Payroll Deduction Codes

If your employees are going to have deductions from their pay other than taxes, you need to define those deductions and amounts. Payroll deductions can be defined for such things as "Medical Insurance," "Child Support," etc. In other words, a deduction can be defined for any item that should be deducted from an employee's pay other than taxes.

Deduction Type
Enter a description for this deduction. The description can be up to 20 characters long and will appear on the employee's check stub.
A deduction with "IRA" or "401" in the name of the Deduction will be reported on the W-2 in box 12A
A deduction with "HSA" in the name of the Deduction will be reported on the W-2 in box 12B

Amount or %
If the deduction amount is constant from employee to employee, enter the amount here. This amount will be brought in when the deduction is added to the employee record. The amount can be overridden when it is added to the employee record.

Calculation Type
Choose the type of calculation used to figure this deduction. If the deduction is a fixed amount, meaning that it stays constant from pay to pay, choose "Fixed Amount." If the deduction is to be calculated as a percentage of the employee's pay, choose "Percentage."

Liability Account
Enter the account number of the liability account that will track this deduction. The account can be chosen from the account list by typing it in, pressing the F2 key or by clicking on the Liability Account button.

Company Matched Deduction
Select this option if this is a deduction that has its amount matched by the company, such as an IRA. When this option is chosen, you will be given the opportunity to specify the company's liability and expense accounts for posting their share of this deduction. Select the accounts by typing them in or choosing them from the look-up list.

Subtract this deduction before calculating the following taxes:
Check the box beside the taxes from which this deduction is exempt. If a box is checked, this deduction will be taken out of the wages before that tax is calculated. For example, if you have gross wages of $1,000.00 and a child support deduction of $100.00, there are two ways that taxes could be calculated. First would be to calculate the taxes based on the full $1,000.00. Checking the box beside any of the taxes, however, would cause that tax to be calculated on $900.00. When dealing with deductions like IRAs, some taxes should be calculated before and some taxes should be calculated after subtracting the deduction. Please consult your tax advisor with any questions.