Sage 100

Client wants a new earnings code for a Christmas bonus for $300 but wants them to actually have $300 in their pockets after taxes. So everyone's gross Bonus will be different based on their tax base and withholdings but they will net the $300 bonus. Client says QB could do this, I'm thinking that they should setup a negative deduction but wanted to know if anyone else had run into this?

We have a customer who has done this based on a set amount of deductions for federal and state taxes imported by VI, so everyone has the same starting amount and deductions and net amount.

This has not been updated for 2012 yet, but this is what we use to gross up by percentage. Rates should be the same as 2011. Federal withholding should be at 25% for bonuses so the only difference will be if they have maxed out FICA.

Here is what I've seen in practice. First, you will need to gross up the net payroll for the taxes. Since the employer is paying these, typically the gross up in wages is only for the FICA/Medicare taxes. The amount of $300 is small (as compared to annual wages), omit any withholding for Federal, state or local income taxes. The amount will be included in wages on the W-2 and reduces the employees refund or increasing the amount due. Though you are not withholding any income taxes. I am not aware of a case were the IRS is concerned with withholding taxes on small Christmas bonuses. If the bonus was over 3% of an employees annual wages, it would be a different matter, The attached is a spreadsheet to calculate the FICA and Medicare taxes for a given desired net pay. If an employee is over the FICA limit, omit FICA in the wage gross up. You made need to include a local payroll tax in one is assessed. Enter the payroll in MAS with manual taxes and no deductions. Enter the gross wage amount and the amount for FICA and Medicare when prompted. Make sure that the tax amounts are entered in the correct boxes. Just FICA and Medicare. Also turn off direct deposit. These are usual checks that are handled out. Technically withholding for income taxes are referred to as withholding taxes. FICA/Medicare and in some cases unemployment are payroll taxes.

Thanks @MyronStevenson and @DebbieBeach , this helps. For the earnings code, does withholding need to be set to supplemental though? or is that only in the case of a bonus more than 3% of annual wages?

The 3% number is not a statutory requirement. It was just my opinion when you can avoid withholding taxes for certain gifts to employees. The bonus is regular wage. Setup an earnings code that is Regular and the data entry is fixed amount.

They should just do them thru A/P, and forget about the tax implications.

But you didn't hear that from @BrettZimmerman or OASIS, for that matter!!