Third-party doesn't issue W2s

Use the following steps to set up third-party sick pay or disability wages when you meet the following criteria:

• A third-party insurance carrier is responsible for payment of disability wages, withholding, and employee Medicare (MED) and Social Security (SOC) taxes
• They aren't responsible for issuance of W-2 forms at year-end
• The employer is responsible for the employer portion of MED, SOC, FUTA, and any Unemployment (SUI) taxes
• The W-2 must reflect the employee's disability wages and FICA withheld

On line 8 of the 941, enter the Employee SOC and MED tax amounts paid by the third-party provider as a negative amount. The amount of Employer Paid SOC_E and MED_E taxes will report accurately on the Schedule B.

1. Create a new pay ID, INSUR PAY:
   1. From the Setup menu, select Pays.
   2. Type INSUR PAY, and then press the TAB key.
   3. Type a description, and then press the TAB key.
   4. In the Pay type list, select Other.
   5. Select the In/Out check box.
   6. In the Calculation method list, select Flat Amount.
   7. Click Deduct and enter the credit account. Use the same general ledger account for both the Pay (expense) and In/Out deduction (liability), for example, a miscellaneous tax or holding current liability account.
   8. Click OK, click Save, and then click Close.
2. Create a new deduction ID, WASH:
   1. From the Setup menu, select Deducts.
   2. Type WASH, and then press the TAB key.
   3. Enter a description, and then press the TAB key.
   4. Use the same general ledger liability account that you use for the employee FICA taxes (which you can confirm by selecting SOC or MED in Setup, Taxes, Tax Rates).
   5. In the Deduction Type list, select Normal.
   6. In the Calculation Method list, select Flat Amount.
   7. Click Save, and then click Close.
3. Set up the employee as a third-party sick pay recipient:
   1. From the Setup menu, select Employees.
   2. Enter the employee ID of an employee that must report third-party sick pay on their W-2 form, then press the TAB key twice.
   3. Click the Misc. Info tab.
   4. Select the third party sick check box.
   5. Click Save, and repeat steps for each employee that must report third-party sick pay on their W-2 form.
   6. Click Close.
4. Enter a manual check for the third-party pay amount:
   1. From the Tasks menu, select Enter Checks.
   2. Click List, select the employee, and click OK.
   3. Type the period end date, and press the TAB key twice.
   4. Use the INSUR PAY pay ID for the amount of disability wages paid by the insurance carrier.
   5. Click Process, clear the Check check box, and then click OK.
   6. Click Tax. Select each tax amount that wasn’t withheld from this check and change the amount to $0.00
      Note: This includes tax amounts that you don’t need to report or submit to the government.
   7. Confirm the calculations for MED and SOC match the amounts the insurance carrier paid. The employer portion should calculate automatically.
   8. Click Deduct and on a new entry line, enter the WASH deduction with a negative amount equal to the employee s tax amount. This results in a zero net check.
   9. Click Process, clear the Check check box, and then click OK. This is necessary after you alter the check.
   10. Click Manual and enter the check number and date in the Check number and Check date boxes.
       Note: The Check date determines which period the check posts to in Payroll.
   11. Click Accept check, and repeat steps for each employee who receives third-party sick pay.
   12. Click Finish.
5. From the Tasks menu, select Post Checks and post the checks.
    NOTE: If you’re posting the checks to a prior year, the employee can exceed tax limits for the prior year. To correct this, run Recalculate Subject-to for the prior year.

When you post the check, the Wash deduction automatically creates an entry so the employee FICA portion on this check is a wash entry to General Ledger (as a liability). The employer taxes due are the only amounts that affect General Ledger.

Third-party issues W2s

Use the following steps to set up third-party sick pay or disability wages when you meet the following criteria:

• A third-party insurance carrier is responsible for payment of withholding and the employee MED and SOC taxes
• They're responsible for the issuance of a W-2 form to report this information
• The third party transfers the employer portion of the SOC and MED tax liability to the employer
• This is only a liability to the employer and should be included in the employees' existing employer tax totals

This option has different tax amounts populate the 941 report than the steps above. These steps require extra documentation for the IRS. See Reporting Sick Pay Paid by Third Parties from the IRS.

The Aatrix 941 report will pull the Taxable and Subject-to amounts from the Employee Check Tax records. The Employer Check tax records aren’t used. You’ll need to change the amounts on 5A and 5C to match the employer Subject-to amounts. This way on line 8 of the 941 report you can enter the third party paid taxes as a negative amount as required by the form. This includes MED, SOC, MEDADDL, and FWH tax amounts.

When you post the check, the tax liability amount affects General Ledger. The Deposit Summary Report will report Taxable, Subject-to, and contribution amounts will be higher for Employer Taxes.

When you run your Aatrix 941 Reports, you’ll adjust the Schedule B for the employer paid FICA taxes. You won’t need to adjust the Subject-to amounts for SOC, MED, MEDADDL, and FWH taxes. The third party payer will be providing the W-2 for these wages to the employee. It’s important that your four quarters of the 941 reconcile to the W3 at the end of the year.

1. Create a new pay ID, INSUR PAY:
   1. From the Setup menu, select Pays.
   2. Type INSUR PAY2, and then press the TAB key.
   3. Type a description, and then press the TAB key.
   4. In the Pay type list, select Other.
   5. Select the In/Out check box.
   6. In the Calculation method list, select Flat Amount.
   7. Click Deduct and enter the credit account. Use the same general ledger account for both the Pay (expense) and In/Out deduction (liability), for example, a miscellaneous tax or holding current liability account.
   8. In the Employee taxes exempt, select all employee taxes. Don’t select any of the Employer taxes as exempt unless you aren’t required to pay SUI, SDI, or Local Employer taxes for this pay. See your Tax accountant for confirmation.
   9. Click OK, click Save, and then click Close.
2. Set up the employee as a third-party sick pay recipient:
   1. From the Setup menu, select Employees.
   2. Enter the employee ID of an employee that must report third-party sick pay on their W-2 form, then press the TAB key twice.
   3. Click the Misc. Info tab.
   4. Select the third party sick check box.
   5. Click Save, and repeat the steps for each employee that must report third-party sick pay on their W-2 form.
   6. Click Close.
3. Enter a manual check for the third-party pay amount:
   1. From the Tasks menu, select Enter Checks.
   2. Click List, select the employee, and click OK.
   3. Type the period end date, and press the TAB key twice.
   4. Use the INSUR PAY2 pay ID for the amount of disability wages paid by the insurance carrier.
   5. Click Process, clear the Check check box, and then click OK.
   6. Only Employer Taxes calculate on this check.
   7. Click Manual and enter the check number and date in the Check number and Check date boxes.
   8. Note: The Check date determines which period the check posts to in Payroll.
   9. Click Accept check, and repeat the steps for each employee who receives this third-party sick pay.
   10. Click Finish.
4. From the Tasks menu, select Post Checks and post the checks.
    NOTE: If you’re posting the checks to a prior year, the employee can exceed tax limits for the prior year. To correct this, run Recalculate Subject-to for the prior year.