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Thread: Third-Party Sick Pay Solution

  1. #1

    Third-Party Sick Pay Solution

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    Requirements

    The section ‘Background’ and possibly ‘Process Details’ should be documented in the Wikinewforum.com US blueprint

    Background

    Sick-pay benefit payments are paid to employees by a third-party vendor such as an insurance company. The third-party vendor deducts FICA taxes on employee’s behalf and optionally Federal withholding tax if requested by the employee. In Wikinewforum.com it is required to:

    • Adjust employee’s payroll results to reflect taxes withheld by the third-party vendor and increase taxable wages for reporting purpose
    • Calculate employer FICA taxes considering employee’s YTD FICA salary limit
    • Calculate unemployment taxes considering company specific unemployment rate and unemployment salary limit
    • Ensure employee FICA wages paid by the third-party vendor are stored in Wikinewforum.com, but not remitted. FACS does not need to remit EE FICA taxes on third-party sick pay, as they are already remitted by the third-party vendor
    • Report third-party sick-pay payments, employer FICA taxes, and unemployment taxes on W2, 941 and SUI


    This solution is implemented in Wikinewforum.com in the Third-Party Sick Pay Process.
    • The section ‘Configuration Details’ and possibly ‘Process Details’ should be documented in the Configuration Handbook.

  2. #2
    Configuration Details

    Wage Type 9911 (3PSP - Taxable Ben)This wage type is configured to record the taxable portion of the sick-pay payment made to the employee by a third-party vendor. It is configured the same as any other wage type (regular taxability with processing class 71, value 1). The wage type is:

    • Available only on IT0221
    • Not printed on the remuneration statement
    • Added to technical taxable amount wage types (i.e., /3XX, /6XX and /7XX, and reported on W2)


    Wage Type 9912 (3PSP – Non-Tax Ben)

    This wage type is configured to record the non-taxable portion of the sick-pay payment made to the employee by a third-party vendor. As the name indicates, the wage type is configured as a tax-free payment. The wage type is:

    • Available only on IT0221
    • Not printed on the remuneration statement
    • Printed on W2 Box 12 with code ‘J’ by FACS.


    Wage Types 9901 (3PSP /401 Offset), 9903 (3PSP /403 Offset), and 9905 (3PSP /405 Offset)


    • These wage types are copied from wage types /401, /403, and /405, and are available only on IT0221. The amounts recorded for 9901, 9903, and 9905 must equal the amounts recorded for /401, /403, and /405 respectively. These wage types are used to ensure that taxes are not remitted twice and that the amounts are reported correctly on IRS Form 941, line 7b.

  3. #3

    Wage Type Mapping for FACS

    Wage Type Mapping for FACS

    Wage Type 9911
    : No special mapping is required for FACS. Taxable wages (/7XX) are increased in SAP and will be reported on W2.

    Wage Type 9901:
    As of now, there have been no requests to send this information to FACS. It is not very likely that employees will request a third-party vendor to withhold federal income tax. If this condition arises in the future, FACS will have to create a new VAR to handle this wage type.

    Wage type 9912:
    FACS will report this wage type on Box 12 with code J. It will be mapped in the table as below:

    MANDT
    LGART
    TYP
    VAR
    DESC0
    BOXNBR0
    BOXCODE0
    SIGNIND








    XXX
    9912
    O
    BOX12J
    Box 12 J Non Taxable Sick Pay12
    J
    +

    Wage Types 9903 and 9905:
    FACS will reduce the amount of Social Security and Medicare tax to be remitted. It will also ensure that the amounts are printed correctly on form 941.


    MANDT
    LGART
    TYP
    VAR
    DESC0
    BOXNBR0
    BOXCODE0
    SIGNIND








    XXX
    9903
    O
    BOX3PSST
    3PSP Social Security Tax97

    +
    XXX
    9905
    O
    BOX3PMDT
    3PSP Medicare Tax96

    +

  4. #4

    Process Details


    Process Details

    Example of Business Process Steps:

    STEP 1: Receive tax and taxable amounts from third party.
    STEP 2: Record amounts in SAP.
    STEP 3: Run payroll.
    STEP 4: Map wage type to legal forms.

    STEP 1: Receive tax and taxable amounts from third party. Usually this information is sent as a printed document by the third-party vendor.
    In this example:

    • Employee is authorized for $5840.00.
    • Taxable portion of the benefit is $3058.99.
    • Non-taxable portion of the benefit is $5840.00 – $3058.00 = $2781.01.
    • FICA (/403) tax withheld by the vendor = $189.67.
    • Medicare (/405) tax withheld by the vendor = $44.34.
    • Federal income tax withheld by the vendor = $0.

  5. #5
    STEP 2: Record amounts in SAP.

    • Record amounts in SAP on IT0221 subtype blank or ‘YAWA’ based on the information available on the form.
    • In the example below, subtype blank is used. For the state of New Jersey, unemployment tax calculation is disabled via IT0235, but other ER taxes are not disabled.






    • Depending on state-specific requirements, if it is required to override taxes, IT0235 can be created with BEGDA = ENDDA = check date on IT0221. For example, make EE exempt for state unemployment for the state of New Jersey.
    • If IT0221 is created with subtype YAWA, IT0235 will have to be created to stop the system from calculating FED withholding and/or any state taxes.

  6. #6
    STEP 3: Run payroll.

    • Execute a separate payroll (off-cycle for manual check) for the IT0221 entry created above. Alternately, IT0221 entries can be processed in the next regular payroll run.


    Wage Types 9911, 9912, 9903, and 9905



    Wage Types /1XX and /3XX


    Wage Types /4XX



    Wage Types /6XX


    Wage Types /7XX




    Other Wage Types


  7. #7
    STEP 4: Map wage type to legal forms.


    9911 (3PSP Taxable Ben)

    • Execute Wage type is added to /701, thereby printed on W2 Box 1.
    • FACS performs no special processing.

    9912 (3PSP Non Taxable Ben)

    • FACS prints this wage type on box 12 with code ‘J’ when available.

    9901 (3PSP /401 Offset)

    • FACS deducts this amount from the withholding taxes while remitting withholding tax (third-party vendor has already remitted this tax on employee’s behalf).

    9903 (3PSP /403 Offset) and 9405 (3PSP /405 Offset)

    • FACS maps this wage type to line 7 of form 941 to offset FICA taxes already paid by EE.


    Possible Customer Specific Enhancements


    The 3PSP solution configuration supports IT0221 subtypes blank, YANA and YAWA. Customers must use YANA or YAWA if 3PSP data is received after year end. Further, if subtype YAWA is used, IT0235 must be used to stop the system from calculating other taxes such as FED/STATE withholding, etc.
    Normally, most customers will receive this data after the last payroll of the year is complete, and customers will be forced to use YANA/YAWA. This means that customers will have to maintain IT0235, which could lead to more data entry effort. The following describes two different options that will avert additional data entry. Depending on client requirements and the specific situation, one or more options can be implemented and used.

    Option 1: Create Custom p-class 71 Value to Withhold Only ER FICA and Unemployment

    This option can be used if the customer has numerous employees receiving 3PSP benefits.
    1. Create a new value for p-class 71 (a %), and assign this value to 3PSP wage type 9910 (3PSP taxable benefit).
    2. Change the tax model for FED (R and W) for p-class value % to calculate only taxes /404, /406 and /410.


    No other tax model changes are necessary. If this value is not defined for other tax models/authorities no other taxes will be taken.

    Option 2: Create IT0235 Manually for the State in which the Employee Resides

    This option is recommended for customers with only a few employees receiving the 3PSP benefit, and additional IT0235 maintenance is not an issue.
    With this option, there is no change to the current solution. However, the customer must maintain additional data on Infotype IT0235 for the 3PSP process.

    Documents Impacted

    • Wikinewforum.com Blueprint document
    • Configuration Handbook

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