Handling 403B and 401K in PowerChurch Plus (V6-10)

The following is an example of how 403B and 401K can be handled in PowerChurch Plus. For users of Versions 7 through 10, you will also find information on which boxes should be selected for printing correct W2 and W3 forms at year-end.

Under the Maintain Item Descriptions screen in Payroll, add a new taxable income item and call it 403B Income. This item should credit your checking account and debit an expense account - just like the existing Gross Salary item. On the W2 Information tab, set this item to display in boxes 3, 5, and 12.

Next, add a withholding item and call it 403B Deduction. This item should debit the checking account and credit a liability account. No items need be selected on the W2 Information tab.

On the Maintain Employee Pay Items screen, add these newly defined items to the employee. In this example, the employee is paid $1,000 monthly and will be contributing $100 of this amount toward a 403B. To show this, we must reduce the Gross Salary item to $900 and increase the 403B Income item to $100. Notice that the total income is still $1000 - separated into two different categories. On the 403B Deduction item, set the amount to $100.

From a tax standpoint, 403Bs and 401Ks are not exempt from Medicare and Social Security. However, they are exempt from Federal Withholding. Such being the case, we must increase the Exempt/Yr amount on the Federal Withholding item for this individual. Because the employee is contributing $100 a month to his 403B, we must increase his Federal Exempt/Yr amount by $1200 ($100 x 12 months).

The pay items must be set up this way to ensure that the correct amounts will be shown on the W2 form. In other words, the employee's Gross Salary of $900 will show in boxes 1, 3, and 5, but the $100 403B Income goes into box 3, 5, and 12. At year end, box 1 shows $10,800 and boxes 3 & 5 show $12,000.

Please note: This document is to be used simply as a guideline. Before making any changes to your payroll calculations, it is always wise to consult with your accountant and refer to the appropriate Internal Revenue Service and State Department of Revenue publications.