Employers often find it desirable (or legally necessary) to report the value of a benefit paid by the employer on the behalf of employees on the employees’ pay documents and/or W-2s. In some instances, these dollar amounts must also be added to the employee’s taxable wage amount. Recent legislation will bring this need to the forefront, as employers will now be required to calculate and report the aggregate cost of applicable employer-sponsored health insurance coverage on employees’ Form W-2s. Examples of other benefits an employer may choose (or be required) to disclose include:
- Employer retirement plan contributions
- Group term life insurance
- Auto allowances
- Employee assistance programs
- Disability insurance
Often, a payroll professional will set these items up as both a pay code (to get the information into the payroll system and include in the employee’s taxable wage if necessary) and a deduction (to avoid making a cash payment to the employee). While this method will work,
To set up the company level benefit, navigate to Payroll >> Setup >> Benefit. While I won’t explain every field, as they are very similar to the fields in the Pay Code Setup and Deduction Setup windows, I do want to briefly explain the fields that affect taxation of the benefit and the reporting of the benefit on the W-2.
- Subject to Taxes: By default, Benefits are not included in taxable wages unless one or more of these boxes is selected. A quick look at the functionality of these options:
- Federal: the benefit amount will be included in the taxable wages for federal income tax purposes, and will be included in box 1 of the W-2. Federal income tax will be withheld from this amount.
- FICA Soc Sec: the benefit amount will be included in Social Security wages, and will be included in box 3 of the W-2. Social security tax will be withheld from this amount.
- FICA Medicare: the benefit amount will be included in Medicare wages, and will be included in box 5 of the W-2. Medicare tax will be withheld from this amount.
- State: the benefit amount will be included in wages for state income tax purposes, and will be included in box 16 of the W-2. State income tax will be withheld from this amount.
- Local: the benefit will be included in taxable wages for Local income tax purposes, and will be included in box 18 of the W-2.
- FUTA: the benefit will be included in taxable wages for Federal Unemployment purposes. Federal unemployment tax will be accrued on this amount.
- SUTA: the benefit will be included in taxable wages for State Unemployment purposes. State unemployment tax will be accrued on this amount.
- Flat Tax Rates: These fields are used to override the Federal an State income tax withholding amounts as calculated by Microsoft Dynamics GP using the tax tables during the ‘Calculate Checks’ process.
- W-2 Box: enter the number of the box on the W-2 in which the amount should appear, if applicable. You do not need to enter boxes 1, 3 or 5 here, as inclusion in those boxes is determined by the selections in the ‘Subject to Taxes’ fields.
- W-2 Label: enter the label that should appear on the W-2.
When adding new benefits, please remember double check the ‘Include Benefits’ section of the Payroll Build to confirm the benefit will be included in the applicable pay runs.
Benefits can appear on the employees’ pay documents (Payroll Checks and Direct Deposit Earnings Statements) if you so choose. Benefits that are subject to taxes and included in payroll processing will be included on the W-2 automatically.