Taxable Unpaid Earning/Benefit Setup

A taxable unpaid earning is an employee benefit that is not paid to the employee as cash, instead being a company paid expense that the IRS considers as taxable to the employee. This can include taxable car allowance and Group Term Life Insurance, gift cards, non-business cell phone use, gym memberships, etc. The actual tax consequences for the employee may be different for different taxable benefits. Please review Federal, State, and Local laws for the specific benefit.

In Horizon Payroll, the method to process taxable benefits is to record the benefit amount as earnings to the employee, then to withhold the benefit amount from the payment. This allows for taxes to be calculated on the benefit amount that will be reported in both quarter reporting and in the W2 process.

In most payroll transactions for the company an expense is recognized, a liability is created, cash will be exchanged between parties. For a taxable benefit none of these things are happening. This transaction is only to recognize an unpaid/expensed earning for the employee and increase taxes withheld.

‎If you have any questions regarding the following setup, please contact the Horizon Help Desk.

‎In these instructions, we will show to correct method for setting up taxable Vehicle Allowance for personal use of a company vehicle. For all other taxable benefits, follow these instructions using appropriate Codes and verify the tax consequences to the employee are correct for the benefit.

Setup the Earning Code 

See Setup an Earning Code for the full Earning Code instructions

NAVIGATION: MAINTAIN menu  > Earnings Master

1. Enter a new Code using up to four characters = VEAL
2. Enter a Description for the Code = Vehicle Allowance
3. Enter a check in the appropriate boxes:
   1. Earnings Is Taxable = checked *the earning is always set as taxable – the deduction will control which taxes are included*
   2. Withhold Federal = checked
   3. Salary Earning Type = checked
   4. Main Hourly Code = not checked
   5. Absent Code = not checked
   6. With Pay = not checked
   7. Allow Code to Reduce Master Hours = not checked
   8. Use Special Percent for Federal Withholding = not checked
   9. Non-Distributable Earnings – This setting may depend on your account setup. Often this is checked to remove the Vehicle allowance from the GL distribution of expense. Possibly = checked
      ‎EXAMPLE
      1. An employee has earnings to department 15 for $200.00, to department 30 for $200.00 and using a VEAL Non-Distributable Earning Central Office 01 for $100.00 which totals to $500.00.  
      2. A benefit based on dollars earned, such as Social Security @ 6.2%, will calculate the expense amount based on the total earned of $500.00 x 6.2% which equals $31.00 to be expensed.  
      3. The normal benefit calculations would distribute Benefit Expenses to the general ledger based on the original Wage Accounts used as 40% ($200), 40% ($200) and 20% ($100).  
      4. However, with the 01 amount being Non-Distributable, the benefit distribution will be based on the $200.00 to dept 15 and $200.00 to depart 30 with a total distributable earning of $400.00.  
      5. 50% of the $31.00 will be distributed to dept 15 and 50% to 30 based on the $400 total that was distributable. None of the tax will be expensed to Central Office 01 where no other earnings were recorded.
4. Enter Rate Factor =  1  
5. Absentee Earning Code = blank
6. GL Compression Code = usually blank
7. W2 Special Box Code = blank
8. Earning High Hour Alert – leave all alert fields at 0  
9. Specialized Options - These options are for reporting of unpaid earnings and tip income for service staff.
   1. Auto Deduction Code - enter the Deduction Code that matches this earning = VEAL.
      ‎*You may need to complete Setup the Payroll Deduction then enter this code*
   2. Reported Tips Earning Code  =not checked
   3. Tip Adjustment Code: = not checked
   4. Stratus Timekeeping = For Stratus TimeKeeping users
10. Click SAVE

Setup the Payroll Deduction

‎Please see Setup a Payroll Deduction or Employer Expense for the full deduction instructions.

This process will add a new employee deduction or employer expense that can then be added to the employee's deductions.  The settings selected affect how payroll is processed.  If you have any questions regarding setup, please contact the Horizon Help Desk.

NAVIGATION: MAINTAIN menu > Deduction/Benefit Master

1. Enter the new Deduction Code (recommend using the same code as the associated Earning) = VEAL
2. Enter a Description for the deduction/expense = Vehicle Allowance
3. Enter the Check Description that you want to appear on the employee pay stub = Vehicle Allowance
4. Parameters
   1. TYPE: Select the Type of deduction/expense you are entering.  This will be one of the following: Employee Only, Employer Only, Employee and Employer: usually correct type is = Employee Only
   2. AUTO PRINT: An Auto Print option can be selected to determine the frequency that the deduction report will print at the end of payroll processing.
   3. CATEGORY = << No Category Selected >>
   4. STATUS = Active - Standard
   5. Mandatory = not checked
   6. Employee W2 Box Code: If this should print on the W2 box 14 enter something similar to 14VA The 14 tells the system to enter in W2 box 14, the following 2 characters are the code shown in the box.
   7. Employer W-2 Box Code = blank
5.  Defaults Tab
   1. The DGR Code is used in rare circumstances for advanced calculations when certain earnings codes should not be included in the calculation of the deduction.  Please consult your Horizon Support Representative for questions regarding DGR Codes.
   2. Group may be left blank.  
   3. Check Group may be left blank.
   4. Select the appropriate Deduction Cycle for which pays the deduction will be withheld (Every pay, 1^st of month, 1^st and 2^nd, etc)
      1. Select the appropriate Federal and State Taxable codes from the drop down list. These settings will control the tax consequences to the employee.
          

      2. EARNING/DEDUCTION	TAXABLE FEDERAL	TAXABLE STATE
         Vehicle Allowance	Y	Y
         Group Term Life	Y	B

      3. Taxable Federal
         1. Y – Withholding has no effect on tax calculation
         2. B – Not taxable, this deduction reduces taxable earnings for Fed/SocSec/Med
         3. F – Not taxable Fed, this deduction reduces taxable earnings for Fed only
         4. S – Not taxable SocSec/Med, this deduction reduces taxable earnings for SocSec and Med only
      4. Taxable State
         1. Y – Withholding has no effect on tax calculation
         2. B – Not taxable, this deduction reduces taxable earnings for State and Local
         3. L – Not taxable Local, this deduction reduces taxable earnings for Local only
         4. S – Not taxable State, this deduction reduces taxable earnings for State only
   5. Employee Amount = 0.000 or if same amount for all employees you may enter amount
   6. Employee Type = $ - Dollar Amount
   7. Employee Maximum = 99999.99
   8. Employee Retain Maximum at Year End = checked
   9. Employer Amount, Type, Maximum will usually not be used.
   10. When you are finished setting up the calculations, click the General Ledger Account Information Tab
6. General Ledger Account Information Tab
   1. “Use Master Distribution Process for Withholding Amount" = not checked
   2. Employee Segment Account to Credit = Recommend a dedicated GL Liability Account is used that has no other activity. All activity should have an offsetting entry, account balance should always be zero.
   3. The other tabs will not be used, press SAVE or APPLY.
7. Setup the Employee Earning and Deduction
   1. ‎Please see Setup a New Employee (documentviewer.net) for the full Employee setup instructions NAVIGATION: MAINTAIN menu > Employee Master
   2. Select the Employee to open their information  
   3. In the Default Earnings Information section – Enter the New Earning code
      1. Earning code = VEAL
      2. Rate = Enter the correct amount being taxed
      3. Hours = usually zero
      4. ATC = checked
      5. Cycle = enter the correct Cycle this should be the same cycle that was entered in the deduction master (Everypay, 1^st of month, 1^st and 2^nd, etc)
      6. Auto Distribution = usually No
      7. General Ledger Account = this should be the same GL account as entered in the Deduction master Employee - Segment Account to Credit
   4. In tab 6-Deductions/Expenses enter the new Deduction
      1. Enter the deduction code then tab through each field to allow the default information
      2. For The Employee Amount Enter the correct amount being taxed. This Should be the same amount entered in the Default Earnings
      3. Continue to tab through fields until the record disappears and is saved to the grid.
8. When an employee’s benefit amount changes, you will need to change the employee’s default earning amount and deduction amount.
9. The GL Liability Account setup in the deduction and the employee’s default earnings should always have a zero balance. There should be equal debits and credits. If there is a remaining balance, something went wrong and will need corrected.
10. The employee’s paystub will show the taxable income and the withholding as illustrated below.

12/2023