How do I add a third-party sick pay and disability wages in Payroll?

• Consult your tax adviser on the effects of third-party sick and disability wages on your government reports. You may need to adjust the Deposit Summary report for the 3rd party sick pay and/or adjust on the 941/Schedule B report for the employee portion paid by the 3rd party. The 3rd party is responsible for remitting the Employee portion of FICA and FWH. They may or may not be producing a W2 for 3rd Party Sick pay.
• If you cannot enter checks for third-party sick pay and disability wages before you close the year and enter the new year's payroll, you will need to issue checks for a prior year. You will also need to amend your Form 941. For additional information, select the appropriate link below
• You have two options below. One option the FICA employee taxes are taxable and the second option they are not. Employer FICA taxes are taxable
• You will need to verify with your tax accountant or insurance plan provider which 3rd Party Sick Plan you have and which taxes are exempt from the disability payment

To set up third party sick pay or disability wages when the following is true, use Option 1:

• A third-party insurance carrier is responsible for payment of disability wages, withholding and employee Medicare (MED) and Social Security (SOC) taxes, but is not 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

To set up third party sick pay or disability wages when the following is true, use Option 2:

• A third party insurance carrier is responsible for payment of withholding and the employee MED and SOC taxes as well as 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

Option 1:

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 3rd 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 was not withheld from this check and change the amount to $0.00
      Note: This includes tax amounts that you do not 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 are posting the checks to a prior year, the employee may exceed tax limits for the prior year. To correct this, run Recalculate Subject-to for the prior year. For more information, see How do I recalculate subject-to amounts for prior year totals?

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.

NOTE: On line 8 of the 941, you'll enter the amount of Employee SOC and MED tax amounts paid for by the 3rd party provider as a negative amount. The amount of Employer Paid SOC_E and MED_E taxes will report accurately on the Schedule B.

Option 2:
You will need to record a check for 3rd Party Sick pay so that the correct taxable and subject to records are created for those Employer paid taxes subject to this pay. You will not typically have a situation where you have a 3rd Party Sick pay where you would need both options. If you do, create your 3rd Party Sick pays with different Pay ID's as the setup is different.

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. Do not select any of the Employer taxes as exempt unless you are not 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 3rd 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.
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 will 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 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 are posting the checks to a prior year, the employee may exceed tax limits for the prior year. To correct this, run Recalculate Subject-to for the prior year. For more information, see How do I recalculate subject-to amounts for prior year totals?

NOTE: Option 2 will have different tax amounts populate the 941 report than Option 1. Option 2 will require additional 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 are not used.  You will 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.

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 will adjust the Schedule B for the employer paid FICA taxes. You will not need to adjust the Subject to amounts for SOC and MED taxes. The 3rd party payer will be providing the W2 for these wages to the employee. It is important that your 4 quarters of the 941 reconcile to the W3 at the end of the year.