2013 Social Security Tax withheld at 4.2% - How to correct?

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Posted on by Gregory Picoult

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A client processed the first payroll of 2013 before applying the Tax Table Update, which increase the SS tax to 6.2%. So, all employees had Social Security withheld at 4.2% on their first check. I tested processing the second check after applying the update. My hope was the tax is anualized and Social Security would be over withheld to correct for the under withholding on the first check. Unfortunately, this did not happen. Is there a recommended process to correct the Social Security Tax withheld?

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Richard Wheeler 75,848 Moderator on at

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You need to process manual paychecks for just the SS amount for each employee. You will not be cutting any pay checks, just adding the SS amount to each employees totals.

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Douglas Karel 2,140 on at

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Just to add to Richards comments, I would recommend when doing the manuall paycheck that you add in the amount for Social Security tax and reduce the Federal Withholding for the same amount. The reason for this is because if you just do the Social Security amount, as an employer you would be out that amount of withholding. By adjusting against Federal Witholding, we are keeping the 941 in balance with the total federal deposits you made. If you prefer not to transfer from 'one bucket to another' than I would recommend that you make a tax deposit for that dollar amount of the additional tax so that you are not underpaid.

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We have a similar issue after our first payroll. However, the adjustment transaction within the manual checks process will allow you to process transactions only against pay codes, deductions,and benefits. How do you process an adjustment for the SS tax and Federal tax as only the above 3 codes are allowed? A message pops up if SSTax adjustment is attempted.. saying only the above 3 types of adjustments are allowed! Help!!! Thanks!

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L Vail 65,271 on at

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Hi,

Why don't you just increase the FICA withholding by 2% and make it up on the next pay run. You would need to make sure the gross was the same, but I have found this to be the easiest method.

Kind regards,

Leslie

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Douglas Karel 2,140 on at

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@ranjit - do the manual check as begining balance entry. That allows for a little more flexibility

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Douglas Karel 2,140 on at

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@ Leslie - the suggestion of increasing Social Security tax by 2% and have it come out on the next payroll run might work if most of the employees were salaried, but in some of my clients environments, they are a retail\service industry and they process nearly 5,000 part-time employees paychecks a week. The employees weekly gross amounts varie too much.

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Thanks for your responses! Most of these employees are hourly, so their next gross will be different from this payroll run.

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L Vail 65,271 on at

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OK, so the simple 2% increase won't work. How about calculating how much they owe and put it as a deduction that you take until you have the full amount? The company would be whole on it's taxes, and then you would need to make an adjustment to the employee to get it right on their W-2. It's much the same as we did the first year they changed and everyone was OVER withheld.

With 5K employees that would be a job, but the magic of computers makes it possible.

Kind regards,

Leslie

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Douglas Karel 2,140 on at

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For one of our smaller clients we had them do a smartlist with the Social Security Wages and Social Security Tax Withheld. We exported that to excel and calculated what it should and subtracted out the tax withheld. The difference was then entered into as a manual check as Social Security Withheld (positive number) and the same number was entered as a negative to Federal Withholding. The thinking behind this is the taxes were already withheld from the employee and we just are moving the buckets. This way it still balances on Federal Deposits that have been made and will tie out for the 941's.

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We had the similiar scenario in our first pay run and ended up taking the extra 2% .. when we should not have (tax tables were not updated correctly). Douglas Karel's earlier suggestion (Thanks!) worked the best for us where we had to adjust each employees amount via manual Checks>Beginning Balance. This gave us the most flexibility. This was some work with the number of employees that we had.. but seemed to be the best approach!

We could not adjust the % (up or down to catch up) as most where hourly employees and their amount for each pay could be potentially different each pay, hence different Social Security Tax amount withheld.

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