Revised: 04/07/2017
If an employee is paid by a 3rd party and you are responsible for showing the payment on the employee's W2. This is how to get the information on the W2. What we will accomplish is to add to the employees W2, the taxable wages earned and the amount withheld while not showing a wage expense in the Company’s General Ledger. The Company will incur Employer Social Security and Medicare expenses and liability.
To accomplish this we will be using a “Holding GL Account”. This Account can be an Expense Account or a Liability account. Best practice is to use an account with little activity so after all processing is done it is easy to review and see that all of the entries add to Zero effect. While following these instructions use this account everywhere that the “Holding GL Account” is called for.
First you should consult with the 3rd party payer or your auditor to determine which taxes should be included as taxable wages.
At this time Horizon believes these payments are subject to Federal, Social Security, and Medicare taxes and should be included on the W2. They are not subject to state or local taxes.
Create an Earnings Code
If you already have an earning code for this purpose, this step may be skipped.
Go to Maintain>>Earnings Master
Create a 3RDSICK Earnings Code
Enter the Code and Description
Checkmark the following:
Earning is Taxable
Withhold Federal
Salary Earning Type
Enter a Rate Factor of 0.00
Save and close the Earnings Master
Create a Deduction Code
If you already have a deduction code for this purpose, this step may be skipped.
Go to Maintain>>Deduction/Benefit Master
Create a 3RDSICK Deduction Code
Enter the Deduction Code and Description
Enter the Check Description (this is the description that would print on a check stub)
Select a Type of 1. Employee Only
Auto Print can be set to No Auto Print
Category can be left at the default of <<No Category Selected>>
DGR Code, Group and Check Group may be left blank
Select a Deduction Cycle of 0 -0 - Every Pay
Select Y - Taxable [Fed/Soc Sec/Medicare] for Taxable Federal
Select B - Non Taxable [State/Local] for Taxable State
Employee and Employer Amount and Type can be left blank, Maximum should have 0.00 entered and Retain Maximum at Year End should be left unchecked
The general ledger Employee Segment Account to Credit for the deduction should be the Holding GL Account
Save and close the Deduction Master
Add Deduction in Employee Master
Go to Maintain>>Employee Master
Select the Employee # and open 6 Deductions/Expenses tab
Select the 3RDSICK Deduction Code and tab to the maximum field and enter the net check amount received by the employee. Tab through the remaining fields which should auto-fill from the default information set in the Deduction/Benefit master until the deduction drops into the grid window.
Save and close the Employee Master
Create a Manual Check
Go to Activities>>Manual Check Entry
Select the Employee #
Enter an electronic Check Number less than 100 to record a payment already made
Enter the Check Date
Enter the Time Card Date
Select the 3RDSICK Earning Code
Enter the Hours as 0.00
Enter the gross dollar amount paid by the 3rd party in Rate
Select an Inter-Fund Code, if applicable
Enter or select the Holding GL Account for the General Ledger Account and tab to drop the information in the grid where it can be saved
Open the Employee Deductions tab
For the 3RDSICK deduction
Deduction Gross = gross per payer
Employee Amount = net check per payer
For Unemployment
Deduction Gross - gross per payer
Employee Amount = amount withheld per payer
All other deductions that were not taken out of the sick pay should be zeroed out
Open the Standard Deductions tab and enter the following information based on 3rd party withholdings
Social Security and Medicare
Employee Gross = gross per payer
Employee Amount = amount withheld per payer
Employer Gross = gross per payer
Employer Amount = calculated percentage
Federal
Employee Gross = gross per payer
Employee Amount = amount withheld per payer
State
Employee Gross = zero
Employee Amount = zero
This will cause a liability for any of the amounts withheld and for employer portions. Corrections to the employee withholding will be made later.
Process Manual Check
Go to Activities>>Process Manual Check
Run the process
Review the Pre-Check Writing Report and Post
Print out the Register for your records
Create a Journal Voucher in the Financial Module for the Employee liabilities.
Debit the GL Liability account for each of the following for the employee amounts withheld (do not do anything for the employer amount). If uncertain of the accounts, look in the Deduction/Benefit Master>> General Ledger Account Information>>Employee Segment>>Account to Credit.
Social Security liability
Medicare liability
UC liability
Federal Liability
Credit the Holding GL Account
This should leave the Holding GL Account at zero change, since you debited for gross and then credited it all out from deductions and this journal voucher.
So the only expense you incur is the employer portion of Social Security and Medicare and the W2 shows the payment and withholdings.
941 Adjustments
When creating 941 reports for the quarter. The amount withheld for Federal, Social Security and Medicare by the 3rd party payer should be entered as a negative Sick Pay Adjustment.
In the View/Edit 941 Information>>Adjustment tab: Enter the dollar amount withheld for Federal, Social Security and Medicare by the 3rd party payer as a negative amount in the Sick Pay Adjustment field. Do not include the employer paid Social Security and Medicare amounts.
Line 8 - Current Quarter's Adjustment for Sick Pay: Enter the dollar amount withheld for Federal, Social Security and Medicare by the 3rd party payer as a negative amount on line 8 Current Quarter's Adjustment for Sick Pay. Do not include the employer paid Social Security and Medicare amounts.
These adjustments will lower line 10 - Total Taxes After Adjustments to the correct amount payable by your company.