Monday, January 3, 2011

Manual Employer FICA Tax Calculations for 2011

The delayed passage of the 2011 tax relief bill in congress left zero time for software companies to develop the code needed to elegantly handle the change in employee vs. employer FICA and Medicare taxes.  The EOY Microsoft Dynamics GP payroll tax update lowers the FICA/Medicare totals for employees to 4.2% as prescribed by congress.  However, the employer tax rate is also calculated at 4.2% even though employers still owe 6.2%.
Here is the text of a recent posting on a Microsoft Forum:
Wednesday, December 22, 2010 2:23 AM
At this point, they are still working on how this will be updated in the system; however, the latest information I have received was that the tax tables will be adjusted to the 4.2% and you will need to make adjustments in the GL. You are correct on PIP as well, as the incorrect amount would be brought over,
I have not heard of any plans to create a report for journal entry adjustments, but I will definitely look into this.
·         Wednesday, December 29, 2010 2:34 PM
There are no current plans to create an adjustments report for the FICA amounts on the employer side that need to be adjusted.  At this time, the GL adjustments will need to be made until the Round 2 tax code update in January where this will be addressed to correct the employer FICA going forward. This round 2 code update will be released for SBF 9.0, GP 9.0, GP 10.0, and GP 2010.

The following is information provided Onza/BestTechsNW payroll clients:
In light of the above information we thought the following math examples will give employers a working structure in how to calculate and expense the correct deposit amount for FICA taxes until Dynamics’ Round 2 tax update is available:

Step 1:  Calculate the correct Tax Deposit Amount before remitting to EFTPS:
Fed W/H Tax + Employee FICA/MED Tax + (Employee FICA/MED Tax / 4.2 x 6.2) = Total deposit amount.
Example: 
PR Report shows FWT of 14,000 and employee FICA/MED Liability of $10,000

But the employer owes more than the $34,000. Here’s how to calculate the total amount due:
Calculated PR EFTPS deposit amount =
FWT                                                                            $14,000.00
+          Employee FICA/Med                                                   $10,000.00
+          Employer FICA/Med (10,000 / 4.2 x 6.2) =                 $14,761.90     
=          Total deposit =                                                            $38,761.90

Step 2:  Microsoft Dynamics GP will auto-post the (incorrect) 4.2% employer portion for FICA/Med tax
Payroll Process:         
    Credit  PR Tax Liability                                               $34,000
    Debit    PR Tax Expense - Dept 1     $20,000
    Debit    PR Tax Expense - Dept 2     $14,000
Note:  If you’re using PIP (Payables Interface to Payables) the automated voucher amount for the IRS vendor will be $34,000.

Step 3:  Remit the correct tax amount to the IRS via EFTPS or through your bank
The payroll liability account now looks like this:        
    Credit from Payroll                                                                             $34,000
    Debit from EFTPS                                                      38,761.90                      
    = Debit Balance in Liability after EFTPS payment     $4,761.90

Step 4:  Calculate and post (a GL Transaction) for the departmental expense from the ‘extra’ tax
                                   

      Dept Amt
 Total Amt
Percent by Dept
    Extra tax amt
 Dept Exp Amt
20.000
34.000
0.588235294
4761.90
 $  2,801.12
14,000
34,000
0.411764706
4761.90
 $  1,960.78


GL Adjustment Entry Example:
    Credit PR Liability Account                                       $4,761.90
    Debit    PR Tax Expense - Dept 1      $2,801.12
    Debit    PR Tax Expense - Dept 2      $1,960.78

Happy New Year – Just when you thought you were going to have less to do in 2011 J

You can find the link to the IRS publication here: