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tandtoz
December 30, 2023
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Entering one time pre tax 401K contribution to a single paycheck

  • December 30, 2023
  • 1 reply
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I am trying to create a paycheck that has a one time pre tax 401K contribution. I set up the 401K as a catch up since I am over 50.  QB keeps trying to tax the contribution for Federal, State and County. I spent over an hour on the phone with QB and they were not able to  help?? Any suggestions?

Best answer by JanbonN

Hello there, @tandtoz. Thank you for responding promptly and patiently following my colleague's instructions. I'm here to assist you in computing your taxable offset amount.

 

The 20k should be in the Deductions section. Then, make sure to take note of the total deductions, as we'll need this information for the computation. You can get this by going to the employee's profile in the Tax withholding section. After getting the numbers, let's now calculate your Taxable offset amount. Here's how:

 

  1. Get the total tax percentages. Social Security 6.2% + Medicare 1.45% = 7.65%
  2. Subtract the total to 100%. 100 - 7.65 = 92.35
  3. Convert that number to a percentage by moving the decimal two positions to the left. 0.9235
  4. Add the deductions to the offset amount (20k)
  5. Divide the new offset amount by 0.9235
  6. You'll now get the new offset amount total.

 

Here's the article for a detailed explanation: Understand gross pay and net pay.

 

Once you have the new offset amount, you can re-run the payroll and make the necessary changes.

 

Additionally, you can also run a payroll report to get a closer look at your business' finances.

 

Please let me know if you have any further queries or if additional information is needed. It would also be helpful if you could provide a screenshot; just be mindful of the details you share to avoid problems. I'm always here to assist you. Have a good day.

1 reply

AlverMarkT
AlverMarkT
December 30, 2023

Hi there, @tandtoz.

 

In order to create a one-time pre-tax 401(k) contribution to a single paycheck, we'll have to generate a zero net paycheck. Let me help you with this. 

 

When creating one, please know that a zero net paycheck for your 401(k) contribution is considered a deferred wage or elective deferral and is not subject to federal income tax withholding at the time of deferral. However, it's included as a wage subject to Social Security (FICA), Medicare, and Federal Unemployment Taxes (FUTA). For more information, please refer to the IRS website on reporting elective deferrals: 401(k) Plan Overview.

 

First, if you haven't set up a retirement plan deduction, you may need to create a 401(k) catch-up on the employee's information page. After this, we'll have to create a payroll item and assign an employee to it. This is to offset the regular pay.

 

  1. Go to Payroll.
  2. Select Employees and click on Edit payroll items.
  3. Add a New payroll item and choose Pay type.
  4. From the dropdown menu, select Other Earnings, and name it "Taxable offset." 
  5. Select Create.
  6. Click on Assign and choose the employee you'll pay.
  7. Leave blank the amount field. 
  8. Hit Save.

 

Next, we'll have to run payroll and edit the paycheck.

 

  1. On the Employees page, select Run payroll and choose the employee.
  2. On the Run payroll window, click on Salary (or Regular pay) and choose Skip salary this time only.
  3. Enter the regular pay amount in the Taxable offset field. I suggest taking into account the gross formula or the taxes and deductions that will be subtracted from your Gross pay to know the amount you'll enter.
  4. Scroll all the way to the right. Click on the three dots under the Actions column.
  5. Choose Edit paycheck.
  6. Enter the amount for the 401(k) catch-up.
  7. Under Employee taxes, zero out the federal and state income taxes.
  8. Hit Save.
  9. Proceed by following the onscreen steps.

 

Just a heads up, it's important to consult with a tax professional to ensure compliance with tax laws and regulations while performing the steps above.

 

Additionally, let me add this article for a detailed breakdown of the paychecks generated by running a payroll report: Run payroll reports.

 

You're always welcome in the Community if you have updates on creating a zero net paycheck in QBO. We're always here to assist. Take care.

T
tandtozAuthor
December 30, 2023

Thanks for your help. When I follow your steps it is still not correct. Is the 401K to be added to the pay or to the deductions section?

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