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Employee Taxable Benefit

Our company offers employee share purchase plan where it matches contributions up to 5%.  The company match is taxable for income tax and cpp.  Shares are purchased once per year. The employee can opt out of the program at any time and chose to request a refund of contributions made.  The company match is not owing to the employee.  Because the employee has paid tax & cpp on the company match how would this be handled?   Is it possible to create a payroll item and if so how?

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Best answer 03-27-2019

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Re: Employee Taxable Benefit

These instructions are assuming that you currently have the EE's contributions set up as a 'Deduction' item linked to a G/L liability account, and that you have the ER's (taxable) contributions set up as a 'Company Contribution' item, linked to the same G/L liability account, as well as G/L expense account.

 

To reverse the EE's contributions, it is simply a matter of using the same PR Deduction item you currently have, but entering it as a positive (+) line.  When you enter it as a positive, a window will come up called Positive Deduction? with the message:  Deductions are normally entered as negative numbers.  Are you sure you want to enter a positive deduction on this pay cheque?  Click on YES.

 

The ER contribution is a bit trickier.  You cannot use the same PR item to reverse the ER contribution because Company Contribution items will not let you enter the line as a negative (-).  You will have to create two new Deduction PR Items, calling them something like 'Share ER Match ADJ-TAX' and 'Share ER Match ADJ .  Use the same liability account you are currently using to track the matched company's share contributions for each item.  For the first item (identified w/ TAX), in Tax tracking type dialogue drop down menu choose Box 40 - Other taxable benefits.  On the taxes dialogue, only check Federal Income Tax, CPP Company and CPP Employee. Click Next past the Calculate based on quantity dialogue, past Gross vs. net and Finish on final page, Default rate and limit, making no changes there.

 

For the second item (the non-tax adjusting item), follow all the same steps as above, except in the Tax tracking type dialogue drop down menu leave it at None, and do not check any tax items in the taxes dialogue window.

 

Now you may enter a negative (-) amount for the 'Share ER MATCH  ADJ - TAX'  item, for the amount of the company's contributions you are reversing.  Because of how you have set up the adjustment item, the tax and CPP will be deducted accordingly.

 

Now enter another line using a positive (+) amount for the 'Share ER MATCH ADJ' item, for the same amount as your first item.  This adjustment item ensures that there is a net effect of ZERO $ between the two transactions, but that the necessary tax adjustment is made for the EE and you will see the this in the Employee Summary for Federal Tax and CPP.

 

Keep in mind that the tax adjustments will be made at the current tax table rates.  If you are refunding EE contributions which have been made in prior periods and you want the amount of tax and CPP adjusted by exactly what the EE has previously been deducted on those taxable contributions, you can still use the adjustment PR item you have created to reduce the ER contribution, but you may need to determine what those tax amounts are and adjust the EE tax and CPP in the Employee Summary manually, so that you are only refunding them the amount of tax and CPP that they were actually deducted in the first place.

 

This takes care of the EE's refund of contributions and taxes only, all reflected on the EE's paystub.  But it does not do anything to remove the company's cost from the G/L expense account for it's contributions on behalf of the employee, nor the original liability.  The above transactions will still leave you with the company's net contributions as a Credit balance in the investment liability account, and corresponding Debit balance in the investment (on behalf of employees) expense account, for this employee  To clear these amounts you will need to do a Liability Adjustment for the Company using your original Company Contribution PR item, ie Share ER Match, entering a negative (-) amount, which will debit your liability and credit your expense, leaving you with Zero $ attributed to that employee, and reducing your overall liability and expense in those two accounts.  Since you don't specify what you are doing with the ER's matched portion once an EE chooses to opt out, this last step may or may not be necessary.  Are you leaving ER's share in investment account attributed to . . . company??

 

I realize this is an inelegant solution but is necessary because Quickbooks does not allow you to make positive and negative transactions of your choice on the necessary PR items.  For some reason, they assume that because an ER may have made a positive company contribution at one point, that they will never, ever need to reverse that contribution, which in my opinion, is a wrong assumption.  Good luck!

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2 Comments
Established Community Backer ***

Re: Employee Taxable Benefit

These instructions are assuming that you currently have the EE's contributions set up as a 'Deduction' item linked to a G/L liability account, and that you have the ER's (taxable) contributions set up as a 'Company Contribution' item, linked to the same G/L liability account, as well as G/L expense account.

 

To reverse the EE's contributions, it is simply a matter of using the same PR Deduction item you currently have, but entering it as a positive (+) line.  When you enter it as a positive, a window will come up called Positive Deduction? with the message:  Deductions are normally entered as negative numbers.  Are you sure you want to enter a positive deduction on this pay cheque?  Click on YES.

 

The ER contribution is a bit trickier.  You cannot use the same PR item to reverse the ER contribution because Company Contribution items will not let you enter the line as a negative (-).  You will have to create two new Deduction PR Items, calling them something like 'Share ER Match ADJ-TAX' and 'Share ER Match ADJ .  Use the same liability account you are currently using to track the matched company's share contributions for each item.  For the first item (identified w/ TAX), in Tax tracking type dialogue drop down menu choose Box 40 - Other taxable benefits.  On the taxes dialogue, only check Federal Income Tax, CPP Company and CPP Employee. Click Next past the Calculate based on quantity dialogue, past Gross vs. net and Finish on final page, Default rate and limit, making no changes there.

 

For the second item (the non-tax adjusting item), follow all the same steps as above, except in the Tax tracking type dialogue drop down menu leave it at None, and do not check any tax items in the taxes dialogue window.

 

Now you may enter a negative (-) amount for the 'Share ER MATCH  ADJ - TAX'  item, for the amount of the company's contributions you are reversing.  Because of how you have set up the adjustment item, the tax and CPP will be deducted accordingly.

 

Now enter another line using a positive (+) amount for the 'Share ER MATCH ADJ' item, for the same amount as your first item.  This adjustment item ensures that there is a net effect of ZERO $ between the two transactions, but that the necessary tax adjustment is made for the EE and you will see the this in the Employee Summary for Federal Tax and CPP.

 

Keep in mind that the tax adjustments will be made at the current tax table rates.  If you are refunding EE contributions which have been made in prior periods and you want the amount of tax and CPP adjusted by exactly what the EE has previously been deducted on those taxable contributions, you can still use the adjustment PR item you have created to reduce the ER contribution, but you may need to determine what those tax amounts are and adjust the EE tax and CPP in the Employee Summary manually, so that you are only refunding them the amount of tax and CPP that they were actually deducted in the first place.

 

This takes care of the EE's refund of contributions and taxes only, all reflected on the EE's paystub.  But it does not do anything to remove the company's cost from the G/L expense account for it's contributions on behalf of the employee, nor the original liability.  The above transactions will still leave you with the company's net contributions as a Credit balance in the investment liability account, and corresponding Debit balance in the investment (on behalf of employees) expense account, for this employee  To clear these amounts you will need to do a Liability Adjustment for the Company using your original Company Contribution PR item, ie Share ER Match, entering a negative (-) amount, which will debit your liability and credit your expense, leaving you with Zero $ attributed to that employee, and reducing your overall liability and expense in those two accounts.  Since you don't specify what you are doing with the ER's matched portion once an EE chooses to opt out, this last step may or may not be necessary.  Are you leaving ER's share in investment account attributed to . . . company??

 

I realize this is an inelegant solution but is necessary because Quickbooks does not allow you to make positive and negative transactions of your choice on the necessary PR items.  For some reason, they assume that because an ER may have made a positive company contribution at one point, that they will never, ever need to reverse that contribution, which in my opinion, is a wrong assumption.  Good luck!

View solution in original post

NC2
Not applicable

Re: Employee Taxable Benefit

That's fantastic. Thank you!