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AmyH2
Level 1

COVID-19 FMLA - no 401K or safe harbor contributions made

I have set up all the payroll items as described and am ready to submit payroll for this week.  One of my employees will only have leave pay and no worked hours.  When I review her paycheck, there is no deduction for her 401(k) contribution, nor is there any amount listed for the company safe harbor contribution.  According to searches on the web, these deductions should still be made on FMLA pay.  Do I need to change the tax tracking for these items?  I used the defaults when setting them up.

Thank you.

5 Comments 5
john-pero
Community Champion

COVID-19 FMLA - no 401K or safe harbor contributions made

National Leave is considered W2 income to recipient and as such is still subject to ALL employee taxes as well as ALL employer taxes/contributions EXCEPT EMPLOYER SS.  Go back and edit the leave pay type you created and in the tax and reduction section check or uncheck as appropriate what the pay is subject to. Default cannot be taken as gospel and should always be reviewed. 

 

What you cannot do yet which is also necessary is uncheck the employer share of SS, which is not to be imposed. QB is working on this, or so they say, as we need to be able to not impose employer SS while at same time impose employee SS. So you leave this one on and make a proper calculation when paying through eftps. If you use Assisted or Full Service types of subscription where QB pays the taxes this and any deferral of tax due is currently out of your control and I have been advising left and right to downgrade subscriptions and take over your own tax payments

Ann33
Level 1

COVID-19 FMLA - no 401K or safe harbor contributions made

We have a couple of employees who used the COVID-19 FMLA payments.  I used the new COVID FMLA item in Quickbooks, which properly does not calculate employer SS, which means that it does not calculate employee SS for COVID FMLA.  Yeah for that! Also, when you create a 941, there is a section for the additional credit that you receive (example, insurance), which allows the 941 to calculate properly if you took advantage of reducing your 941 payments to pay the COVID FMLA wages to employee. 

 

But when calculating 401k employer and employee portion, it will not consider the FMLA wages and therefore does not calculate any 401k on these wages.  I could force the entry, but I am sure that would cause other problems.  I think it will cause the W-2 to be inaccurate.  The FMLA money and contribution to the employee may be taxable. Our company has after-tax and pre-tax 401k.  I assume that the FMLA wages are not allowed to be considered as pre-tax and therefore, it won't calculate 401k pre-tax on FMLA wages.  But, the FMLA is supposed allow for the 401k employee and employer portion.  Has anyone figured out how to set this up so that 401k wages will calculate properly.

ShiellaGraceA
QuickBooks Team

COVID-19 FMLA - no 401K or safe harbor contributions made

Thanks for joining us today, @Ann33.

 

I'll share with you the steps on how to set up your FMLA payroll items accordingly. First, you'll need to set up an expense account for the paid leave, then create the paid leave items with the correct tax tracking type. From there, run your payroll and claim your tax credits after. This information will then use to report in your Form 941 when filing. Here's how.

 

To set up expense account:

  1. Go to the Lists menu, then tick Chart of Accounts.
  2. Select the Account ▼ dropdown, then hit New.
  3. Choose Expense, then Continue.
  4. From the Account Type dropdown, pick Other Expense.
  5. Give your expense account a name, such as COVID-19 Expenses, in the Name field, fill out all the relevant information, and then click Save and Close.

After setting the account, set up the payroll items by following these steps:

 

  1. Go to the Employees menu, then Manage Payroll Items, then select New Payroll Item.
  2. Choose Custom Setup, then Next.
  3. Tick Addition, then Next.
  4. Give your pay type a name, such as National Paid Leave FMLA, in the text field and then Next.
  5. Pick COVID-19 Expenses (or whatever you named the expense account) as the expense account, and then Next. 
  6. In the Tax Tracking type window, go for National Paid Leave FMLA, then Next.
  7. In the Taxes window, snap Next.
  8. In the Calculate Based on Quantity window, take Neither, and then Next.
  9. In the Default Rate and Limit window, make sure the rate is at 0 and the limit is at $10,000, pick out One Time Limit from the Limit Type dropdown, and click Finish.

Lastly, set up a new tax item to ensure you're tracking the tax credits. 

  1. Go to the Employees menu, then Manage Payroll Items, then select New Payroll Item.
  2. Tick Custom Setup, then Next.
  3. On the Payroll item type window, pick out Other Tax, then Next.
  4. On the Other Tax window, got for National Paid Leave Credit, then Next.
  5. In the Name used in paychecks and payroll report window, enter National Paid Leave Credit in the text field, then Next.
  6. In the Agency for company-paid liability window, pick the agency you pay taxes too from the dropdown, choose COVID-19 Expenses in the Liability account dropdown, and COVID-19 Expenses (or whatever you named the expense account) in the Expense account dropdown, and then Next.
  7. From the Taxable Compensation window, snap Next.
  8. In the Pre-tax deductions window, take the item that will reduce wages for this tax. Then click Finish.

Once done, run a regular payroll. Then, review and claim your tax credits afterward. More details about the set up? Check out this guide: How to track paid leave and sick time for the coronavirus.

 

For reference on how to claim your tax credits, click this link for the step-by-step instructions.

 

If there's anything else I can help you with, let me know in the comment box. I'll get back to answer them for you. Take care and stay safe.

MelTilk
Level 3

COVID-19 FMLA - no 401K or safe harbor contributions made

Quickbooks Team: The issue is not about HOW TO SET UP the National paid leave items... The issue is very simply that setting them up as an ADDITION does not enable 401K deferrals and Company Matching calculations to include that income in the calculations. SO OUR DEFERRED 401K amounts and COMPANY MATCH amount are ALL INCORRECT during periods where employees received paid leave under CARES/FMLA. I believe the problem lies within the Tax Tracking Type 'National Paid Leave FMLA."  How is it that QB did not realize the 401K items were not using the COVID paid leave/FMLA paid leave when setting up these payroll items as "Additions"? 

 

 

Mich_S
QuickBooks Team

COVID-19 FMLA - no 401K or safe harbor contributions made

Hello there, @MelTilk.

 

I'd like to share some ideas about your concern with some payroll items.

 

The default setup for FMLA and other COVID-19 related payroll items are based from the IRS guidelines. It also needs to comply with the federal agency to determine taxable items for the wages.

 

As for the 401k, the default setup is taxable both in federal and state withholding. To correct the 401k amounts, you can create employee liability adjustments.

 

If you need guidance or additional questions on how to include the 401k in the FMLA, I recommend you consult your accountant or the IRS.

 

Hit me up if you have further questions about QuickBooks and payroll. Stay safe always!

 

 

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