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ACE Microtechnology

Employee Payroll Tax Deferrals Work Around for Dynamics GP


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Employee Payroll Tax Deferral for Dynamics GP - Notice 2020-652

On August 28, 2020, the Department of the Treasury delivered key terms and basic information regarding Notice 2020-65 (https://home.treasury.gov/news/press-releases/sm948) that was issued by the president on August 8, 2020 (https://www.whitehouse.gov/presidential-actions/memorandum-deferring-payroll-tax-obligations-light-ongoing-covid-19-disaster/).

At its core, this executive order allows for the deferral of FICA-SS for qualified employees from September 1, 2020 thru December 31, 2020.  Employees will be required to pay this back starting January 1, 2021 and must have it paid in full by April 30, 2021.  However, employers must still pay their share of the FICA-SS tax AND track the deferred employee amounts AND handle the repayment. (https://www.irs.gov/pub/irs-drop/n-20-65.pdf)

What’s Missing?

There are still many unanswered questions regarding this order.  Some of which are below:

  • Is it mandatory for employers to offer this?
  • What if the employee leaves the company before the end of 2020? How will the deferral be repaid?
  • What if the employee leaves the company before April 30, 2021? How will the remaining deferral be repaid?
  • What if the employee does not make enough money in 2021 to repay the balance of the deferral?
  • In the above scenarios, is the employer released from the liability?
  • During the repayment period of this deferral, what precedence does this payment take (if any) over other deductions (i.e. health insurance, garnishments, etc.)
  • Is there a possibility that the government will forgive the repayment of the deferral?

Microsoft’s Response

Microsoft is not planning on releasing an update for Dynamics GP related to this change.  The temporary nature of the executive order, coupled with the complexities of the change and its impact on other TSA and garnishment deductions, will require a “work-around” procedure and some manual intervention.

Disclaimer:

  • Please seek legal and tax council before implementing this in your company.
  • If you opt to implement this, be sure to have your employees sign a document stating that they have elected to participate in this deferral, and that they will be responsible for its repayment. You legal advisors should be able to craft this for you.

Challenges in Dynamics GP

Payroll tax calculations impact several areas in Dynamics GP.

The FICA-SS tax box marked at the paycode setup and employee paycode setup automatically calculates both the employer and employee side.  We can’t just turn off one side of this.

If we do turn this off for the employees who elect to participate in the deferral, if any employee has a garnishment that is calculated on net wages (i.e. child support), this can impact the amount that is calculated for the garnishment.

Since health insurance deductions (among others) are often tax sheltered, the impact for the repayment in 2021 is compromised if the deduction amount changes and we’ve turned off the calculation in 2020.

So, the approach we need to take is to keep everything as it currently exists with a few adjustments to the setup and some manual entries to accommodate this now and in 2021.

SETUP

  1.  You will need to create a new Paycode in Dynamics GP.
    • This will be a non-taxed Business Expense
  2. You will need to create a new Deduction code. You can use the same code ID for the deduction as you did for the paycode.
  3. You will need to setup of the Payroll Posting Accounts for these new codes.
    • I recommend that you create a new GL account to track the paycode and deduction activity.
  4. Next, in the Payroll Posting Accounts Setup window, you will need to add this account to Gross Wages and Deduction Withholding (CR)
  5. Finally, you need to assign these two codes to the employees who have signed up for the deferral program.
    • When assigning the paycode, add the start and end dates to control the timeline on this temporary process.
  6. Assign the employees to the new deduction code.

PAYROLL PROCESSING

  1. Process payroll normally through the Calculate Checks steps.
    • Print the Calculate Checks report and identify all the employees in the FICA-SS deferral program
  2. Remove the build
  3. Create a new batch in Payroll Transaction Entry
    • This batch should be created as a recurring batch
    • As you add employees electing the deferral, this batch can be reused each pay period.
  4. Build the batch again and include the new batch created.
    • Make sure the deferred amount has been added back when reviewing the Calculate Checks report.
  1. The deduction code is mapped to the same GL account as the new paycode used for the deferral and will add the amount owed back to the liability so that the deferred amount can be paid on the 2021 Q1 and Q2 941 form.

Additional Thoughts

  • For a more detailed view of the employees and what they owe, you can use Analytical Accounting to track activity. This is recommended only if you are already using AA for other tracking.
  • If you have FICA SS Tips, you have the option of tracking it separately in the same way FICA SS would be tracked (i.e. CVD-TP) so that the breakdown is visible on the reports shown in 4 above.
  • If the deferral is forgiven, clearing the accrued liability needs to be addressed in terms of the employee record and the general ledger.
    • It’s possible the forgiven amount would need to be claimed as taxable earnings. If so, expect a new process to account for this in the Payroll module.
  • For more information please email Laura Murphy, Director of Consulting at ACE Microtechnology, Inc.

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