Entering and Editing Deductions

 

Voluntary Deductions

If your organization deducts money from employees' pay for items such as pensions or insurance premiums, these deductions must first be entered in the Deductions File.

 

Miscellaneous State Tax Deductions

In addition to state income tax, some states (such as California, New Jersey, Oregon, and Pennsylvania) collect other taxes, such as state disability or state unemployment insurance premiums from employees' pay.  Some of these taxes have capped annual collection limits, while others are based on the number of hours worked.  

 

To open the Deductions File, from the main menu:

 

• Click on Data Setup and select Deductions File.

 

Adding a New Voluntary Deduction

 

• Click on the Add button.
  
• Key in the Description.
• Select the Default Frequency.
• Leave the Miscellaneous State Tax box blank.
• Determine if you need to Show Separately on W-2.

• The default is to Include in W-2 Wages.  If the deduction is not taxable, clear the boxes for taxable by tax type.
  
• Click on OK.

 

Adding a New Miscellaneous Tax Deduction

 

• In the Frequency field, leave the default of (E) Every pay period.
  
• Click to put a check mark in the Miscellaneous State Tax box.
  
• If you want to report on the W-2 select box 14.
  
• Enter the rate of the tax.  If the tax is based on hours click on the box Based on Hours Worked.  The rate will be converted to cents per hour.
  
• If the tax has a maximum limit you can enter the amount either as the maximum tax to withhold per year or the maximum earnings subject to the tax.  Click on either Income Subject to Tax or Withholding corresponding with the limit entered.
  
• Click on OK.

 

Example:  Your state requires that 1% of the first $50,000 of employee wages be withheld for the state disability fund. Put a check mark in the Miscellaneous State Tax box. In the rate box, you would enter 1.00. Under the Enter annual maximum amount of:, you would click the button, “Income subject to tax” and enter $50,000.

 

After creating deductions/allowances they can be attached to the employee record.

Only one deduction or allowance needs to be set-up for each description if it has the same tax attributes; Amount or Frequency can be modified for each employee.

 

• Description – provide the name to identify the deduction/allowance.
  
  
• Frequency - click on the down arrow and choose the default frequency.  This can be changed on the employee's individual record. Remember that if you run an extra check for any reason that is not a normal pay date, or skip a pay date, it may effect the frequency and when it is applied. Frequencies available are:

(E) Every pay period

(O) Every other pay period

(A) First pay of the month

(B) Second pay of the month

(C) First pay of the calendar quarter

(D) End of the calendar quarter - defined as the 1st pay after the 15th of the month of the 3rd month of the calendar quarter (e.g. first pay after June 15th for the second calendar quarter)

 

• Show separately on W-2 - If the deduction/allowance needs to be reported in box 10, 12 or 14 of the W-2, choose the appropriate box. If box 12 is selected assign the appropriate letter code.  For more information on W-2s, see "Instructions for W-2 W-3" included under Tax Publications on the Payroll CD. If you are unsure whether a certain deduction/allowance needs to be shown separately, you will need to contact a tax consultant to ensure compliance.
  
  
• Include in W-2 Wages- If the allowance is not taxable remove the check mark from that tax in the section labeled “Include in W-2 Wages”. If an employee is marked as a minister, no Social Security or Medicare wages or withholdings will be shown on the W-2 regardless of how these boxes are marked. If you are unsure of the taxability of ANY deduction or allowance, be sure to contact a tax consultant immediately since incorrect taxation can cause serious issues with the IRS in the future.
  
  

 

 

Editing Deductions

 

You may edit deductions information at any time by clicking on the information to be edited and making your changes. 

 

To delete an entire deduction, click the square to the left of the name and click on the Delete button. The system will not allow you to delete an item if there have been pays posted in the current year that include money for this deduction.

 

Note:
If you delete a deduction that has not been used in the current year but was used in prior years, you will lose the prior year history of that deduction since the identification label will no longer exist.