Simple IRA and net zero paycheck

cgcorder · ‎July 11, 2024

Hi,

I have an employee that received a bonus and wanted all his bonus to go to his IRA contribution. The IRA is tax deferred but QB still paid SS and Medicare. Is that correct?

Maybelle_S

I'm happy to assist you with applying the bonus to your employee's IRA contribution, cgcorder. Let me also share some information about how Social Security (SS) and Medicare taxes work in QuickBooks.

When you contribute a bonus to Simple IRA, the contribution is tax-deferred, meaning it is not subject to federal income tax until you withdraw it. However, Social Security (SS) and Medicare taxes are still withheld and applied to all earned income, including bonuses.

QuickBooks Desktop (QBDT) Payroll calculates these withholdings automatically based on IRS regulations, which require SS and Medicare taxes irrespective of income destination, including retirement accounts.

To handle the bonus directed to the Simple IRA, we'll create an offset deduction item in QuickBooks if you don't have enough wages. It's to adjust SS and Medicare taxes accordingly, ensuring accurate IRA allocation and payroll tax compliance.

Here are three reasons for creating a paycheck with a net pay amount of zero:

Contribute an entire paycheck to a retirement plan.
Designate the whole paycheck for income tax.
Document a gift given to an employee, such as cash or a gift card.

Here's how:

Go to the Lists menu and select Payroll Item List.
Tap the Payroll Item drop-down arrow at the bottom, then click New.
Select the Custom Setup radio button, then Next.
Pick Deduction, then Next.
Enter the name of the deduction item, and tap Next.
In the Agency for employee-paid liability window, select the account you want to use to track the item.
Hit Next.
Choose None from the Tax tracking type, then select Next three times.
Select net pay in the Gross vs. Net window, then Next.
Tap Finish.

If the employee's wages cover the retirement contribution, override the paycheck following the steps in this link, under Step 3 to zero the net amount: Create and run the employee's paycheck.

Additionally, you can check this article to help you streamline your payroll process. It'll also ensure accuracy and compliance to save time: Create and run payroll.

Return to this post if you have another question about employee bonuses and IRS contributions. I'll be here to help again.

View solution in original post

Maybelle_S

I'm happy to assist you with applying the bonus to your employee's IRA contribution, cgcorder. Let me also share some information about how Social Security (SS) and Medicare taxes work in QuickBooks.

When you contribute a bonus to Simple IRA, the contribution is tax-deferred, meaning it is not subject to federal income tax until you withdraw it. However, Social Security (SS) and Medicare taxes are still withheld and applied to all earned income, including bonuses.

QuickBooks Desktop (QBDT) Payroll calculates these withholdings automatically based on IRS regulations, which require SS and Medicare taxes irrespective of income destination, including retirement accounts.

To handle the bonus directed to the Simple IRA, we'll create an offset deduction item in QuickBooks if you don't have enough wages. It's to adjust SS and Medicare taxes accordingly, ensuring accurate IRA allocation and payroll tax compliance.

Here are three reasons for creating a paycheck with a net pay amount of zero:

Contribute an entire paycheck to a retirement plan.
Designate the whole paycheck for income tax.
Document a gift given to an employee, such as cash or a gift card.

Here's how:

Go to the Lists menu and select Payroll Item List.
Tap the Payroll Item drop-down arrow at the bottom, then click New.
Select the Custom Setup radio button, then Next.
Pick Deduction, then Next.
Enter the name of the deduction item, and tap Next.
In the Agency for employee-paid liability window, select the account you want to use to track the item.
Hit Next.
Choose None from the Tax tracking type, then select Next three times.
Select net pay in the Gross vs. Net window, then Next.
Tap Finish.

If the employee's wages cover the retirement contribution, override the paycheck following the steps in this link, under Step 3 to zero the net amount: Create and run the employee's paycheck.

Additionally, you can check this article to help you streamline your payroll process. It'll also ensure accuracy and compliance to save time: Create and run payroll.

Return to this post if you have another question about employee bonuses and IRS contributions. I'll be here to help again.

cgcorder

Thank you so much!

cgcorder

one more question...

Could you tell me where to find the explanation in the IRS publications?

ReymondO

I'm glad to see you back in the conversation, @cgcorder. It's great that the steps my colleague provided were helpful for your Simple IRA and zero net paycheck concerns.

Let me add to this discussion and offer further assistance with addressing your issues.

To locate the IRS publication regarding the Simple IRA plan, you can visit the IRS website directly. Here's a link to know more about Savings Incentive Match Plans for Employees (SIMPLE): https://www.irs.gov/retirement-plans/plan-sponsor/simple-ira-plan

Additionally, you can contact your local IRS office for more information on the IRS publication.

Furthermore, you can generate several payroll reports in QuickBooks Desktop that offer valuable insights into your business and employees.

If you have any follow-up questions regarding Simple IRA or zero net paychecks, please feel free to ask. We're here to assist you.

cgcorder

I want something that I can show the employee that his check was done correctly. I was trying to find a statement explaining that SS and Medicare is mandatory tax even with a tax deferred IRA.

AbegailS_

Hello there, @cgcorder.

I recognize that it's important to have a way to verify that your employees' paychecks are accurate. I'm here to offer an alternative solution.

Although QuickBooks Desktop doesn't have a specific report for Social Security and Medicare withholdings, you can use the Payroll Detail Report to review and analyze individual payroll transactions. This report provides a detailed breakdown of each employee's earnings, deductions, and tax withholdings, making it easier to ensure compliance with payroll regulations.

To access the Payroll Detail Report:

Select the Reports menu.
Click Employees & Payroll, then go to Payroll Detail Report.
In the report window, you can set various filters to customize the report.
Once you have set the desired filters, click Run Report to preview the Payroll Detail Report.

I'm also including some comprehensive guides that explain how QuickBooks generates reports and how you can customize them to suit your needs better:

If you have any other questions or concerns about managing your payroll, feel free to ask. I'm here to help.

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Simple IRA and net zero paycheck