Have employees who are provided group-term life insurance in excess of $50,000. Need to collect payroll taxes for the premium that was paid for the portion that was in excess of $50,000.
Want to add this to a check so that the employees sees the entry and that it updates to the correct YTD Totals, without manual edits to YTD totals that could be lost if verify function is run.
Also, this amount cannot be included in 401K, 401K Roth, or UBG Retirement amounts.
The goal is to increase the paycheck by the amount of the "group term life insurance over $50,000", so tax is charged on it, but to NOT increase the net amount of the paycheck or retirement amounts.
To do this we will setup 2-deduction codes.
1. Deduction code to add to check (negative amount) +LIFE50 (TAX GROUP LIFE > 50k)
2. Deduction code to remove from check (positive amount) LIFE50 (GROUP LIFE > 50k)
Step-by-step guide
- Set up a deduction code for this life insurance premium to add to the check. +LIFE50
PAY > Setup Information > Deduction Code
Deduct Before Fica? = Yes
FIT/FUTA Exempt? = B-exempt from Both
W-2 Code = blank
Calc Order = 1 (you may need to re-order your other deductions to make this happen)
2. Setup a deduction that will remove the life insurance premium and report to the IRS. LIFE50
PAY > Setup Information > Deduction Code
Deduct Before Fica? = No
FIT/FUTA Exempt? = N-Not Exempt
W-2 Code = C
Calc Order = whatever is available
3. State Code Setup
(if this needs to be added to state income, repeat steps above on state tax setup.)
Pay > Payroll Tax Tables > State/Local Tax Tables
4. Set up the deduction codes on the employee. Both the positive and negative.
PAY > Employee Information > View/Edit Employee > Deductions
The deduction can be taken with each payroll, quarterly or yearly.
If the employee terminates, be sure and take the deduction on his last check.
5. Set up the deduction in the SJI-System Account-Payroll.
The negative deduction should be coded to Payroll Expense; the same place their regular pay goes.
The positive deduction should credit the account that is debited when premiums are paid.
SJI > System Accounts > Payroll >
PROCESS:
When issuing the check, the wages will increase by the amount of the negative amount deduction.
This will increase the employee's gross salary by the premium amount. The gross salary will have the tax charged on it.
Note that your Regular Pay on check must absorb the taxes. If not, then the Life Insurance Deduction is calculated incorrectly and reported on W-2 Wrong. Gross check amount must be large enough to cover the taxes taken from the check.
Example: 25,000 Excess Life Insurance produces over $10,000 in taxes. If there is not 10,000 of regular pay to absorb the taxes, then the deduction is limited.
It will report to the IRS the wrong amount.
Then the deduction will take the money back out of the employee's paycheck, causing the net amount to lower by the deduction amount.
This deduction amount will be reported on the W-2 based upon the W-2 form setup.
NOTE:
In the past, we have done this with a single deduction code. However, UBG Retirement has stated that they will not pay retirement on the added salary of the Life Insurance over $50,000. In order to report the numbers correctly, we are not using two deduction codes.
If you are not using UBG Retirement, then you can still handle this with a single deduction code.
You just increase the salary using OTHER INCOME field and remove the amount with the deduction code.
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