How to set up and process fringe benefits

Transcription

1 How to set up and process fringe benefits Employees must pay taxes on the monetary value of such fringe benefits as the personal use of a company vehicle or the premium for life insurance in excess of $50,000. Some employers record fringe benefits on each payroll throughout the year; others record a lump sum at the end of the year. If recording a lump sum, include the fringe benefit as a deduction on the employee's last paycheck. These examples use Auto Allowance as a fringe benefit deduction: This can be achieved 4 different ways in Sage BusinessWorks: 1. Set up a fringe benefit to be deducted throughout the year 2. Set up a fringe benefit to be deducted as a lump sum on the last payroll of the year 3. Set up a fringe benefit after the final paycheck is issued a. Option A: Taxable and b. Option B: Non-Taxable 4. Manually edit Enhance Tax Reporting to include the fringe benefit amount OPTION #1 - Steps to set up a fringe benefit to be deducted throughout the year To record the fringe benefit with each payroll, create a deduction for the fringe benefit and attach it to the employee's record to be used for each pay period. 1. Select PR, Utilities, Maintain Deductions to create the deduction 2. Click the 'New' button to create a new deduction 4. From the 'Method' drop-down box, select the calculation method. Select 'Fixed amount per pay period' if the deduction amount remains the same for every paycheck, otherwise select 'Variable, entered on if the amount is different for every paycheck 6. Define the General Ledger accounts for the 'Credit account' and 'Debit account'. (Refer to your CPA if you are unsure which account to us) Examples: Credit account: Auto Payable and Debit account: Automobile Expenses Page 1

2 7. Select the appropriate taxable fields for the deduction (Consult a tax advisor for assistance on the deduction taxable status.) Important: If FWT is not selected on this deduction, the deduction amount will not be included in Box 1 on the W-2. If SWT is not selected on this deduction, the deduction amount will not be included in Box 16 on the W-2. In the Active select Always 8. Click the 'W-2...' button. In the Box number to use field, clear the None check box, and use. (Consult a tax advisor for assistance on which box to specify) 9. Save the deduction and exit the 'Maintain Deductions' option 10. Select P/R / Employees / Maintain Employees / Deductions. Add this deduction to the employees that receive this fringe benefit. If the calculation method is 'Fixed amount per pay period', enter the amount to be recorded for each pay period. If the calculation method is 'Variable entered on no amount is entered until Time Card entry 11. Select P/R / Processing / Time Card Entry to process employee time cards. If the calculation method is 'Fixed amount per pay period', no action is necessary. The deduction is calculated automatically. If the calculation method is 'Variable, entered on, then select the deduction in the 'Earnings' drop-down box and enter the deduction amount in Gross Pay 12. Select P/R / Processing / Automatic Payroll Calculation to perform the payroll calculation. Select to print the Payroll Register, and verify all information before checks are printed 13. Print checks (Note: After checks are printed, the employee's totals for taxable pay may be higher than the gross pay by the amount of the fringe benefit if the fringe benefit is taxable.) OPTION #2 - Steps to set up a fringe benefit to be deducted as a lump sum on the last payroll of the year To record the fringe benefit on the last payroll check, create a deduction for the fringe benefit and attach it to the employee s record to be used on the last payroll of the year. 1. Select P/R, Utilities, Maintain Deductions to create the deduction 2. Click the 'New' button to create a new deduction 4. From the 'Method' drop-down box, select the calculation method 'Variable, entered on 6. Define the General Ledger accounts for the 'Credit account' and 'Debit account'. (Consult your CPA on which accounts to use) Examples: Credit account: Auto Payable and Debit account: Automobile Expenses Page 2

3 7. Select the appropriate taxable fields for the deduction (Consult a tax advisor for assistance on the deduction taxable status.) Important: If FWT is not selected on this deduction, the deduction amount will not be included in Box 1 on the W-2. If SWT is not selected on this deduction, the deduction amount will not be included in Box 16 on the W-2.. If the Fringe Benefit is taxable and you do not want to withhold taxes, you will need to mark the deduction as taxable and manually adjust the tax withholdings in step 14 belowin the Active section, select the From option. Enter the active date to include the last paycheck date 8. Click the 'W-2...' button. In the Box number to use field, clear the None check box, and use. (For questions on which box to specify, consult your tax advisor for assistance) 9. Save the deduction and exit the 'Maintain Deductions' option 10. Select PR, Employees, Maintain Employees, Deductions and add this deduction to the employees that receive this fringe benefit 11. Select PR, Processing, Time Card Entry to process employee time cards. In the 'Earnings' field, select the deduction and enter the fringe benefit amount in Gross Pay 12. Select PR, Processing, Automatic Payroll Calculation to perform the payroll calculation. Select to print the Payroll Register, and verify all information before checks are printed 13. If it is necessary to adjust the check calculations: After the Automatic Payroll Calculation go to P/R / Processing / Manual Payroll Calculation and select yes to use the calculated check information. Select Fed/State taxes and edit the appropriate taxable pay and/or Company and/or Employee withheld amounts for the taxes (Consult a tax advisor for assistance on the amounts.) 14. Print checks Note: NEGATIVE CHECK AMOUNT: If the fringe benefit amount causes the check amount to be negative, the fringe benefit deduction should be processed separately. See Option 3 How to set up fringe benefits after the final paycheck is issued. However, in some circumstances when the check is negative, the tax advisor may suggest to just adjust the Employees FWT/SWT withheld amounts on the last paycheck calculation to resolve the negative check amount. To manually adjust the employee s check calculation amount, after the Automatic Payroll Calculation go to PR, Processing, Manual Payroll Calculation and select yes to use the calculated check information. Select Fed/State taxes and edit or zero out the appropriate Employee tax withheld amounts for FWT and/or SWT. (Consult a tax advisor for assistance on the amounts) Tip: Some employers calculate the check before adding the fringe benefit to get the FWT and SWT tax amounts. Then add the fringe benefit deduction to the timecard and do the automatic calculation again. They can then edit the FWT and SWT tax on the manual calculation to what they normally withhold so the employee receives a positive net check Page 3

4 OPTION #3 - Steps to set up a fringe benefit after the final paycheck is issued (Option A: Non- Taxable and Option B: Taxable) In most cases the fringe benefit deduction is predefined and processed throughout the year or included on the final paycheck of the year before printing W-2 forms. However, if the last paycheck has already been issued, the deduction can be added to the W-2 through one of the following methods depending if the deduction is taxable or non-taxable. Please check with your CPA to determine the taxable status of your fringe benefit. To record the fringe benefit after the final payroll has been issued, create a Deduction for the fringe benefit (and if the deduction is taxable, create an Other Pay) and attach it to the employee's record to be used to calculate the fringe benefit after the final paycheck. Option A: If the deduction is taxable Set up a taxable deduction for the fringe benefit amount and an other pay for additional wages used to cover the calculated tax on the fringe benefit. 1. Select PR, Utilities, Maintain Deductions to create the deduction 2. Click the New button to create a new deduction 4. From the 'Method' drop-down box, select the calculation method 'Variable, entered on 6. Define the General Ledger accounts for the 'Credit account' and 'Debit account'. (Consult your CPA of which accounts to use) Examples: Credit account: Auto Payable and Debit account: Automobile Expenses 7. Select the appropriate taxable fields for the deduction (Consult a tax advisor for assistance on the deduction taxable status.) Important: If FWT is not selected on this deduction, the deduction amount will not be included in Box 1 on the W-2. If SWT is not selected on this deduction, the deduction amount will not be included in Box 16 on the W In the Active section, select the From option. Enter the active date to include the last paycheck date 9. Click the 'W-2...' button. In the Box number to use field, clear the None check box, and use. (For question on which box to specify, consult your tax advisor for assistance) 10. Save the deduction and exit the 'Maintain Deductions' option 11. Select PR, Utilities, Maintain Other Pays to create the Other Pay 12. Click the New button to create a new Other Pay Page 4

5 13. Enter the Other Pay 'ID' and 'Description'. Example: AutoOP and Other Pay Auto Allowance Tax 14. From the 'Method' drop-down box, select the calculation method 'Variable, entered on 15. In the 'Category' drop-down box, select 'Individual' 16. Define the General Ledger account for the 'Debit account'. (Consult your CPA of which accounts to use) 17. Select Add to gross and clear all the taxable check boxes 18. In the Active section, select the From option. Enter the active date to include the last paycheck date 19. Save the Other Pay and exit the 'Maintain Other Pays' option 20. Select PR, Employees, Maintain Employees 21. Click the Deductions and Other Pays buttons to assign the deduction and other pay to the appropriate employee's record 22. Select PR, Processing, Time Card Entry to process the employee time cards Note: Since this check is only used to process the fringe benefit, deselect other deductions and other pays that are Active in Ded/Other pays (IMPORTANT: You will need to reselect them to Active when you process their next payroll.) (Important: You will need to reactivate the normal deductions and other pays when you process their next payroll.) 23. In the Earnings list, select the fringe benefit Deduction and enter the Gross Pay amount of the deduction, and click Accept 24. Next, select the new Other Pay from the Earnings list, enter zero in the Gross pay field, and click Accept. (This amount is entered later during the Manual Payroll Calculation step below) 25. Save the record 26. On the PR menu, go to Processing, Automatic Payroll Calculation 27. Calculate payroll for the employee. Click OK at the "One or more employees has checks with a negative balance..." dialog box 28. Review the Payroll Register for accuracy. Note the total tax calculated on the Payroll Register; this amount is used in the next step 29. On the PR menu, select Processing, Manual Payroll Calculation 30. Click Ded/Other pays Enter the calculated tax amount from the Payroll Register in the Amount field for the Other Pay 31. Click OK and save the record. The new net pay amount for the check is zero. Click Save and then click Yes to post the zero-amount check 32. On the PR menu, go to Processing, Print Payroll Checks 33. Print checks Page 5

6 Option B: If the deduction is non-taxable Set up a non-taxable deduction for the fringe benefit amount 1. Select P/R / Utilities / Maintain Deductions and set up the deduction 2. Click the 'New' button to create a new deduction 4. From the 'Method' drop-down box, select the calculation method 'Variable, entered on 6. Define the General Ledger accounts for the 'Credit account' and 'Debit account'. (Consult your CPA or which accounts to use) Examples: Credit account: Auto Payable and Debit account: Automobile Expenses 7. Deselect the taxable check boxes. (Verify the taxability status with your CPA.) Important: Since FWT is not selected on this deduction amount will not be included in Box 1 on the W-2. Since SWT is not selected on this deduction, the deduction amount will not be included in Box 16 on the W-2 8. In the Active section, select the From option. Enter the active date to include the last paycheck date 9. Click the 'W-2...' button. In the Box number to use field, clear the None check box, and use. (For question on which box to specify, consult your tax advisor for assistance) 10. Select PR, Employees, Maintain Employees, Deductions and add this deduction to the employees that receive this fringe benefit 11. Select PR, Processing, Time Card Entry to process employee time cards Note: Since this check is only used to process the fringe benefit, deselect other deductions and other pays that are Active in Ded/Other pays (IMPORTANT: You will need to reselect them to Active when you process their next payroll.) (Important: You will need to reactivate the normal deductions and other pays when you process their next payroll.) 12. In the Earnings list, select the deduction and enter the Gross Pay amount of the deduction, and click Accept 13. Save the record 14. Select PR, Processing, Automatic Payroll Calculation to perform the calculation. Select to print the Payroll Register, and verify all information before checks are printed 15. On the PR menu, select Processing, Print Payroll Checks 16. Print the check Important: Since FWT is not selected on this deduction amount will not be included in Box 1 on the W-2. Since SWT is not selected on this deduction, the deduction amount will not be included in Box 16 on the W-2 Page 6

7 OPTION #4 - Manually edit Enhanced Tax Reporting to include the fringe benefit amount If the employer does not want to set up a deduction in Sage BusinessWorks and is only concerned with the fringe benefit amount appearing on the W-2, they can choose to just manually add the fringe benefit amount directly on the W-2 in the Enhanced Tax Reporting program (P/R / Taxes / Print W-2 Forms) For assistance, see the tutorial "Processing and correcting W-2s in Enhanced Tax Reporting." There is a mini-tutorial available with step-by-step instructions to process fringe benefits as well as other payroll year end topics: Visit the Sage Knowledgebase In the Search the knowledgebase field type videos and select Sage BusinessWorks from the Products drop down list and search. Select the video Payroll Year End Tutorials Page 7