. 2nd Quarter 2025
  4. 941 WAGES & SALARIES: In cells D2 - D5, enter the Wages, tips, and other compensation reported in box 2 of the 941 for each quarter.
  5. 941 SOCIAL SECURITY & MEDICARE: In cells F2 - F5, enter the social security (FICA) and Medicare amounts reported in column 2, lines 5a and 5c on the 941 for each quarter.
Please note the amounts reported on the 941 include both employER and employEE expenses, so the 50% Employer Share is automatically calculated in cell F9.
  1. GROSS WAGES & SALARIES: To reconcile any variances between actual gross wages and the taxable wages reported on the 941, please enter the total wages reported on state tax filings in cells H2 - H5.
    1. For most members, this will be the NYS-45, and the unrounded total can be found at the bottom of the first page listing employees. If a member has employees outside of New York, you may also have to add additional state filing(s) in columns I, J, etc. (add additional columns as needed).
    2. The Difference between Gross Wages and Taxable Wages will automatically be calculated in cell D20. Be sure that the formula in this cell is capturing the totals for any state filing columns you may have added.
    3. SALARY EXPENSE PER WTB and TAX EXPENSE PER WTB: In cells D12 - D14 and E15, enter the following total fiscal year expenses, as applicable , per the income statement/working trial balance (“WTB”):
      1. 6000 - Salaries & Wages - Artistic
      2. 6010 - Salaries & Wages - Production/Technical
      3. 6020 - Salaries & Wages - Administrative
      4. 6100 - FICA & Medicare
  2. ADJUSTMENTS: At this point you will likely be seeing a variance in the Difference between books and 941 reconciliation line. Common reasons for this, as mentioned above, are related to the timing of expense recognition vs cash payment > tax reporting. To account for these common differences, enter the following in the ADJUSTMENTS section of the template:
    1. LESS: next year accrual: using the salary accrual workbook for the year audited, enter the total accrued Salaries & Wages (accounts 6000, 6010, 6020) and FICA & Medicare (6100) as negative amounts - these amounts needs to be subtracted because they appear in tax filings for the quarter after the close of the fiscal year being audited.
    2. ADD: prior year accrual: using the salary accrual workbook for the year prior to the one being audited, enter the total accrued Salaries & Wages (accounts 6000, 6010, 6020) and FICA & Medicare (6100) as positive amounts - these amounts needs to be added because they appear in tax filings for the first quarter of the fiscal year being audited.
    3. LESS: Payroll bill dated in year being audited but paid in following year: if a pay period end date (i.e. payroll bill date) fell within the last few days of the current fiscal year and was paid out cash-wise in the following year.
    4. ADD: Payroll bill dated in prior year but paid in year being audited: if a pay period end date (i.e. payroll bill date) fell within the last few days of the prior fiscal year and was paid out cash-wise during the year being audited.
  3. If a very small variance appears in Difference between books and 941 reconciliation line, this can be entered in the Rounding variance line to balance.
  4. If a significant variance appears in the Difference between books and 941 reconciliation line, a more detailed data analysis may be needed. Some common reasons for remaining variances include additional mid-year accruals that weren’t already entered in the Adjustments section, third-party sick pay for employees receiving disability or PFL payments from an outside provider, or other payroll anomalies that the Workforce Administration Lead may have context on.
    To better identify the timing of these variances, if needed:
    1. Pull a transaction detail report in Xero for applicable Salaries & Wages accounts and FICA/Medicare.
    2. Review transactions to be sure that only contact is BeyondPay (or the member’s payroll provider, if different) and relevant journal entries (accruals, allocations, etc.).
      If anything is out of place, investigate the transaction(s) and recode as needed. Re-enter the Member Fiscal Year Expenses in the 941 rec worksheet if any changes were made. If this resolves your variance, you are done! If a variance still exists, proceed to the next step.
    3. Export the report and import as a new tab in your 941 rec worksheet (see Sample Xero Transaction Detail).
    4. Create a new Payroll Summary Tab (see Sample Xero Data Summary).
    5. Use a UNIQUE formula to list each bill date (i.e. pay period end date) in column A:
      =sort(unique('Sample Xero Transaction Detail'!A:A))
      You will likely need to then copy and paste as values only to remove any cells containing non-date data.
    6. Use SUMIF formulae to sum the total Salaries and Wages (all categories) and FICA/Medicare for each bill date in columns B and E respectively.
    7. Create visual separation for each quarter based on pay date (generally 4 days after the pay period end date/bill date), and compare to the total GROSS WAGES & SALARIES for each quarter, as listed on the Reconciliation tab.
    8. Review any quarterly variances, consulting the Workforce Administration Lead if needed. Note these on the ADJUSTMENTS section on the Reconciliaton tab, adding additional lines as necessary.

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