Adjust FICA/Medi earnings and refund tax withheld

Owned by Claire Aleman
01 19, 2024

Issue/Symptom/Question

How do I adjust Fica/Medi earnings and taxes withheld in error due to incorrect exemption status entered

Applies To

Payroll > Employees > Employee Payroll Information / Withholding tab
Payroll > Setup > Deductions, Reimbursements, and Other Compensation > Master Reimbursements 
Payroll > Setup > Deductions, Reimbursements, and Other Compensation > Other Compensation Information
Payroll > Exception Checks > Manual Checks

Resolution/Fix/Answer

Use a Manual Check to adjust the taxable earnings, set up an Other Compensation to adjust the taxable earnings, and set up a reimbursement to refund the tax to the employee on his regular check.

***NOTE*** The 'Exempt from FICA' flag in the Federal W/H tab of the Employee Payroll Information window must be set to No while this adjustment is in process in order to change FICA and MEDI earnings.

Part A will reduce the employee's gross pay, FICA and Medi earnings and taxable earnings, tax withheld, and will set up the reimbursement to be paid back to the employee.  Part B will reinstate the employee gross pay to the correct amount.

  1. Create a new Other Comp (or use an existing OC) for the adjustment, using calculation base 3. 
    1. On the Tax Code tab, set the 'include in all earnings' flag to No. 
    2. Enter one Federal Exception for FICA (both FICA and Medi will be affected).
  2. Create or find an existing Reimbursement to use to refund the taxes withheld in error. 
    1. The default on the Taxable/Non-Taxable tab should be A (After) tax
    2. All exceptions should be null 
  3. Create a Manual Check:  On the Document tab, 
    1. Enter the check number as 0 (zero), 
    2. Enter the correct employee number, 
    3. Enter the proper date,  (The date should be in the correct period for any reporting if possible)
    4. Enter $0 dollar net pay
    5. Answer No to all three of the questions at the bottom of this page.
  4. On the Distribution tab, 
    1. Enter the same date as on the Document tab, 
    2. Enter the employee's OU, 
    3. Enter a GL account;  there will be no ledger impact with this entry
    4. Gross wages field = $0.00.  
    5. There will be no changes in the Default Employee Information popup.
  5. On the Withholding - USA tab, to reduce the FICA/Medi tax withheld to zero, 
    1. Enter FICA as a negative total amount of taxes to be refunded for FICA
    2. Enter Medi as a negative total amount of taxes to be refunded for Medi
  6. On the Reimbursements tab, 
    1. Enter the Reimbursement# selected in step 2, 
    2. Enter the negative amount of the taxes to refund (the total of both FICA and Medi on the Withholding tab)
    3. Remove the Applied account as this is not necessary
  7. On the Other Compensation tab, 
    1. Enter the Other Comp# selected in step 1 
    2. Enter a negative value of the amount by which the FICA(MEDI) earnings need to be decreased.
  8. Process the check.

Part B below will increase the employee's gross pay, and will zero out the Other Compensation History amount

  1. Query the Other Compensation used in A.1. above
    1. On the Tax Code tab, leave the Include in all earnings set to N (NO)
    2. Remove the FICA exception from the Federal Exceptions block - there should be no exceptions in any block.
  2. Create another Manual Check:  On the Document tab;
    1. Enter the check number as 0 (zero), 
    2. Enter the correct employee number, 
    3. Enter the proper date,  (The date should be in the correct period for any reporting if possible)
    4. Enter $0 dollar net pay
    5. Answer NO to all three of the questions at the bottom of this page
  3. On the Distribution tab:
    1. Enter the same date as on the Document tab
    2. Enter the employee's OU
    3. Enter the GL account entered in A.4.
    4. Gross wages field = $0.00
    5. No changes to the Default Employee information popup
  4. On the Other Compensation tab:
    1. Enter the same Other Comp# as in A.7.
    2. Enter a positive value of the amount entered in A.7.b
  5. Process the check.
  6. Verify all amounts in all tabs of the Employee Earnings History Query screen:
    1. The FICA and Medi taxable earnings should be zero
    2. The Reimbursement selected for the adjustment should be zero
    3. The Other Compensation selected should be zero
    4. The employee's Gross Pay and Total Gross Pay should be correct

Part C:  Will re-set the employee to FICA Exempt status before entering the next payroll data

  1. On the Employee Information screen:
    1. Query the employee
    2. Access the Withholding tab
    3. Change the Exempt From FICA field to Y so no further taxes will be withheld, and the FICA and Medi taxable earnings will not increase.

Part D:  will refund the FICA/Medi taxes withheld from the employee in error.

  1. On the Time, Equipment, and Production entry when entering time for the employee's next check:
    1. On the Reimbursement tab, enter the Reimbursement number selected in part A.6.a above
    2. Enter the full amount of the reimbursement that was entered in part A.6.b above.
    3. Remove the Applied Account (the account defaults from the Master Reimbursement setup, but is not needed here)
  2.  Process employees check/Direct deposit as normal