Payroll and Tips (Run Screaming Away, NOW!)

Okay, so I rank payroll and tips up there with sales tax and analytical accounting in my list of "not so favorite" things to deal with.  But I did learn an interesting tidbit about how tips are impacted by tax sheltered (TSA) deductions in Dynamics GP.  Take the following example:

Adam Smith (Setup)

• Pay Code-HOUR
• $15/hr
• Pay Code- TIPS
• Reported Tips
• Deduction- HEALTH
• $10/fixed amount per pay period
• Tax Sheltered from Federal and FICA

Adam Smith (Payroll 5/15)

• Gross Pay
• HOUR- $150
• TIPS- $50
• Deductions
• HEALTH- $10

Now, here is where it gets interesting.  Let's say that when the deduction (HEALTH) was set up (Setup>>Payroll>>Deduction), it was left as the default Based on Pay Codes- All (noted in screenshot below).

Here is what happens when you review a payroll summary for the employee:

• Gross Pay $200
• Federal Wages $142.50
• Reported Tips $50
• Federal Tips $47.50

Huh?  Well, because you said that the deduction is based on all pay codes (including the TIPS code), then GP prorates the tax sheltered deduction across all pay codes (wages and tips).  So, in this example, tips accounted for 25% of the gross and wages were 75%.  So the $10 deduction was allocated 25% ($2.50) to reduce the taxable tips, and 75% ($7.50) to reduce the taxable wages.

Easy enough to change if you don't want it to reduce tips, simply change the Based on Pay Codes setting for the deduction to Selected, and insert all pay codes except the tips pay codes.  Viola! It will only prorate across the included pay codes.

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.

Don't forget your keys (and the taxable wages)!

I have had a few support issues in the past couple weeks regarding the taxable wages field on the payroll manual checks window.  Here is a few scenarios that come up, most often when beginning balances have been entered previously:

1.  Federal taxes are correct, but Federal wages are not
2.  FICA/S and/or FICA/M is correct, but the associated wages are not
3.  Federal wages are off from FICA/M or FICA/S wages, but you can't identify why

How does this happen?

• Beginning balances are entered using Transactions>>Payroll>>Manual Checks, select Beginning Balances
• Transactions entered by employee for the different transaction types related to taxes (Federal Tax, State Tax, FICA Social Security, FICA Medicare, etc)
• Tax amount entered properly
• Taxable Wage field (appears below the Amount field where you enter the Tax Amount) was not entered properly
• The result is that taxes are correct, and gross wages are correct, but the taxable wages (Fed Wages, State Wages, FICA/M Wages, etc) are not.

Another scenario that can contribute to the issues above is when an individual has wages that are subject to tax, but did not have tax withheld.  Logically, when entering beginning balances, you might just omit the Federal Tax transaction.  While that is correct in terms of not recording tax withheld, it will also cause the wages to not be recorded as taxable wages (regardless of how the pay code is set up).  So, in this scenario, you should enter the transaction for Federal Tax (or State Tax or FICA Medicare ...).  But the Amount should be zero, and the Taxable Wage should be populated with the Federal Wage amount.  This will result in no impact to the net wage (since no tax was withheld), but the wages will be reflected in Federal Wages.

What else does this emphasize?  It is very important that beginning balances be reconciled by printing the 941 report for the periods covered by the beginning balances and also by reviewing the employee summary windows.  I have even suggested that users build the year end wage file early (you can then remove it under Tools>>Utilities>>Payroll>>Remove Year End) to see if the W-2s look correct.  This reconciliation often takes a back seat, we think that we can deal with it at year end.  And although that is technically true, the earlier you reconcile and resolve errors, the less stress you will add to your first year end process!

Oh, and before I leave, how do you fix the scenarios above?  It is a pretty easy, albeit tedious, process.  Simply enter another beginning balance transaction (Transactions>>Payroll>>Manual Checks). Enter a transaction for each of the taxes, leaving the amount field blank but populating the taxable wages as needed.  Make sure you use the proper dates when entering the beginning balances, and that you only populate the taxable wages field and not the actual amount field used to record the tax amount.

Happy Year End!