Purpose: Health benefits, retirement savings plans, garnishments, etc. These can all be added as deductions in TRAXPayroll. Once a deduction is added at the company level, it is available to add to employees. This help guide will teach you about deductions from a company-wide perspective.
Deductions are entered based on specific deduction types. The type of deduction selected is company-wide because each deduction is taxed differently. Multiple deductions can be added. A weekly email is sent to the admin showing what deductions are currently selected.
Click “Add Deduction” and select when you’d like the deduction to be effective.
- Deduction Type - Select what type of deduction you are adding. Each deduction type has special taxing rules, so it is very important to select the correct one in order to ensure that the correct taxes are deducted. Deductions may be included in wages for some tax types but not others. For example, 401(k) deductions are not taxed for federal income tax but are taxed for social security and Medicare.
- Deduction Code and Deduction Name - These fields will be listed on payroll reports and employee paystubs.
- Start Date - Defaults to today. Enter a later date if you want it effective in the future.
- End Date - This will stop the deduction based on this date. If a deduction is ended at the company level, then it will automatically stop the deduction at the employee level.
- Paid by - Is this deduction paid by the employee, employer, or both?
- Include in Payroll Using - The deduction can be used in payroll based on one of the following: Pay Date, Pay Period Start Date, or Pay Period End Date. The deduction needs to be active as of this date to be taken in payroll.
- Collectible - Garnishments, tax levies, and child support deductions have an option to have TRAXPayroll collect and pay them on your behalf. Checking this allows the payee information to be entered on the employee’s deduction for TRAXPayroll to send it to the appropriate agency.
Employee Cost - This will be greyed out if “Employer Only” is selected above.
- Based on - Gross or Net income.
- Amount Type - Dollar or Percent.
- Amount Per Pay Period - If a deduction amount is standard for all employees, the per pay period amount is entered here. Otherwise, the amount is entered when adding the deduction to the employee.
- Cap Amount Type - Dollar amounts are calculated based on years and percent amounts are calculated based on each payroll run. Once the cap is reached, it will stop the deduction automatically.
Annual Minimum/Maximum - If you don’t want to use the global limit, you can enter a threshold amount for the minimum collected or limit the contribution amounts each year.
- Global Limit - Some deduction types have annual maximums that are governed by federal rules, such as 401(k). These are built into TRAXPayroll and listed in the company and employee deductions.
- Ledger Code/Name - Used for custom General Ledger reports for accounting.
Employer Cost - This will be greyed out if “Employee Only” is selected above. Most fields for Employer Cost are the same as Employee Cost but the amounts and types will differ. The following information is different for Employer Cost:
- Safe Harbor Matching Contribution - Employer match is automatically calculated for 401(k) Safe Harbor plans. These plans have specific rules. The match is 100% on the first 3% of deferred compensation plus 50 cents on the dollar between 3-5%. If this is selected, the other fields are greyed out.
- Based on - Wage or Employee contribution.
- If an employee negotiated a higher match for a deduction, this can be overridden on the employee’s record.
- Override Allowed - This allows the amount to be set up on each employee, meaning you can set up a deduction but then make changes for each employee as applicable.
Deduction Pay Type - Some pay types should not be included when calculating certain deductions, such as 401(k) that are set to a percentage of the employee’s wage. Each pay type has the option to be excluded from each deduction type using the checkbox next to the pay type.
Be sure to save your new Deduction.
Note: Deductions are applied to the sum of all of the employee's wages and cannot be excluded from one wage to another. You can only exclude deductions from certain pay types as shown above.
To add a garnishment, simply add a new deduction and select "Garnishment - Post Tax" as the Deduction Type. If you need to set up a Garnishment for Child Support, select "Child Support - Post Tax" as the Deduction Type.
If "Collectible" is checked, then you will see a payee section where you can select an existing payee or add a new one. This money will then be collected by TRAX and we will pay the garnishment on your behalf.
Fill out the additional information as it relates to the garnishment and then click "Save."
Make sure that you add the garnishment to the employee record.
When needed, garnishments can be suppressed during payroll processing.
Disposable wages are not programmed in TRAXPayroll. Therefore, you cannot create garnishments on disposable wages.
Also, you cannot add a garnishment based on a certain percentage and then a dollar amount for the same garnishment. You must select one or the other.
Most deduction information can be edited, if needed, once the deduction has been added. Simply click “Action” next to the deduction to make changes. The following actions are available:
- End - as of today (today’s date)
- End - on specific date
- Make change - to correct existing record
- Void - created by mistake but has history
- This option will enter an end date on the record one date prior to the start date.
- Remove - created by mistake
- If the deduction was added in error and has not been used in payroll, you can remove it completely.
Be sure to save your changes.
- 401(a) - Pre-Tax: A 401(a) defined contribution plan is a retirement savings plan that allows dollars to accumulate on a tax-advantaged basis for retirement. Contributions may be made by the employer, the participant, or both.
- 401(k) - Pre-Tax: A 401(k) is a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts. Elective salary deferrals are excluded from the employee’s taxable income (except for designated Roth deferrals). Employers can contribute to employees’ accounts. Distributions, including earnings, are includible in taxable income at retirement (except for qualified distributions of designated Roth accounts).
- 401(k) Loan Repayment - Post-Tax: Your 401(k) plan may allow you to borrow from your account balance. However, you should consider a few things before taking a loan from your 401(k). If you don’t repay the loan, including interest, according to the loan’s terms, any unpaid amounts become a plan distribution to you. Generally, you have to include any previously untaxed amount of the distribution in your gross income in the year in which the distribution occurs. You may also have to pay an additional 10% tax on the amount of the taxable distribution, unless you: are at least age 59 ½, or qualify for another exception.
- 401(k) Roth - Post-Tax: Like a traditional 401(k) contribution, Roth contributions allow employees to contribute a portion of their wages to individual retirement accounts. However, you have to pay taxes on your designated Roth contributions. This means your gross income for the year you make designated Roth contributions will be higher than if you had made only pre-tax salary deferrals. However, any pre-tax salary deferrals and related earnings are taxable when you withdraw them from the plan. Roth contributions, on the other hand, are not taxed when you withdraw them from the plan.
- 403(b) Pre-Tax: A 403(b) plan (also called a tax-sheltered annuity or TSA plan) is a retirement plan offered by public schools and certain 501(c)(3) tax-exempt organizations. Employees save for retirement by contributing to individual accounts. Employers can also contribute to employees' accounts. Earnings and gains on amounts in your 403(b) account aren’t taxed until you withdraw them.
- 403(b) Loan Repayment - Post-Tax: Generally, you have to include any previously untaxed amount of the distribution in your gross income in the year in which the distribution occurs. You may also have to pay an additional 10% tax on the amount of the taxable distribution, unless you: are at least age 59 ½, or qualify for another exception.
- 403(b) Roth - Post-Tax: A 403(b) plan (also called a tax-sheltered annuity or TSA plan) is a retirement plan offered by public schools and certain 501(c)(3) tax-exempt organizations. Employees save for retirement by contributing to individual accounts. Employers can also contribute to employees' accounts. Earnings and gains on amounts in your 403(b) Roth account are taxed now rather than when you withdraw them.
- 409A - Non-qualified deferred comp - Post-Tax: If deferred compensation covered by section 409A meets the requirements of section 409A, then section 409A has no effect on the employee’s taxes. The compensation is taxed in the same manner as it would be taxed if it were not covered by section 409A. If the arrangement does not meet the requirements of section 409A, the compensation is subject to certain additional taxes, including a 20% additional income tax. Section 409A has no effect on FICA (Social Security and Medicare) tax.
457(b) - Pre-Tax: Plans of deferred compensation described in IRC section 457 are available for certain state and local governments and non-governmental entities tax-exempt under IRC Section 501. Contributions to a 457(b) plan are tax-deferred. Earnings on the retirement money are tax-deferred.
- Organizations are commonly referred to as charitable organizations. Organizations are eligible to receive tax-deductible contributions in accordance with Code section 170.
- Cash Advance Repayment - Post-Tax: Payment on a wage advance from the employer. The deduction is made post-tax.
- Child Support - Post-Tax: Child support payments are not deductible. You cannot deduct the amount of child support paid from the year-end taxable income.
- Garnishment - Post-Tax: Wage garnishment is a legal procedure in which a person's earnings are required by court order to be withheld by an employer for the payment of a debt such as child support. This must be calculated based on disposable earnings and enter in step 2 of payroll.
- Health Savings Account - Pre-Tax: A health savings account (HSA) is a tax-advantaged medical savings account available to US taxpayers who are enrolled in a high-deductible health plan. The funds contributed to an account are not subject to federal income tax at the time of deposit.
- Loan Repayment - Post-Tax: Payment on a loan. Loan payment is subject to tax.
- NQ Deferred Comp - Pre-Tax: This option defers income taxes on deferred compensation until you receive those funds.
- NY Paid Family Leave - Post-Tax: Employees pay for this through a payroll deduction which is a percentage of the weekly wage cap set annually. This is managed by the employer. If you are eligible for Paid Family Leave, you pay for these benefits through a small payroll deduction equal to 0.153% of your gross wages each pay period. In 2019, these deductions are capped at the annual maximum of $107.97.
- Post Tax Deduction - Post-Tax: Post-tax deductions come out after taxes and don't have an effect on your taxable income. Client may use at will to create post-tax deductions.
- Section 125 - Other - Pre-Tax: Section 125 is part of the IRS Code that allows employees to convert a taxable cash benefit (salary) into non-taxable benefits. Under a Section 125 program, you may choose to pay for qualified benefit premiums before any taxes are deducted from employee paychecks. Optional to be reported on the W-2 but TRAX does not report. Most commonly used for Dental, Vision, and FSA.
Section 125 Dep Care Benefits - Pre-Tax: Under a Section 125 program, you may choose to pay for qualified benefit premiums before any taxes are deducted from employee paychecks.
- Qualified Dependent Care FSA - often related to cost for childcare to allow a parent to work.
- Section 125 Health-ER Sponsored - Pre-Tax: Qualified ER sponsored health insurance that qualifies as section 125. Section 125 is part of the IRS Code that allows employees to convert a taxable cash benefit (salary) into non-taxable benefits. Under a Section 125 program, you may choose to pay for qualified benefit premiums before any taxes are deducted from employee paychecks.
- Section 132 - Pre-Tax: Section 132 provides eight types of fringe benefits that are excluded from gross income. A compensation reduction agreement is a way to provide qualified transportation benefits on a pre-tax basis by offering your employees a choice between cash compensation and any qualified transportation benefit.
- SEP - 408(k) - Post-Tax: A SEP is a written arrangement (a Plan) that allows an employer (including a self-employed individual) to make contributions towards its employees’ retirement without becoming involved in more complex retirement plans.
- Simple IRA - 408(p) - Pre-Tax: A simple IRA plan provides small employers with a simplified method to contribute toward their employees' and their own retirement savings. Each eligible employee may make a salary reduction contribution and the employer must make either a matching contribution or non-elective contribution. No other contributions may be made under a SIMPLE IRA plan. Employee contributions are not reported as income.
- Tax Levy - Post-Tax: Employers generally have at least one full pay period before they are required to send any funds from their employee’s wages to the IRS.