w-2 correction wizard - church management software ... wizard.pdf · date created: 12/01/2006...
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Date Created: 12/01/2006 Updated: 12/19/2006 1
W-2 Correction Wizard Shelby v5.6.3000
Overview
During the month of January, Shelby's Support department receives numerous calls regarding
adjusting employee W-2s. Many users simply become overwhelmed at the flood of amounts,
compensation types, deduction types, tax amounts, special W-2 codes, and so forth.
To help alleviate these problems, Shelby is incorporating a new W-2 Correction Wizard on
the 2006Year-End Release. The Wizard simplifies corrections by allowing you to specify what
is wrong with the W-2, instead of calculating and entering a solution. In turn, the Wizard
creates a manual check automatically with the appropriate calculations based on the specified
problem.
For example, assume you forgot to divide a minister's check between his salary and his housing
allowance (you included his housing in his salary), and thus, his W-2 basis is wrong. Using the
Wizard, you would simply select the minister, select the problem from a simple menu, and
choose which checks need to be adjusted. The Wizard will do the "thinking" for you, and
create a manual check based on your input.
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What the Wizard is For
You can use the Wizard to correct these problems:
• Change an employee marked as a "non-minister" to a "minister", and vice versa.
• Change a compensation distribution to a different compensation distribution, or split a
payment between two compensation types.
• Change a deduction distribution to a different deduction distribution, or split a payment
between two distribution types.
• Add a non-cash compensation.
• Apply or change state and/or local tax types.
What the Wizard is Not For
You cannot use the W-2 Correction Wizard for the following problems:
• Do not use the W-2 Correction Wizard to add additional compensations or deductions
(except for non-cash compensations).
• The W-2 Correction Wizard DOES NOT affect employee record settings. If an
employee’s record is missing a tax table, a contribution distribution, or has the Check Here if Minister check box marked incorrectly, you will still need to go into the
employee’s record and make needed changes. This will prevent future checks from
having mistakes.
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The Process in Brief
Regardless of the W-2 problem you are trying to fix, the basic process of making a correction
is virtually the same. To correct a problem, you:
1) Identify the Problem – Spotting a problem is actually the hardest part of the correction
process. In the following Determining What is Wrong section, we have supplied you
with a few pointers that will assist you in this process.
2) Find the Incorrect Checks – Use Payroll Inquires to find which checks were incorrect.
3) Start the W-2 Correction Wizard – Once you have identified the problem, start the
W-2 Correction Wizard to create a hassle-free manual check.
4) Select the Employee Who Has the Problem – You correct one employee at a time.
On this screen, you will see a red checkmark in the Adjs. (Adjustment) column if this
individual has been corrected at least once already using the W-2 Correction Wizard.
You can still make multiple corrections for an individual; just one correction at a time.
5) Choose a Course of Action – As stated previously, you can make someone exempt
from FICA withholding by changing his minister’s designation, change distribution
types (compensations and deductions), add non-cash compensations, and add or change
state and local tax tables.
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6) Pick the Incorrect Checks – Place checkmarks next to the incorrect checks, or click
the Adjust column heading to select or deselect all checks.
7) Pick the Changes You Need to Make to the Checks – This part varies from action to
action, but in the case of adding or changing compensations (including non-cash gifts)
and deductions, you will choose which distribution to add to the record and choose an
amount of money to move. If you are adding or changing tax tables, you will pick the
appropriate tax tables from a pull-down list.
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8) Review the Changes – Finally, a grid view will display the amounts in each box on
your W-2, and will indicate which boxes have changed as a result of running the W-2
wizard.
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What to Do Before Using the Wizard
Determining What is Wrong
Before you can start using the W-2 Correction Wizard, you have to properly identify the
problem. Although spotting potential problems can be tough, the section below provides a few
tips that will help you spot items that may need correcting.
Verify that Ministers' W-2s Appear Correct
1) The figure in box 1 plus the minister's housing allowance (which may be listed in box
(14), but is not required) plus any pre-tax deductions should be equal to the minister's
annual salary.
2) Box 2 should be blank, unless the minister has requested you to withhold federal taxes
from his paycheck at some point during the year.
3) Boxes 3, 4, 5, and 6 should be blank since the IRS considers ministers to be self-
employed for FICA taxation purposes.
4) If the minister has a non-cash compensation, then box 12 should have a code C entry.
5) If the minister contributes to a 403(b) through a payroll deduction, then box 12 should
have a code E entry.
6) Housing Allowance amount may be listed under box 14, but it is not required.
7) Verify that boxes 15 through 20 contain the correct state tax information.
8) If your state collects state income taxes, check to see if box 1 matches box 16. These
boxes will most likely match. It is possible, however, that your state's tax regulations
may vary from those of the federal government concerning certain compensations and
deductions.
9) Repeat steps 1. through 8. for each minister.
Verify that Non-Ministers' W-2s Appear Correct
1) Box 1 will not match boxes 3 and 5 when the employee has a tax deferment, such as a
401(k) or 403(b). Otherwise, they should match.
2) If box 1 and box 3 do not match, then an item should be listed in box 12.
3) If the employee has a non-cash compensation, then box 12 should have a code C entry.
4) If the employee contributes to a 401(k) through a payroll deduction, then box 12 should
have a code D entry.
5) Verify that boxes 15 through 20 contain the correct state tax information.
6) If your state collects state income taxes, check to see if box 1 matches box 16. These
boxes will most likely match. It is possible, however, that your state's tax regulations
may vary from those of the federal government concerning certain compensations and
deductions.
7) Repeat steps 1. through 7. for each non-minister.
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Finding the Incorrect Checks
After you have determined what is wrong on the W-2, you will next have to use the Inquiries
section of the Payroll module to find which checks were wrong. For example, if a minister has
figures in boxes 3, 4, 5, and 6, open Inquiries and look for checks that had FICA withheld.
Take note of which checks were wrong; you will need this information when you begin
running the W-2 Correction Wizard.
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Making a Backup of Your Data
It is strongly advised that you make a backup of your data before running the W-2 Correction
Wizard, especially the first time you choose to run the utility.
If you elect not to make a backup prior to running the W-2 Correction Wizard, you can remove
any corrections made by the wizard by deleting the manual check entries from the Manual
Checks area instead of saving the entries. See the Finalizing the Entries/Manual Checks
section to learn more about saving the correction entries.
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Correcting Wrong Minister Types
How an Employee Becomes Marked with the Wrong Minister Type
If you navigate to the Employee Information area and open an employee’s record, you will find
a Check Here if Minister option on the second tab, 2. Payroll Info. This option determines if
the employee is a minister or non-minister. When an employee is a minister, the employer is
not required by the IRS to withhold FICA (Social Security and Medicare), and is exempt from
federal tax withholding.
Selecting this checkbox will prevent FICA taxes from being withheld from any paychecks, and
marks the person exempt on the Taxes tab to prevent federal taxes from being deducted from
the paycheck.
It is common for people to accidentally forget to select this checkbox when creating a
minister’s payroll record for the first time. Perhaps this checkbox was accidentally selected for
a non-minister. Sometimes an employee will become a minister in the middle of the tax year,
and the payroll manager will forget to update this checkbox.
Whatever the reason for marking the checkbox incorrectly, fixing this problem is quick and
easy using the W-2 wizard.
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Minister Type Correction in Action
The following scenario and step-by-step instructions will help you understand how a problem
might arise and how to fix it using the W-2 Wizard.
Mr. Stanley K. Burrell was a lay worker for First Church of the City until June 2006. At that time, he received his ordination certificate from the church, and became the Youth Minister. Although the financial secretary, Mrs. Cash, changed his tax tables to exempt, she forgot to update his Check Here if Minister checkbox. As a result, the church withheld FICA until December 2006. Rev. Burrell had no concerns since he owes the FICA tax money at the end of the year anyway, but Mrs. Cash now needs to correct the W-2 so that boxes 4, 5, and 6 on the W-2 are blank.
The following steps will demonstrate how you might correct a similar problem.
1) Open the Payroll module.
2) Click on Utility on the menu bar at the top of the Payroll Home Base screen.
3) Choose W-2 Correction Wizard from the menu.
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4) Choose the appropriate year using the Calendar Year pull-down field.
5) Click the Next button at the bottom of the window.
6) Click on the name to highlight the employee whose W-2 needs correcting.
7) Click the Next button at the bottom of the window.
8) Make sure the Change ‘Minister’ Designation radio button is selected.
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9) Make sure the Make Minister radio button is selected.
10) Select the checks to be changed.
11) Select the checks you need to correct.
12) Click the Next button at the bottom of the window.
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13) Enter a date in the Date for Transaction field.
14) Observe the before and after columns to check the results of the change. Since the tax
money has already been withheld, the wizard moves the amounts from boxes 4 and 6
and puts it in box 2, allowing the minister to receive a refund. The sum of the
Difference column for boxes 4 and 6 should be equal to the Difference column for box
2. Click the Next button when done. Continue making corrections to other employees,
or click the Close button in the top-right corner of the screen to close the wizard.
Note: Although the W-2 Correction Wizard can be used to change an
employee marked as a minister to a non-minister, it is important to note
that your organization will owe additional monies on your next 941 due to
not paying or withholding the taxes. How to collect the owed taxes is a
matter left up to your organization.
Note: To avoid paying 941 penalties, make separate corrections for groups
of paychecks in the same quarter. Then, use date of the last payroll in the
quarter for the Date for Transaction date.
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Changing Compensation and Deduction Distribution Types
How an Employee Might Be Marked with the Wrong Compensation or Deduction Distribution Type
Each payment and deduction an employee has is created by Shelby users in the Payroll
module. These payment and deduction classifications are called “distributions.” Distributions
that share the same taxation properties (subject to federal income tax, subject to state income
tax, etc.) are typically grouped together in “compensation templates” or “deduction templates.”
For example, salary/hourly(regular wages) is a general compensation template used for the
main pay received by the employee, and distributions that may fall under this compensation
template may be Minister Salaries, Custodial Services, Support Staff, Nursery Staff, etc.
Employees being paid using the wrong compensation (or deduction) distribution typically stem
from having duplicate compensation distributions set up under different compensation
templates. For example, a new user may create a new “custodial staff” compensation template
instead of creating a new distribution under the salary/hourly(regular wages) compensation
type.
Compensation Type Change in Action
The following scenario and step-by-step instructions will help you understand how a problem
might arise and how to fix it using the W-2 Wizard.
At the time Rev. Stanley Burrell became the youth minister for First Church of the City, he started receiving compensation for minister housing. When Mrs. Cash changed Rev. Burrell’s from a non-minister to a minister, she received information that the new youth minister (expecting the position would be filled by someone outside of the church) would receive $1000 a month for housing. However, it was decided by the financial board before Rev. Burrell filled the youth minister position that he would receive $1500 a month in housing since he was already an employee. Mrs. Cash needs to correct the last six monthly paychecks to reflect this amount.
The following steps will demonstrate how you might correct a similar problem.
1) Open the Payroll module.
2) Click on Utility on the menu bar at the top of the Payroll Home Base screen.
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3) Choose W-2 Correction Wizard from the menu.
4) Choose the appropriate year using the Calendar Year pull-down field.
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5) Click the Next button at the bottom of the window.
6) Click on the name to highlight the employee whose W-2 needs correcting.
7) Click the Next button at the bottom of the window.
8) Select the Change Compensation Distribution Types radio button.
9) Click the Next button at the bottom of the window.
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10) Select the checks you need to correct.
11) Click the Next button at the bottom of the window.
12) Select the compensation you are taking money from (Minister Salaries in this scenario).
13) Click the Next button at the bottom of the screen.
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14) Select the compensation distribution you wish to move money to.
15) Select the amount of money you wish to move between the two compensations.
16) Click the Next button at the bottom of the window.
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17) Enter a date in the Date for Transaction field.
18) Observe the before and after columns to check the results of the change. Click the
Previous button to make a correction to the figures, or click the Cancel button to start
over completely. Click the Next button when done. Continue making corrections to
other employees, or click the Close button in the top-right corner of the screen to close
the wizard.
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Add Non-Cash Compensation
The following scenario and step-by-step instructions will help you understand how a problem
might arise and how to fix it using the W-2 Wizard.
First Church of the City decided to purchase additional life insurance for the new youth minister, Rev. Stanley Burrell. Since the life insurance policy is over $50,000 in coverage, the church must report the premium about for the extra coverage that exceeds the $50,000 rule as earned income. Mrs. Cash usually applies this amount each year before printing W-2s and now needs to apply the non-cash compensation to Rev. Burrell’s record.
The following steps will demonstrate how you might correct a similar problem.
1) Open the Payroll module.
2) Click on Utility on the menu bar at the top of the Payroll Home Base screen.
3) Choose W-2 Correction Wizard from the menu.
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4) Choose the appropriate year using the Calendar Year pull-down field.
5) Click the Next button at the bottom of the window.
6) Click on the name to highlight the employee whose W-2 needs correcting.
7) Click the Next button at the bottom of the window.
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8) Select the Add Non-Cash Compensation radio button.
9) Click the Next button at the bottom of the window.
10) Select the non-cash compensation you wish to add.
11) Enter the dollar amount the non-cash compensation was worth.
12) Click the Next button at the bottom of the screen.
Note: If you do not see the compensation type you need, then it has not yet
been created in the Compensation Information area.
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13) Enter a date in the Date for Transaction field.
14) Observe the before and after columns to check the results of the change. Click the Next
button when done. Continue making corrections to other employees, or click the close
button in the top-right corner of the screen to close the wizard.
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Change State/Local Types
Common Causes of Having the Wrong State and Local Tax
Not applying state and/or local taxes to a minister is a very common occurrence. Spotting when
the appropriate tax tables have not been applied to a non-minister is easy since the check
amount will vary from the expected amount. This is not the case on a minister’s check. Since a
minister is exempt from local and state taxes, the check amount will be the same whether the
local and state tax tables were set within the minister’s employee settings or not.
Having the incorrect tax tables applied to an employee is also a common occurrence in
multiple state areas (locations where one or more states border one another). Employees may
move across the borders of one state into the next on a regular basis, and losing track of these
moves can result in many paychecks with the wrong tax tables.
Adding or Changing a State Tax Type
The following scenario and step-by-step instructions will help you understand how a problem
might arise and how to fix it using the W-2 Wizard.
When Rev. Stanley Burrell became First Church of the City’s youth minister, he decided to move closer to the church by moving from Tennessee (a state with no state income tax) to Mississippi (a state with state income tax). Although as a minister Rev. Burrell is exempt from paying state taxes, this information still has to show up on his W-2. The financial secretary, Mrs. Cash, did not realize that this information should still display on the W-2. She now needs to add the Mississippi – Head of House state tax to each paycheck paid to Rev. Burrell during the months of July through December.
The following steps will demonstrate how you might correct a similar problem.
1) Open the Payroll module.
2) Click on Utility on the menu bar at the top of the Payroll Home Base screen.
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3) Choose W-2 Correction Wizard from the menu.
4) Choose the appropriate year using the Calendar Year pull-down field.
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5) Click the Next button at the bottom of the window.
6) Click on the name to highlight the employee whose W-2 needs correcting.
7) Click the Next button at the bottom of the window.
8) Select the Add or Change State/Local Types radio button.
9) Click the Next button at the bottom of the window.
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10) You will then see the message box below. Clicking the Yes button allows you to add a
completely new state or local tax table. Clicking the No button allows you to switch
from one state or local tax type already on the record to another. For this example, click
the Yes button.
11) Select the checks that you need to correct.
12) Click the Next button at the bottom of the window.
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13) Toggle the Type field to choose the tax table you wish to add to the employee’s record.
14) Click the Next button at the bottom of the window.
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15) Enter a date in the Date for Transaction field.
16) Observe the before and after columns to check the results of the change. Click the Next
button when done. Continue making corrections to other employees, or click the close
button in the top-right corner of the screen to close the wizard.
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Finalizing the Entries/Manual Checks
There is one last step to perform before your W-2 corrections become permanent. The W-2
Correction Wizard does not actually make any changes; it simply creates manual check entries
and places them in the Manual Checks area that must then be saved.
The following steps will walk you through this finalization process.
1) After using the W-2 Correction Wizard to fix problems you encountered on the W-2s,
click the Close button in the top-right corner of the W-2 Correction Wizard window to
close the utility.
2) Upon doing this, you will receive the following message. Click the OK button to
continue.
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3) You now need to navigate to the Manual Checks area. Click on Utility on the Payroll
Home Base screen.
4) Choose Manual Checks from the menu.
5) You should see a manual check entry for each W-2 correction you performed. Click the
Save button on the toolbar in the top-left hand corner of the Manual Checks screen.
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6) Click the OK button on the Backup Warning message.
7) Choose a posting period, date, and description (optional) for the General Ledger journal
entry.
8) Click the OK button to continue.
9) Review and print the check register report, if desired. Click OK on the subsequent
confirmation messages.
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Copyright 2001, 2002, 2003, 2004, 2005, 2006 SSTips Publishing, a division of
Shelby Systems, Inc. All Rights Reserved. Alfred Johnson, Managing Editor. Bobby Easley,
Assoc. Editor.