403(b) contributions on W-2 Form

bobfree · Post by **bobfree** » Sat Apr 07, 2007 2:30 pm

IRS Pub p571 states that deductions/contributions for 403(b) retirement plans are not reported for income tax purposes but are shown on the W-2 in block 12 with an "E" code. Since this is an elective deferral it should be taken off the top and not included as part of wages. I have the deduction set up in the Item Descriptions with only the block 12, with code E, of the W-2 information checked.
When the W-2 is printed the amount shown in block 12 is rolled into and increases the amount for wages shown in block 1 on the W-2.
It seems that the E code, 403(b), in block 12 should insure that the program does not include this in block 1.
Our pastor's accountant brought this to our attention and we had to make some manual changes to the W-2 to get the correct information.
What do I need to do to make sure that this doesn't happen in the future?

Thanks for you help
Bob Freeman

beas · Post by **beas** » Sat Apr 07, 2007 4:46 pm

Can we assume that the 403(b) is set up as a separate income entry for the pastor? For instance:

Assume total compensation is 5000/mo

Pastoral salary 2500/mo
Housing allowance 2000/mo
403(b) contribution 500/mo

The 403(b) would be set up as an income item as are the pastoral salary and housing allowance. This would be the item that has the box 12 E designation.

Then in the deductions on each check is a 401(b) item which posts to the liability account for this deduction (just like FWT would for a non-pastoral employee). When the check for the 401(b) deposit is made it posts against this account creating a wash.

I hope this helps.[/quote]

bobfree · Post by **bobfree** » Sat Apr 07, 2007 5:43 pm

I have the pastors compensation set up exactly as Bill has described it, with a liability account to receive the 403(b) deductions each payday to hold them until they are deposited. When the check is written to deposit the funds this reduces the liability account by the amount of the deposit.
Everything works fine as far as tracking the 403(b) deductions in the program and printing the paycheck correctly. The problem is that the 403(b) deductions are being included in the wages, block 1, when the W-2 is printed.
This results in the wages on the W-2 being overstated by the amount of the 403(b) deduction.

beas · Post by **beas** » Sat Apr 07, 2007 5:57 pm

Ok. The only other thing I can think of offhand is to check the "income" 401 and make sure it doesn't have Box 1 checked in the set up under "Maintain Item Descriptions". If it does, it will add this amount to the W-1 Box 1.

bobfree · Post by **bobfree** » Sat Apr 07, 2007 6:03 pm

That was my first thoughts also. The only block checked in the W-2 information in the Item Description for the 403(b) is block 12, with an E code.
It really has me puzzled why it is being added to block 1 since that block is not checked.

beas · Post by **beas** » Sat Apr 07, 2007 7:18 pm

Well, now I'm just as puzzled. What version are you using? Maybe someone from support can shed some light on this.

bobfree · Post by **bobfree** » Sat Apr 07, 2007 7:38 pm

I am using version 9 and hve just upgraded to 10. The same thing happens in 10.

Post by **Jeff** » Sat Apr 07, 2007 9:12 pm

This was already brought up in this thread, but can you reaffirm that you have 2 income items. It sounds like from your description that you only have a deduction item setup. We need to add a separate item to bring in income that is going to be deducted for the 403b to keep it from going in box 1.

Your payroll items for the pastor are going to look like this:
Salary (income) Item 1 on W2 selected
403b income (income) no items on W2 selected
403b Deduction (Deduction) (box 13 selected)

You might also want to look at this knowledge base article.
http://www.powerchurch.com/support/answ ... icle_id=17

bobfree · Post by **bobfree** » Sun Apr 08, 2007 5:13 pm

Thanks Jeff for getting me on the right track. I do indeed only have a deduction setup with out a matching income line.

My apologies to Bill Beasley. Bill you also had the information I needed to get me on the right track but I just didn't see the whole picture when I read you information. Needed to slow down and study the info you provided a little closer.

I do have one other question to make sure that I cover all bases.
Since this is an elective deduction the pastor makes from his salary should I charge the deduction to his salary line(expense account) or do I need to make a new expense account and split the reportable salary and 403 deduction into their respective accounts?

beas · Post by **beas** » Sun Apr 08, 2007 6:49 pm

Bob,

No problem. Sometimes written communications are harder to deal with than spoken ones. I'm just glad you got your answer.

I just post it to pastoral salary since it is part of the total compensation package. You could separate them, however, if you think it would be useful information.

mwilliams · Post by **mwilliams** » Wed Jan 02, 2008 4:47 pm

Your payroll items for the pastor are going to look like this:
Salary (income) Item 1 on W2 selected
403b income (income) no items on W2 selected
403b Deduction (Deduction) (box 13 selected)

It looks to me like having to do it this way makes it impossible to automatically calculate a percentage of gross salary to withhold for a 403B contribution? Am I missing something?

Our employees contribute a percentage of their income to their 403B accounts and then the church matches a certain percentage of that. Is there a way to allow the system to calculate these numbers and still have the W-2 correct? We have hourly employees who payroll changes every pay period. It sure would be nice if the system would do these calculations rather than me having to do it manually.

Thanks,
Michael

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