Year Round Benefit Setup for Year-End Reporting

There are a growing number of benefits that are given to employees throughout the year that need to be included in year-end reporting in state, local and federal jurisdictions. This section looks at common ways that Spectrum is configured to help you track, maintain, and report those benefits.

Please contact your accountant for information regarding your company's specific reporting responsibility.

The example benefits we will use to illustrate benefit accrual methods are: personal use of company vehicles, life insurance in excess of $50K, and employee health care benefits.

There are three methods to reporting these benefits at year end:

  • (Recommended) Use Add-on and Deduction codes to record the benefit paid to the employee. The add-on code expenses the employer payment of the benefit and accrues its liability (if the benefit is taxable, the add-on would be set for taxability). The deduction code reduces the pay of the employee for their allotted portion of the benefit (if the employee portion is deducted pre-tax, the deduction code is set accordingly).

  • Use a Payroll Installation Screen pay type. Set up a pay type in Site Map > System Administration > Installation > Payroll, a department expense code specifically for the benefit, and a deduction code for the benefit.

  • Manually adjust employee W-2's to reflect benefits, as well as manually modifying other tax reports and GL accounts. We recommend this only as a last resort, as it will under-state income paid out to the employee over the year, and your year end reports will not tie to the W-2.

Reporting Employee Health Care Benefits on Form W-2

Starting in 2015, employers must display the cost of health care paid by the employer and the employee on the W-2 form in Box 12, using code 'DD'.

Add-on and Deduction code setup to record Non-Cash Benefits

Step 1. Create Code to Track Employer Portion of Health Care.

Create an add-on to record the cost of employer-paid health care benefits.

Properties Tab

  1. Set the 'Type' to Add-on.

  2. Calculation method depends on the benefit. Is it a fixed amount or a rate per hour?

  3. Enter the benefit expense G/L account code. This is the debit side of the transaction. In our example, we would set this as an indirect GL account code.

  4. Select the Clear employee balance at year end checkbox.

Tax Effects Tab

Employees are not taxed on health care benefits, so nothing would be entered on the tax effects tab.

Note: Other benefits may result in increasing the employee tax obligation, and in those cases, the taxability would be set on this screen.

Add-ons Tab

  1. Set the direct cost flag to non-direct cost. (optional)

  2. Clear the Paid to employee on paycheck checkbox, since this is a non-cash benefit.

  3. Clear the Print on paycheck checkbox. (optional)

  4. Enter the benefit liability account code in the 'Non-cash G/L account' field. This is the credit side of the transaction.

Step 2. Create Code to Track Employee Portion of Health Care

Create a deduction code to deduct the cost of the employee's portion of health care.

Properties Tab

  1. Set the Type to Deduction.

  2. Calculation method depends on the benefit. Is it a fixed amount or a rate per hour?

  3. Enter the employee liability G/L account code on the Properties tab. This is the debit side of the transaction.

  4. Select the Clear employee balance at year end checkbox.

Tax Effects Tab

Since employee health contributions are usually collected pre-tax, the income tax and FICA boxes would be selected for the US tax jurisdiction.
Note: please check with your tax advisor regarding settings for your specific situation.

Step 3. Enter Codes on Employee Recurring Deduction/Add-on Maintenance.

The last step is to set up the add-on and deduction codes on the employee in Recurring Deduction/Add-on Maintenance (Payroll > Maintenance > Recurring Deduction/Add-on). In this manner, these amounts will accrue automatically during the pay cycle.

Note: If the add-on code was not set up at the beginning of the year, use the Adjust Non-Cash Add-on Balances screen to bring the YTD amounts up to date. When you perform the Build W-2's process, enter both add-on and deduction codes into Box 12, code 'DD'. The system will automatically sum these amounts together.

Personal Use of Company Vehicles

If your company provides personal use of company-owned vehicles as an employee benefit, it may be necessary to include an amount in the employee's 2020 year-to-date earnings to reflect taxable income for personal use of company vehicles.

Life Insurance in Excess of $50,000

If your company provides life insurance as an employee benefit, it may be necessary to include an amount in the employee's 2021 year-to-date earnings to reflect taxable income for life insurance in excess of $50,000. This amount must also be included in box 12 of the W-2, code C.

The IRS publishes a table detailing the amount of earnings to be applied.

Payroll Installation Screen pay type

  1. Navigate to Payroll > Maintenance > Deduction/Add-on Code, and click New to add a new Add-on Code.

  2. In the Properties tab, enter a fixed amount Calculation method, a non-direct expense GL account and check the Clear employee balance at year end checkbox.

  3. In the Tax Effects tab, enter all the tax codes for US, state, county and local.

  4. In the Add-ons tab, clear the Pay the employee on the paycheck checkbox, check the Print on paycheck checkbox, and enter the same GL account in the Non-cash GL account field as you did in the Properties tab.
    Note: These lines should be added to the last regular paycheck.

Adjusting W-2 Forms Prior to Printing

If you have already processed a payroll for 2022, it is too late to add additional earnings to the 2021 payroll reports. However, you can make adjustments to the W-2 forms prior to printing.

The following process will not adjust employee earnings, nor update the quarterly or yearly payroll reports. It only adjusts the W-2 forms being produced.

The life insurance may be recorded directly into the employee's W-2 record. Use the W-2 Form Maintenance screen to adjust the employee's W-2 wage and tax statement. Consult with your accountant for specific instructions on which figures to adjust:

  • Wages tips and other compensation (box 1)

  • Federal income tax withheld (box 2)

  • Social Security wages (box 3)

  • Social Security tax withheld (box 4)

  • Medicare wages (box 5)

  • Medicare tax withheld (box 6)

  • State/local information (boxes 15-20)

Entry in this screen will then be reflected on the W-2 paper and electronic filing reports. This procedure will not result in any changes to the Payroll period end reports, nor will it change recognition of expense in the General Ledger for employer FICA. Be sure to manually adjust your Quarterly Federal Tax Report and other fourth-quarter tax filings if necessary.

Please contact your accountant for information regarding your company's specific reporting responsibility.