Software Support
Handling Special Deductions
401(k)'s, Insurance, Cafeteria Plans
The
following steps are used in order to set up other income types used for wages
and deductions with special taxability rules. This includes tips,
insurance, 401(k) and cafeteria type plans.
The
amounts deducted for insurance, 401(k), and cafeteria plans, may not be subject
to certain taxes. Taxable wages are calculated based on the line items
entered on a check, these items are typically handled by entering two special
line items on a check. The first item subtracts the amount to be deducted
from the gross check total. The second line adds the same amount back into
the check total using a special wage type that specifies which taxes
apply to the amount deducted. This insures that the correct amount of
wages are used as a basis for tax calculations. A miscellaneous deduction
is used to make the deduction from the employee's check.
The
following instructions outline the steps that are needed.
The first two steps involve one-time setup.
The third step must be done for each employee with this type of
deduction, and the fourth step shows how the deductions are made automatically
by the payroll check entry program.
1. Set up the
Wage Type
This
will help the program to determine what taxes to deduct from the employees’
wages. To do this, go to the Payroll menu, select the Utilities
sub-menu and then select Setup Wage Types.
You may set up as
many different wages types as necessary. Each wage type is assigned a two
letter/digit code. In general, once a wage type has been set up, it should
not be deleted (especially if you've used it on a check entry!) This
includes the wage types that are set up by default when you start using the
program.
Press [F1] to get
more information on the settings on this window from the Help system. Here
are a few general guidelines though:
Never check the memo wages box unless the wages are for tips or some other
compensation that the employee has received that has not been taxed. The
effect of checking the memo wages box is that the wages are added into the
employee's total wages for tax calculation purposes, but they are not added into
the check amount.
Bonus, Piecework,
and Salary are often good choices for the Base Pay Type setting.
2. Set Up the Miscellaneous Deduction Type
A deduction type
must also be set up. This deduction
can then be added to each employee. The
deduction type also “links” the amount deducted to the pay type that defines
the special taxability rules for that deduction.
Here is an example of two deductions that have been set up
for special taxability:
Deductions 4 and 5
have been set up to handle a 401(k) deduction and a cafeteria plan deduction,
respectively. The Wage Type column
specifies the corresponding wage type for each of these deductions.
(For ordinary deductions you do not need to enter a wage type, as in
deductions 1-3.)
You can press the [F4] key in the Wage Type column to select a wage type from
the lookup.
The Active column
specifies whether or not the program should calculate the deduction.
For instance, you may have a one-time deduction added to employee
accounts. After the deduction has
been made, you could simply deactivate the deduction for all employees by
unchecking this box. Another situation where the Active checkbox is useful is when
you are issuing checks for bonuses, vacations, sick pay, etc.
You can deactivate the deductions that you don’t want calculated before
entering checks, then reactivate them when you are done.
3. Add Deduction to Employee Account(s)
Once you have set up
the wage type and the deduction type, you’ll need to add the deduction to your
employee account(s).
Simply select the
deduction type, method, and enter either an amount (if it is a flat rate) or a
percentage.
Save the employee
account after you have made your changes.
Note:
In prior versions of the Datatech payroll system, it
was recommended that you set up entries in the Profile for each employee
to handle deductions with special taxability status. While you can still do things this way, it is no longer
necessary. By entering a wage type
in the deduction file, the program knows how to create the lines that are
necessary for handling the taxability. Therefore
the Profile lines are redundant.
If you already have
employees entered with check profiles, and you link a deduction to the wage
type, you will need to delete the profile information.
On the Profile tab page, press [Shift]+[F2] on each line to delete it, or
click on the delete icon in the button bar on each line.
One advantage of
this new method is that you can handle variable deduction amounts more easily.
Before, if you wanted to base the deduction amount on a percentage (or
even override it), you had to edit both the profile lines and the deduction
amount. Now, the deduction can be
calculated as a percentage of the gross or net check amounts, and the program
automatically creates matching line items that were formerly supplied by the
employee’s check profile information.
4. Enter Payroll Checks
Enter the payroll
check information as you normally would. When
you click on the Recap tab page, the program will calculate the deductions and
create the extra lines on the Gross Wages page to handle the taxability status.
Or course, since you
are switching to a different tab page, you don’t see the entries, but if you
click back on the Gross Wages tab, you’ll see them.
When the program
creates the additional lines, taxes will be recalculated according to the
settings in the wage type file.
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