How to set up and use Earn/Deduction Codes
Reminder - Logos Sunset Date: 03/29/2019
The Earnings/Deductions Codes window opens when you select the Earn/Deduct Codes button on the Payroll screen in Preferences. Use this window to see (and rename, if desired) the default Earnings and Deductions Tax Types and/or to define additional earnings and/or deductions. The list also includes all payroll-related taxes, which are used on the Miscellaneous Deductions tab in employee records to add Additional Withholding amounts and/or to accommodate non-standard local tax settings.
The Earnings/Deductions window contains two tabs:
Data Entry tab (1) in which you enter or change data for earnings and deductions categories. Default categories have all items dimmed except the Description line, which has a green background. Deductions also allow selecting a Vendor and editing the W2 Code ( Box 12 ) and W2 Text fields.
List tab (2) in which you see the categories to select one so that you can edit or delete it. Default categories all have a green background. User-defined categories have a white background.
To add a new item -
Select New on the command bar or type Ctrl+N . The New Earnings/Deductions window opens in which you select the Type of Account and Category, and then edit the Description.
Type of Account
From the scroll list, select one of these Types of Accounts:
Income - payments made to your personnel (These Earnings Tax Type items are added to employee records by clicking the Add button on the Earnings tab of an employee's record. The Add Earnings window opens from which to select.)
Deductions Before Taxes - withholding that is done before taxes are calculated (These Deduction items are added to employee records by clicking the Add button on the tab of an employee's record. The Add Deductions window opens from which to select.)
Deductions After Taxes - withholding that is done after taxes are calculated (These items are added to employee records in the same way as Before Taxes items.)
Taxes - payroll tax codes that can be used for additional withholding or non-standard tax calculations (These items are added to employee records in the same way as Before and After Taxes items.)
From this scroll list, select from the options available for the selected Type:
Income Type -
- Auto Allowance - Payments to compensate for automobile usage on behalf of your organization.
- Bonus - Any type of income above normal payroll.
- Earnings - Wages/Salary for staff other than Self-Employed pastors Two items (Wages Non-Pastoral and Wages) are provided to help distinguish when employees hold more than one position at different rates of pay.)
- EIC - Earned Income Credit
- Housing - Ministerial Housing Allowance
- Pennsylvania: Create a new Income account based on Housing. Then check the Withhold Taxes check boxes for state Withholding, and any other state tax needed.
- Non Taxable - May be used to reimburse expenses. We recommend that reimbursements be done through Accounts Payable instead. (If you do not want to create vendor records for employees needing to be reimbursed, use the Vendor Pay As function when entering an AP Invoice.)
- Overtime - For Hourly employees who qualify for Overtime payment within a pay period.
- Personal Time - Income provided for Personal time off
- Self Employed (Clergy) - Earnings for Self-Employed pastors with no withholding
- Self Employed (Clergy Earnings) - Earnings for Self-Employed pastors with PIT withholding
- Sick - Income provided when a person is unable to work due to illness
- Vacation - Income provided for paid vacations
Deductions Before Taxes -
- Insurance -> Health Insurance -> The Health Insurance check box is marked only if the category is Insurance and is not an Employer account. This is used on the Health Insurance report . (Because, if creating a New item, you have the option to re-title this Description, this check box is the only means of defining this category for that report.)
- Insurance Health Insurance (Employer) This allows your organization to comply with the IRS requirement that employers are to report the cost of group insurance in box 12 of the W2, using the code of DD. Use this deduction on the Misc Deductions tab on the employee record, using the Deductions Before Taxes option for the portion of group insurance that your organization pays for the employee. This will create an invoice in Accounts Payable . You must define the Vendor (See below).
- Pension 401(k) - Pension Plan
- Pension 403(b) or TSA - Pension Plan
- Pension 408(k) or SEP - Pension Plan
- Pension 408(p) or Simple
- Pension 457(b) - Pension Plan
- Pension 501(c) - Pension Plan
Deductions After Taxes -
- Dependent Care (Employer Contribution)
- Misc - Insurance
- Misc - Loan
- Misc - Miscellaneous
- Pension - Roth - 401(k) Contribution
- Pension - Roth - 403(b) Contribution
The name of the Category you selected displays as the default Description. Type the name you desire for the Earnings/Deductions category selected. We recommend that you make the descriptions for similar categories different enough to avoid confusion when categories are added to employee records.
Select O K to save the new category and return to the Data Entry tab where you can accept or modify the Withhold Taxes settings. (See below for instructions.) For Deductions items, select the Vendor to whom the payments are to be made
To save changes made to an item...
Select the Save icon on the command bar, or press Ctrl+S .
To print a list of Earnings/Deductions categories...
Select the Printer icon on the command bar.
To edit an existing item...
NOTE: If one or more user-created items duplicate any of the system default items, and you want to merge them, edit the Description and settings of the user-created items to match the default items. The next time you open the Accounting program, the items will be merged.
Type of Account/Category
These items cannot be changed. If creating a New Earnings or Deductions item, you select from the list of available options.
You can edit the description for any user-defined item. Text for default items cannot be edited.
This field is active only for Deductions items. Define a vendor only if an AP check or EFT is to be automatically produced for this item. This entry will cause the routine to create for this vendor, an AP entry containing all amounts deducted from employees with this item defined in their profile. If no check is to be issued, or if you do not want the transaction to be created automatically (i.e., you prefer to manually combine amounts from several payrolls into a single AP transaction), do not enter a vendor. NOTE: When printing, amounts from two or more payrolls are automatically combined into a single check to the vendor.
Withhold Taxes/Deduct Before Taxes - Federal/State/County
The grid of Federal, State and County taxes being withheld appears only for Income and Deductions Before Taxes items. On all default items, the grid is dimmed, allowing you to see the items defined. When you create a new category, retain the check boxes as marked to make sure that the new item works correctly. If you change check boxes that are marked or unmarked for an item, your deductions will not conform to IRS requirements.
W2 Code / W2 Text
These fields are active only for Deductions Before Taxes and Deductions After Taxes items. (Housing displays text in the W2 Text box, but it cannot be edited.) In most cases the W2 Text field should be left blank.
Deductions Before Taxes W2 Code (Box 12) Entries in the W2 Code field for these items only impact Box 12. Use code DD for Affordable Care Act Compliance
Deductions After Taxes W2 Code To accommodate some states, you can enter "Box 14" in this field, followed by a code required by your state. The Dependent Care item is predefined to use "Box 10" in this field, so that any Dependent Care amount will print in Box 10.
For HSA Compliance Use W in the W2 Code field. This code is allowed in both Deductions Before Taxes and Deductions After Taxes. The program assumes that the employer contribution is excluded from employee income, so the amount will not be included in boxes 1, 3, and 5. The W2 will include both the employee and the employer contribution.
You should not have to make any entries here. You are allowed to edit these fields in case your state has a unique requirement for one of these items. The instructions for your tax forms show the correct code/text for each category.
Select this tab to see a listing of all existing categories. To browse through the list, you can click on the Navigation Arrow icons on the command bar or scroll through the list. To edit a user-defined item or to select a Vendor for a Deductions item, double-click your mouse on it. Or, when highlighted in the list, click on the Data Entry tab.
To delete a user-defined item -
Select a user-defined category on the List tab, then select Delete on the command bar.
Delete is dimmed for all default categories.
Once a category has been used in paying an employe e in the current year, clicking on Delete will bring up a message that the category cannot be deleted.
To close the Earnings/Deductions Codes window
Select the Close icon on the window's title bar.