Issue/Symptom/Question

Employee state earnings and taxable earnings have been moved from one state to another, we need to reduce and refund employee SDI tax amount. How do we reduce and refund employee SDI tax amount? 

Applies To

PENTA for Windows

Payroll - Reduce and Refund Employee SDI Tax Amount

Resolution/Fix/Answer

• Gather the Employee ID
• Account Number to be used for adjusting entries
• Identify/Create an Other Compensation number
• Identify/Create a Master Deduction number 

Step 1: Set up Other Compensation

1. Create/update an Other Compensation in the Other Compensation Information window via Payroll > Setup > Deductions, Reimbursements and Other Compensation
   1. On the Other Compensations Tab
      1. Enter the required fields
      2. Use calculation base 3
      3. Do NOT enter an amount.
   2. On the Tax_Code Tab
      1. Set the ‘Include In All Earnings’ Flag = N
      2. In the State/Province exception box enter two line items
         1. State Code = State where tax was withheld
         2. Tax Type = SDI
   3. Close the window

Step 2: Create an adjusting check to remove SDI tax amounts

1. Open the Manual Checks window via Payroll > Exception Checks > Manual Checks
2. In the Document Tab enter the following values:
   1. Check #: 0
   2. Employee Id: XXXX
   3. Check Date: Select a check date based on the period you would like to affect.
   4. Net Pay: POSITIVE Amount that needs to be refunded
3. In the Distribution Tab enter the following values:
   1. Work Date: Enter the same date as in step 2.2.c.
   2. Enter OU and Account you wish to distribute these funds to.  This account will serve as a clearing account.
   3. Click the Default Employee Info button, and enter the following values:
      1. W/H state: State where tax was withheld
      2. UC state: State where tax was withheld
4. In the Withholding-USA tab enter the following values in the State Withholding box:
   1. Tax Type: SDI
   2. State code: State where tax was withheld
   3. Amount: NEGATIVE amount that needs to be refunded
5. In the Other Compensation Tab enter the following values:
   1. Other Compensation # created in Step 1.1.
   2. Amount: NEGATIVE amount that needs to be refunded
6. Distribute the check

Step 3: Create second adjusting check to correct gross wages that occurred in Step 2.

1. Open the Manual Checks window
2. In the Document Tab enter the following values:
   1. Check #: 0
   2. Employee Id: XXXX
   3. Check Date: Select a check date based on the period you would like to affect.
   4. Net Pay: $0.00
3. In the Other Compensation Tab enter the following values:
   1. Other Compensation # created in Step 1.1.
   2. Amount: POSITIVE amount that needs to be refunded
4. Distribute the check

Step 4: Increase the State Earnings and Taxable Earnings by the amount to be refunded

1. Create/Update a Deduction
   1. Deduction Information - Master Tab enter account number, Calc Base # = 1 and Frequency # = 1
   2. Taxable/Non-Taxable tab - As a default = Before tax
   3. State/Province Exception - enter state code, tax type code = SDI and After tax
   4. Leave all other information as defaulted
   5. Exit the window to commit
2. Process a Manual Check to increase the State Earnings and Taxable Earning
   1. In the Document Tab enter the following values:
      1. Check #: 0
      2. Employee Id: XXXX
      3. Check Date: Select a check date based on the period you would like to affect.
      4. Net Pay: $0.00
      5. Accrue PTO = N
      6. Process Reciprocity Rules = N
      7. Process Linked Jurisdictions = N
   2. In the Distribution Tab
      1. Work Date - Enter the same date as in the Document Tab
      2. Tab to OU ID and enter employee OU ID
      3. Tab to Account number – use account number identified for these adjustments
      4. Tab to Gross Pay (Excl. Add to Gross Fringes) – enter positive amount of the SDI tax
   3. Deductions & Fringes Tab:
      
      1. Deduction # and same amount as the Distribution Tab for the Amount Deducted:
   4. Distribute the batch
3. Update the Deduction to remove the SDI state exception
4. Process a Manual Check to increase the Federal Gross Pay and Ttl Gross Pay 
   1. In the Document Tab enter the following values:
      1. Check #: 0
      2. Employee Id: XXXX
      3. Check Date: Select a check date based on the period you would like to affect.
      4. Net Pay: $0.00
      5. Accrue PTO = N
      6. Process Reciprocity Rules = N
      7. Process Linked Jurisdictions = N
   2. In the Distribution Tab
      1. Work Date - Enter the same date as in the Document Tab
      2. Tab to OU ID and enter employee OU ID
      3. Tab to Account number – use account number identified for these adjustments
      4. Tab to Gross Pay (Excl. Add to Gross Fringes) – enter positive amount of the SDI tax
   3. Deductions & Fringes Tab:
      
      1. Deduction # and same amount as the Distribution Tab for the Amount Deducted:
   4. Distribute the batch
5. Review the employee earnings - make sure amounts are correct 

Step 5: Pay Back the Employee - Pay the over-withheld SDI amount back to the employee by entering a fully non-taxable reimbursement on the timecards for the next check in the amount owed to the employee.  This may also be done as a reimbursement only check.