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Microsoft Dynamics SL (Archived)

Over withheld 401k contribution

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Posted on by 85

I discovered, the hard way, my 401k contribution max was set too high, so I ended up withholding too much from an employees 401k.  Now, I need to add it back.  I figured out how to modify the deduction, so his deduction for W2 purposes is now correct.  However, I need that to be considered taxable wages for him, so all the government deductions are withheld on that amount still.  I tried to add it back through time and dollar, which works, but now, it's double-dipping; he has an additional amount in his salary and the deduction added back in deductions.  How can I remove it from the deductions, but still have all the necessary withholdings made on his payment?

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    on at

    My preferred way to back out an over-withheld deduction is to do it in Review/Edit after calculations.  This will update all of the acting correctly including gl transactions and employee history.

    So after calculations, in Review/Edit,  enter a negative amt to pay off a deduction that didn't calculate or subtract an amt from the currently calculated deduction amt.  This is a manual calculation.

    If the deduction was a pretax deduction,  then you will also need to increase the subjwages of those deductions that were earlier reduced. For example,  you likely reduced fed1 by the 401k amt.  Now you need to pay back $1000 of 401k. Federal wages would have been reduce by $1000 too much so you would increase the subjwages for Fed1 on this check. Since Fed1  wages were too low, the deduction withheld might also be too low so you might need to increase the fed1 current deduction amt.

    Fed1 often changes when you file your actual tax forms.  However,  Social security and medicare are a fixed percent deduction.. So we know that if you change the subject wages for these Fica deductions, you will also need to change the deduction amt to make up for the earlier understated wages.  In my example you are adding $1000 to the ytd wages so we need to increase fed2 deduction by 1000 X 0.62 presuming that 401k was exempted from  Fed2.  You would just add this amt to the currently calculated fed2 amt

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    on at

    Elaine's method works but it requires quite a bit of knowledge on what deductions and fields are affected.  Getting it wrong will result with issues where the W2 and the 4 941's for the year will not tie out as they should.

    As a suggestion, you can set up a new earnings type (like 401REF) making that earnings type a non-wage type but making it subject to federal withholding and no other deductions.  You then pay back the over withheld 401K amount using this earnings type and the calculation process will calculate the additional federal withholding.  Because the earnings type was set to non-wage, it will not show on the W2 and because only federal withholding was a subject deduction, not other deductions will be taken.  the one issue with this approach is that the 401K amount shown on the W2 will be overstated by this refund amount but that can be edited when the W2 is calculated.  I have my clients use this method for refunding section 125 type deductions as well (be sure to also include the FICA and Medicare health insurance deductions under the earnings type).

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