Tuesday, February 5, 2013

Correcting FICA Underwithholding

Why does the government mess with us so?  Especially in the month of January, where we are already running around trying to get 1099s and W2s out the door.  As it goes, anytime there is a change in either FICA rate, inevitably somebody doesn't apply the tax update before they run payrolls in the new year.  And then FICA is incorrect for some/all/a few employees. 

Earlier this week, I received the first of a series of calls from clients who had no applied the update before running payrolls in 2013.  So FICA/S was withheld at 4.2% instead of the new (old) rate of 6.2%.  Looking for an elegant solution (involving the least amount of work), I went looking for other opinions and found the following community conversation...


Quite a few different approaches are tossed out there by a variety of well-qualified contributors :)  But, I have found the following process (gleaned from the discussion) to work best for most situations.

  1. Determine the amount of social security to be added to each employee
  2. Transactions>>Payroll>>Manual Checks
    1. Enter a Beginning Balance type transaction for each employee, taking care to make sure all dates are in the appropriate month
    2. Click Transactions
    3. Enter a FICA Social Security transaction type (for employee underwithholding)
    4. Enter the additional tax amount to be added to their FICA social security
    5. Leave taxable wages as zero, since the wages were already counted towards FICA wages
  3. If you wanted to, you could then record a second transaction for each employee on the same manual check
    1. Federal Tax transaction type
    2. Enter a NEGATIVE tax amount equal to the FICA/S adjustment entered above
    3. Leave taxable wages was zero, since the wages were already counted towards Federal wages
    4. This would effectively move a portion of their Fed withholding to FICA/S so there would not be an additional cost to the employer and/or no need to collect additional from the employee
Now, in some scenarios, you might be concerned that a) the person didn't have enough in federal tax to cover the underwithheld amount and b) they may terminate before you can recover it.  In that case, you could set up a transaction-required deduction (NOT tax sheltered).  You can use that to recover the underwithheld FICA/S and then use the same process as above to move the amount to FICA/S from the Deduction (rather than from Federal Tax).

Feel free to share your questions and comments :)

Christina Phillips is a Microsoft Certified Trainer and Dynamics GP Certified Professional. She is a supervising consultant with BKD Technologies, providing training, support, and project management services to new and existing Microsoft Dynamics customers. This blog represents her views only, not those of her employer.

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