080807 2007 Blackbaud, Inc. This publication, or any part thereof, may not be reproduced or transmitted in any form or by any means, electronic, or mechanical, including photocopying, recording, storage in an information retrieval system, or otherwise, without the prior written permission of Blackbaud, Inc. The information in this manual has been carefully checked and is believed to be accurate. Blackbaud, Inc., assumes no responsibility for any inaccuracies, errors, or omissions in this manual. In no event will Blackbaud, Inc., be liable for direct, indirect, special, incidental, or consequential damages resulting from any defect or omission in this manual, even if advised of the possibility of damages. In the interest of continuing product development, Blackbaud, Inc., reserves the right to make improvements in this manual and the products it describes at any time, without notice or obligation. The Raiser s Edge, MatchFinder, ParaGon, RE:Alum, RE:Event, RE:Member, RE:Queue, RE:Tribute, RE:Volunteer, RE:Zip, RE:Open, and Blackbaud are registered trademarks of Blackbaud, Inc. All other products and company names mentioned herein are trademarks of their respective holder. AFN-PayrollEndofYearGuide-080807
1 Payroll End of Year Guide This guide is designed to illustrate the flexibility of Payroll and to help streamline the year-end close. The guide will explain the procedures for running W-2s; it also touches upon handling tax adjustments that may be necessary for some employees. Although Blackbaud s Payroll system does not have a hard year-end close, there are a few things you must consider before you begin calculating payroll for the new tax year. We have also added a Question and Answer section at the end of this document for quick reference. You can produce W-2s at any time, even after you have begun processing payroll for the next year. The system keeps the tax years separate based upon check dates. Consequently, you do not have to print W-2 forms before processing payroll for the upcoming year. The following scenario illustrates the Payroll end-of-year process: Note: This is an example only. Your timeframe and the dates of certain functions will likely be different. December 24 Process the last payroll of the new tax year. Review YTD reports before finalizing this payroll. It is a good idea to print and review a W-2 test run before this final payroll so that you can make any necessary tax adjustments resulting from incorrect tax flag settings. January 5 Update all relevant tax tables with rate or other changes for the new tax year. Update all employee records for changes in pay, reduction/deductions, etc. January 12 Process first payroll of the new year. January 15 Print a W-2 test run to verify accuracy of information. January 16 Print W-2 forms and distribute. January 26 Process second payroll of the new year. As shown above, the system can accurately produce W-2s for the current year even if you have updated the tax tables and processed payroll calculations for the new year. To order W-2 forms, please contact our Business Forms Department Toll Free 1-866-4-BB- Forms. This guide includes sections on W-2s, getting ready for the first payroll of the new year and making tax adjustments. These sections are not in any particular order. You might run your first payroll before running W-2s and vice versa.
2 W-2 Reporting and Processing Print Employee Profiles: To verify employee biographical information, you can run the Employee Profile Report, which can be found in the Reports module under Payroll Reports/Profile Statistical Reports. It is suggested that this report be used as a tool to ensure that all employee data (address, Social Security number, etc.) has been entered correctly. Having employees verify their biographical information prior to running W-2 forms can save time and avoid delays. Corrections can be made by the employees directly on the report and turned in to the Payroll Administrator. When running the Employee Profile Report, you can choose to print each employee on a separate page. This option is found on the Format tab of this report by choosing the Detail radio button. Verify W-2 Amounts: Once the employee biographical information has been verified, you should begin to review the figures that will appear on the W-2. W-2s are printed in the Mail module. You can print the W-2s to plain paper to verify the amounts. The Adjusted Gross Wage figures that are calculated on each payroll check will be accumulated by the system and will appear on the W-2. It is critical that you check these figures before you process the actual W-2s. The following list indicates where the adjusted gross figures, accumulated on each payroll check, will appear on the W-2: Taxable Gross W-2 Box Federal Box 1 Social Security Box 3 Medicare Box 5 State Tax Box 16 Local Tax Box 18
3 The following list displays the report(s) that can be produced to check the figures printed on the W-2. This list is based upon the 2007 W-2 form. Any IRS changes to the W-2 form for the coming year could cause this listing to change. W-2 BOX Payroll Reports 1,3,5,16 and 18 Adjusted Gross Wage Report 2,4,6,17 and 19 Reduction/Deduction Register 9,10,11,12 Reduction/Deduction Register or Earnings Register 14 Located on the Employee Record, Taxes Tab, W-2 Radio Button 13 Located on the Employee Record, Taxes Tab, W-2 Radio Button 15 Located on the Employee Record, Taxes Tab, State Income Taxes Settings Radio Button 21 Localities are defined in Configuration, Tax Tables, Local Taxes a b c d e Entered on the parameter screen when printing W-2s Specified in Configuration, General Tab Entered in Configuration, General Tab Employee Record, Bio 1 Tab Employee Record, Bio 1 Tab If discrepancies are found with the Employer Information, check the General tab in the Configuration module for the Federal Tax ID and the employer address. The state tax identification number is found on the Tax Tables tab also located in Configuration. General employee information, such as name and address, can be found on the employee record located in the Employees module. Printing W-2 Forms: Once you have reviewed the W-2 information and made any necessary corrections, you are ready to print W-2 forms. Perform a test run to ensure all parts of the form are legible. Laser formats are available. There are a variety of W-2 formats to choose from, and each form may be purchased from Blackbaud. For more information, you can visit the forms section of our Web site at http://forms.blackbaud.com or send an email with questions to forms@blackbaud.com. You can also call 866-4-BB-FORMS (866-422-3676). Payroll gives you the flexibility to print W-2 forms while sending the employer s Copy A via magnetic media. According to the IRS, employers who file at least 250 forms must file using magnetic media and provide printed forms to the employees. The IRS encourages employers who have fewer than 250 forms to also file electronically.
4 To file electronically, you must register and receive a PDW from the IRS. For instructions on how to register, please refer to the O6MMREF1.pdf file located on the installation CD. The Social Security Administration (www.ssa.gov) maintains a list of states that use the MMREF-1 for W-2 filing. The option to create the W-2 magnetic media file can be found on the Magnetic Media tab of the W-2 Forms parameter screen.
Notice, on the first tab, you can choose the year for which you are printing W-2s and the type of form that you are using. In Payroll, you can choose a different printer for printing reports than the one used for printing the W-2s. 5
6 On the Magnetic Media tab, you can choose whether you want to create a State or Federal copy and the path where you want the file to be written. The name of the file will be W2REPORT. After you create the file, you must run Accu07.exe to install the program locally. You can locate this file on your installation CD, or on the Social Security Administration s Web site. On the Departments and Attributes tabs, you can choose specific departments or employees with specific attributes for whom to print W-2s. If your W-2s are not vertically aligned correctly, you can use the Form adjustment option to specify the number of units to adjust. Each unit is equivalent to 1/100 of an inch. This option is found on the Format tab, and you must be using a laser printer.
7 Using the Output options on the Format tab, you can also specify how you would like to have your W-2s sorted. You have the choice of employee name, social security number, home department, employee ID, and zip code. Points to Remember: With Payroll, you can begin processing payroll checks for the new year even if you have not yet printed W-2s for the current year. You will want to consider the following before processing the first payroll for the new year: Verify that the tax tables are correct for the coming year. If the tax tables have changed, you can add a new tax table and specify the date when that tax table will become effective. Tax table information can be found in the Circular E (obtained from the IRS) and state or local publications. You will want to remember to pull the information from the Annual tax table. Note: Editing the Tax Tables will not affect historical calculations. Make all necessary changes to employee record regarding pay, reduction/deductions, etc. Begin calculating. This can be done before you process W-2s for the current year.
8 Troubleshooting: This section illustrates what to look for when reviewing W-2s and demonstrates how a tax adjustment can be entered into the Payroll system if over or under withholding of taxes occurs on the W-2. What to look for when reviewing W-2s: 1. Negative amounts. Typically this means an employee s wages are not subject to a certain tax but a reduction/deduction that has been applied to his record is set to reduce gross. 2. No wages or withholding. When defining the tax settings for a particular employee, you have one of three choices: a) Withhold tax, b) Do not withhold tax or report earnings and c) Report earnings only, no withholding. If wages have not been reported or taxes withheld, this would indicate that you had chosen the option b or c. 3. Inaccurate Federal and State identification numbers. The Federal ID number is defined on the General tab in Configuration. The State ID is defined on the Tax Tables tab in Configuration when adding a tax table for a particular state. 4. Blank Social Security Number. The Social Security number is defined on the Bio 1 tab of the employee record. 5. Incomplete addresses. The employee s address is defined on the Bio1 tab of the employee record. Your organization s address is defined in Configuration on the General tab. 6. Inaccurate Box 13 and 14 information. Both Box 13 and 14 information is specified on the employee record on the Taxes tab. Select the W-2 radio button. Red/Deds, Other Pays, and Local Employer only tax can all print in Box 14 (maximum of three per employee). Review each employee s W-2 as well as the grand totals on the W-3. Getting Ready for the First Payroll of the New Year To prepare your system for the new tax year, verify or update the tax settings on Other Pays and Reduction/Deductions located in Configuration. Also verify employee records with any changes to their tax settings. Changes to the tax tables can be made even if you have not printed W-2s for the current year. Other Pay and Reduction/Deduction Changes: Check the tax flag responses on the Other Pay Codes and Reduction/Deduction Codes located in Configuration. Tax Table Changes: With Payroll, you can edit the existing tax tables to reflect tax changes for future periods. However, for audit trail purposes, it is better to add new tax tables that reflect the changes to the
9 taxes. If you add new tax tables when the amounts or percentages change, you will be able to check historical calculations against the tax tables that were applicable at the time. To add a new tax table, open an existing tax table and select Save and New. Next you change the effective date and save. You can then select Federal (or State) from the menu and restore the defaults. Employee Changes: Verify employees tax settings located on the Taxes tab in the Employees module. Regular pay for employees can have one of three settings: a) Withhold tax, b) Do not withhold tax or report earnings and c) Report earnings only, no withholding. It is important that you have a complete understanding of these settings and how they affect withholdings, tax returns and employees W- 2s. The following examples will illustrate how each tax setting used for Federal tax affects the employee s payroll check and W-2: Available tax settings for Federal Tax: Withhold, Do not withhold or report, and Report Earnings only
10 Tax Adjustments Quick Reference Adjusting FICA Increase FICA tax withholdings Other Pay (+) amount Withhold settings for Social Security and Medicare Other Pay (-) amount Do not withhold tax or report earnings all tax settings Amount of adjustment will be the Gross subject to FICA. *Must be done on the next payroll check issued because tax will be withheld. Increase FICA wages Other Pay (+) Report earnings only, no withholding for Social Security and Medicare Other Pay (-) amount - Do not withhold tax or report earnings on all tax settings Amount of the adjustment will be the Gross subject to FICA. * Can be done on the next payroll check, or as a historical entry. No tax will be withheld. Decrease FICA Tax withholding (due to over-withholdings) Other Pay (-) amount - Withhold tax settings for Social Security and Medicare. Other Pay (+) amount - Do not withhold tax or report earnings on all taxes. Amount of adjustment will be the Gross subject to FICA. *Must be done on the next payroll check. A negative FICA tax will be withheld reducing the FICA tax. Decrease FICA wages Other Pay (-) amount - Report earnings only, no withholding for Social Security and Medicare Other Pay (+) amount Do not withhold tax or report earnings on all other tax settings Amount of adjustment will be the Gross pay subject to FICA. *Can be done on the next payroll check, or as a historical entry. No tax will be withheld. Adjusting Federal Increase Federal tax withholdings Add a (+) Federal Tax withholding adjustment on the Taxes tab during the calculation. Note: This will not alter the wages subject to Federal. It must be done in conjunction with a regular payroll check. Increase Federal wages Other Pay (+) amount - Report earnings only, no withholding for Federal Tax Other Pay (-) amount Do not withhold tax or report earnings on all other tax settings Amount of the adjustment will be the Gross subject to Federal *In this example you would be doing a historical check. If tax must be withheld, the adjustment would need to be done on the next paycheck and the positive Other Pay amount will have to be set to Withhold tax.
11 Decrease Federal Tax withholdings Add a (-) tax withholding adjustment on the Taxes tab of the employee record during a calculation. *Must be done on the next payroll check Note: This does not alter the wages subject to Federal Tax Decrease Federal Wages Other Pay (-) amount Report earnings only, no withholding for Federal Tax Other Pay (+) amount Do not withhold tax or report earnings on all other tax settings Amount of adjustment will be the Gross subject to Federal. *Can be done on the next payroll check, or as a historical entry. Note: State and Local tax work the same way in all four scenarios Adjusting Line 2 of 941 Increase in Line 2 of 941 Other Pay (+) amount Only the Include on Line 2 of 941 form is checked. All other tax settings are set to Do not withhold tax or report earnings Other Pay (-) amount Do not withhold tax or report earnings for all tax settings; 941 box is not checked. Amount will be the amount by which the 941 totals need to be increased. *Historical entry. Done on any employee. Check date should fall within the same quarter as the incorrect 941 report. Decrease Line 2 of the 941 Other Pay (-) amount - Only the Include on Line 2 of 941 form is checked. All other tax settings are set to Do not withhold tax or report earnings Other Pay (+) amount Do not withhold tax or report earnings for all tax settings; 941 box is not checked. *Historical entry. Done on any employee. Check date should fall within the same quarter as the incorrect 941 report. Note: Calculation amount for all Adjusted Gross figures will be zero since a 941 adjustment does not alter any Adjusted Gross figures. Adjusting W-2 Boxes Increase Other Pay (+) amount W-2 box in question is checked: All tax settings are set to Do not withhold tax or report earnings. Other Pay (-) amount No W-2 boxes are checked. All tax settings are set to Do not withhold tax or report earnings.
12 *Can be done on the next payroll check, or as a historical entry. Adjusted Gross screen will reflect all zeros because no taxes or withholding are being altered. Decrease Other Pay (-) amount W-2 box in question is checked. All tax settings are set to Do not withhold tax or report earnings. Other Pay (+) amount Do not withhold tax or report earnings. *Can be done on the next payroll check, or as a historical entry. Adjusted Gross screen will reflect all zeros because no taxes or withholding are being altered. 941 Reconciliation All calculations that appear on the 941 are direct results of tax flag settings on the employee record, Other Pays and Reduction/Deductions. Line 1: Number of employees who received wages Payroll Report for the same months that are reported on the 941 report. On the Format tab, Details radio button, choose to run this report in summary. The number of employees listed will be on the bottom of the report. Line 2: Wages, tips and other compensation Adjusted Gross Wage Report (Summary) only for Federal Tax. To run the report in summary, go to the Format tab and choose the Details radio button. There will be an option to run the report in Detail or Summary. To Manually Calculate the Figure: Gross Wages (Earning Register include Regular Pay, Overtime Pay and Special Pay exclude all Other Pays) - Wages Not Subject to Federal Tax (Employee Payroll History Report: Look for N to Federal Tax Regular, Overtime and Special pay only) + All Other Pays (Earnings Register exclude Regular Pay, Overtime Pay and Special Pay) - Other Pays not subject to Line 2 Include on Line 2 is not checked (Other Pay Profile Report Used to find Other Pays where the Include on Line 2 is not checked. Then run the Earnings Register to find the amounts for these particular Other Pays. Exclude Regular, Overtime and Special Pay and any Other Pays that have Include on Line 2 checked. - Reduction/Deductions reducing Line 2 Reduce for Line 2 is checked (Reduction/Deduction Profile to find the Reduction/Deductions where Reduce for Line 2 is checked. Then run the Reduction/Deduction Register to find the amounts for these particular Reduction/Deductions. Note: 941 flag settings may have been changed on the Other Pay or Reduction/Deduction during the year. It can be difficult to determine when the change took place because there is not a report that displays the 941 settings at the time of calculation.
13 Line 3: Total income tax withheld from wages, tips and other compensation Reduction/Deduction Register only for Federal tax withheld. Payroll Report in summary, Federal Withholding column only. The summary option is found on the Format tab, Detail radio button. Line 5a: Taxable Social Security Wages Adjusted Gross Wage Report (Summary) for Social Security To manually calculate the figure: Gross Wages (Earning Register include Regular Pay, Overtime Pay and Special Pay exclude all Other Pays) - Wages Not Subject to FICA Tax (Employee Payroll History Report: Look for N to Social Security and Medicare for Regular, Overtime and Special Pay only) + All Other Pays (Earnings Register exclude Regular Pay, Overtime Pay and Special Pay) - Other Pays not subject to FICA Social Security and Medicare =N (Other Pay Profile Report Used to find Other Pays where the Social Security and Medicare have been flagged to Do not withhold or report earnings. Then run the Earnings Register to find the amounts for these particular Other Pays. Exclude Regular, Overtime and Special Pay and any Other Pays that have Withhold tax settings. - Red/Ded reducing Line 2 Reduce Gross Subject to Social Security and Medicare (Reductions/Deduction Profile to find the Reduction/Deductions where Reduce Gross Subject to Social Security and Medicare is specified. When running the Reduction Deduction Profile Report, you will want check the box Reduce Federal Gross to find these Reduction/Deductions. Then run the Reduction/Deduction Register to find the amounts for these particular Reduction/Deductions. - Wages that exceeded the tax year s maximum ($87,900 for 2004) Note: Social Security and Medicare tax settings may have been changed during the year. Print the Employee Payroll History Report to verify the change on Other Pays and Reduction/Deductions from one check to the other. The Social Security and Medicare setting is stored with each historical check. Social Security Taxable Wages *12.4% (Employer +Employee %) Line 5c: Taxable Medicare wages & tips Adjusted Gross Wage Report for Medicare Manual Calculation is the same as line 5a with the exception the wage base maximum. Medicare Taxable Wages * 2.9% (Employer +Employee %)
14 Line 5d: Total social security and Medicare taxes Add lines 5a, 5b and 5c Line 6: Total taxes before adjustments Add line 3 and 5d Line 7: Tax adjustments Line 8: Total taxes after adjustments Add lines 6 and 7h Line 9: Advance earned income credit (EIC) payments made to employees Line 10: Total taxes after adjustment for advance EIC Line 8 Line 9 Line 11: Total deposits for this quarter, including overpayment applied from a prior quarter Line 12: Balance due Line 10-11 Line 13: Overpayment
15 Sample 941 Report Daily Tax Liability: Payroll Report run in summary for the specific date range. Add the Federal Column + 2*(Social Security and Medicare columns). If the employee s Social Security and Medicare setting are flagged to Report earnings only, you can run the Reduction/Deduction Register and view the employer Social Security and Medicare amounts multiplied by 2 to get these amounts. If Advance EIC has been paid during this quarter, subtract this amount from the formula total. Or, you can run the Reduction/Deduction Register for the specific date range and select Federal, Social Security, Medicare, EIC and Employer Liability. All reports should be generated using a start and end check date range for the 941 quarter you are trying to reconcile. For the Daily Tax Liability section, you can run the Payroll Report in summary and narrow it down to a particular day.
16 Questions and Answers Q: Can I run payroll for the new year before I run W-2s? A: Yes. The system looks at historical data only for the W-2 calendar year to process forms. Q: What happens if I calculate for the new year without adding or updating any of my system s tax tables? A: If you do not update the tax information, your W-2s may not be accurate for the upcoming year and you will have to make Payroll adjustments to correct this information. Also, your 941 tax report, state tax report, and local tax reports may be incorrect. In some cases, you will not be able to make adjustments to correct these reports. It is crucial that the necessary changes to your tax tables be made prior to running the first payroll of the new year. Q: Should I run the Summarize Transactions and Purge options located in Utilities and Housekeeping at the end of the year. A: It is not necessary to summarize and purge your payroll system data on a yearly basis. These options should be used when you want to streamline your data files and remove excess activity on the Employee s activity screen. Q: If there is not a hard close in Payroll, how does the system know we are entering a new year? A: Most reports within Payroll are based upon check dates or period ending dates, which you specify when running the reports. W-2s are run based upon a calendar year. All check information that falls within the calendar year that you specify will be reflected in the appropriate boxes on the W-2. Q: Where do I alter box 14 and 15 information for each employee s W-2? A: This information is defined on the Taxes tab of the employee record. On the Taxes tab, you will see a W-2 option. This is where both box 14 and box 15 information is defined. Red/Deds, Other Pays, and Local Employer only tax can all print in Box 14 (maximum of three per employee). Q: An employee left the organization, so I entered a termination date and reason on his Bio 2 tab. When I calculate for the new year, the employee is still included. Why? A: To change an employee s status to terminated go to the Bio 1 tab and change his status there. Also, when you are creating payroll calculations, you can choose to calculate for all statuses or you can you choose selected statuses. You may want to deselect employees with a terminated status.