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Deductions & Income

Overview #

The Company Deductions & Income page allows Managers to define up to 18 custom (user-defined) income, deduction, or memo items for payroll processing. This feature provides flexibility to accommodate a wide range of payroll scenarios, including special allowances, reimbursements, deductions, and non-cash benefits, ensuring accurate payroll calculations and W-2 reporting.

Key Features & Functionalities #

  • Customizable Entries: Define up to 18 unique income, deduction, or memo items.
  • Tax Handling: Specify taxability for each item by selecting applicable tax exclusion checkboxes.
  • W-2 Integration: Assign W-2 box codes for accurate year-end reporting.
  • Automated Prompts: Option to prompt for entry each payroll cycle or automate per-employee amounts.
  • Support for Pre-Tax, Post-Tax, and Memo Items: Accommodates a variety of payroll needs, including pre-tax deductions and non-cash benefits.

Field-by-Field Explanation #

Description #

  • Purpose: Enter a clear, user-defined label for the item (e.g., “Garnishment”, “401-K”, “Uniform Deduction”).
  • Best Practice: Use concise, descriptive names for easy identification in payroll reports.

Type (I, D, M) #

  • I (Income): Amount is added to gross income. Can be included or excluded from specific taxes.
  • D (Deduction): Amount is subtracted from net pay after taxes. Used for items like advances, loans, or uniforms.
    • Negative Deduction: Used for non-taxable reimbursements (e.g., expense reimbursements).
  • M (Memo): Not added or deducted from pay, but can be reported for informational or tax purposes (e.g., fringe benefits).

Tax Exclusion Checkboxes #

  • Function: Indicate if the item should be excluded from specific taxes (e.g., Federal, Social Security, Medicare, State, Local).
  • Usage: Check all boxes if the item is excluded from all taxes but must still appear on the W-2 (e.g., unaccountable reimbursements).

W-2 Box Codes #

  • Purpose: Assign a code to display the item in the appropriate box on the employee’s W-2 form.
    • Box 13: Use letters A–T for specific pre-tax deductions or benefits.
    • Box 10: Use code “1” for dependent care benefits.
    • Box 11: Use code “2” for non-qualified plans.
    • Box 14: Use code “3” for other items to be shown in Box 14.

Check If Used #

  • Function: If checked, the system prompts for a value each payroll cycle.
  • Use Case: For items paid to most employees (e.g., car allowance), check this box to enter amounts per pay period. If set per employee, the amount is calculated automatically.

Common Use Cases & Examples #

Pre-Tax Deduction (e.g., 401-K) #

  1. Description: Enter “401-K”.
  2. Type: Enter “D” for deduction.
  3. Tax Exclusion: Check boxes to exclude from taxable income as appropriate.
  4. W-2 Box: Enter the corresponding letter (A–T) in Box 13.

Third Party Sick Pay #

  1. Description: Enter “Sick Pay”.
  2. Type: Enter “M” for memo.
  3. Tax Exclusion: Check applicable boxes for tax exclusion.
  4. W-2 Box: Enter “J” in Box 13.

Dependent Care Benefits #

  • If paid to employee:
    1. Description: “Child Care”
    2. Type: “I”
    3. Tax Exclusion: Check as needed
    4. W-2 Box: “1” (Box 10)
  • If paid to facility:
    1. Description: “Child Care”
    2. Type: “D”
    3. Tax Exclusion: Check as needed
    4. W-2 Box: “1” (Box 10)
  • If paid by third party:
    1. Description: “Child Care”
    2. Type: “M”
    3. W-2 Box: “1” (Box 10)

Non-Qualified Plans #

  • W-2 Box: Enter “2” for Box 11.

W-2 Box 14 – Other #

  • W-2 Box: Enter “3” for Box 14.

Frequently Asked Questions (FAQs) #

Q1: What is the difference between Income, Deduction, and Memo types?A:

  • Income (I): Adds to gross pay, can be taxed or non-taxed.
  • Deduction (D): Subtracts from net pay after taxes.
  • Memo (M): Informational only, does not affect pay but can be reported for tax purposes.

Q2: How do I set up a pre-tax deduction?

  • Enter a description, select “D”, check tax exclusion boxes, and assign the correct W-2 code.

Q3: What happens if I check all tax exclusion boxes?

  • The item is excluded from all taxes but may still appear on the W-2 if required.

Q4: Can I automate recurring deductions or income?

  • Yes, set the amount per employee in Employee Deductions for automatic calculation each pay period.

Q5: How do I ensure an item appears on the W-2?

  • Enter the appropriate code in the W-2 Box field.

Troubleshooting Guide #

Issue: Item not appearing on W-2
Solution:

  • Verify the correct W-2 box code is entered.
  • Ensure the item is marked as “Used” and has a value for the employee.

Issue: Deduction not calculating as expected
Solution:

  • Check if the deduction is set as positive (for deductions) or negative (for reimbursements).
  • Confirm the deduction is assigned to the employee in Employee Deductions.

Issue: Tax exclusion not applying
Solution:

  • Double-check the appropriate tax exclusion checkboxes are selected for the item.

Issue: Unable to enter value during payroll
Solution:

Ensure “Check If Used” is selected for the item.

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