Recalculating Taxable Wages

Overview

The Re-Calc Taxable Wages utility helps you correct situations where taxable wages were calculated incorrectly in prior paychecks. This powerful tool can save hours of manual corrections and ensure compliance with tax regulations.

We recommend running this utility once each quarter to detect and fix problems before they grow larger.

When to Use This Utility

There are times when adjusting prior records becomes necessary. Here are common situations that may require this action:

Example 1: Expense reimbursement reclassification

You set up an automobile expense reimbursement for an employer and make it exempt from all taxes since the employee provides receipts and accounts for all expenses. Later during the year, you discover that the employee does not account for the expenses, and therefore the reimbursement amount should have been taxable.

Example 2: Incorrect tax rates

You are entering after-the-fact payroll from hand-written paystubs provided by the employer. In one of the paystubs, the FICA tax deducted is short by $1.25. You discover that every paystub is wrong because the employer had been using an old FICA chart with outdated rates.

Common questions

How do you correct all prior paychecks?
How do you collect the FICA tax from the employee now?
What if the employee no longer works there?

The ProPay Re-Calc Taxable Wages utility comes to the rescue.

How to Access the Utility

Go to Client Functions > Miscellaneous > Check File Integrity > Check Taxable Wages.

Running the Recalculation

Time requirements

This procedure may take anywhere from a few minutes to a few hours:

Checking one or two employers should only take a few minutes
Checking 100-200 employers may take several hours

What the utility does

This procedure recalculates each paycheck in the database from the beginning of the year until now.

If it finds that taxable wages should have been calculated differently, it creates a second record containing the adjustments to the original record.

Example: Check #1004 has FICA wages of $1,000 and FICA tax of $62.00. During recalculation, it is determined that the FICA wages should have been $1,200 and the FICA tax $74.40. The second record contains the difference in taxable wages and taxes.

Reviewing Results

Summary report

Run this report right after recalculating taxable wages. It provides a quick view of the problem employers and how many records are adjusted.

Detail report

This report lists each paycheck that has a problem and the proposed adjustment amounts.

You may view this report on the screen for one employer at a time
If you select all employers, the report will be directed to the printer (it can be very long in some cases)

Investigating the Cause

If the Detail Report shows a list of proposed adjustments, you should try to find out why these problems occurred in the first place.

Steps to investigate

Go to Employer > Edit Database (from the Payroll Main Menu) and review the history of each employee listed on the Detail Report. Compare the GROSS wages against the F/W Sal, FICA sal, ST/W Sal, SUI sal, and FUTA Sal.

Select one employee that has a problem. Print the Detail Taxable Wages report and the Employee Detail Earnings Report for that employee. Pay attention to any (I)ncome or (D)eduction items. In many cases, the difference between Gross and FICA Taxable may be equal to a deduction item.

Go to Employer > Deductions Setup and review any check marks that affect the taxability of any (I)ncome or (D)eduction and Other Pay-rate items. Remember that a straight deduction does not need check marks. If you place check marks on any deduction, it makes it a pre-tax deduction, therefore reducing taxable wages accordingly.

Go to Employees > Add or Change > select the employee > Tax tab > Tax Status / Exempt for the possibility of any employees being exempt from a particular tax.

Go to Employer > Employer Setup > Screen 3 (Tax Exemptions and Benefit Accruals) to see if the employer has been checked as exempt from FUTA or SUI taxes.

Review the rules of setting up Employer - Deductions and Pay rates.

If you discover that a particular item was set up incorrectly, you should set it up correctly and then run Re-calc Taxable Wages again.

Managing Adjustments

Delete adjustments

After reviewing the proposed adjustments, you may decide whether or not they are appropriate. If you do not agree, you may delete them for one employer or for all employers.

Post adjustments

Select those employers that you feel require adjustments by placing the red check mark on the left column, and then click POST ADJUSTMENTS.

Posting Options

Next, enter the Start date, End Date, and Posting date. This allows you to post adjustments separately for each quarter or to post all adjustments into one quarter.

Quarterly posting

For 1st Quarter only:

Start date: 01/01/XX
End date: 03/31/XX

For 2nd Quarter only:

Start date: 04/01/XX
End date: 06/30/XX

By entering adjustments separately for each quarter, you may need to file separate amended returns for each quarter.

Annual posting

For all quarters (1st, 2nd, 3rd, and 4th) at once:

Start date: 01/01/XX
End date: 12/31/XX

By entering adjustments for the whole year, you may be able to correct the employees' YTD wages and taxes by combining all adjustments into the 4th quarter.

How Adjustments Are Processed

During posting, any shortages or overages in FICA and SDI taxes are adjusted against the employees' YTD federal withholding taxes.

Example: If the employee should have paid $10.00 in FICA tax but only paid $8.00, the adjustment record increases the YTD FICA tax by $2.00 and decreases the employee's YTD federal withholding tax by $2.00.

Any changes in the FICA, SUI, and FUTA taxable wages will also create a positive or negative adjustment in the employer's current quarter tax liability.

Viewing Adjustments After Posting

After adjustments have been posted, they may be viewed or printed in the same way as any other payroll check.

Go to Reports > User Defined Reports and view the Check Register. All adjustments should be at the bottom of the list. A summary report may be printed under that pay date from the Reports menu.

Deleting Adjustments After Posting

Posted adjustments may also be deleted at any time, even after they have been posted.

To delete any or all adjusted transactions, select Delete paychecks from the Paychecks menu.