403b employer contribution

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emarino
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403b employer contribution

Post by emarino »

I want to make an employer contribution to our church's 403b on behalf of our pastors.

First question: The only payroll item that seems appropriate is income and it would be non-taxable. Is this correct?

Second question: I want the debit to be to an expense account, something like "403b contribution". I want the credit to go to accounts payable. When I authorize the company managing our retirement fund to take the contribution by ACH, I will clear the payable to cash. PowerChurch doesn't seem to want me to do this. The payroll item only allows a credit to a cash account. Am I missing something?

Last question: How this should show up in Box 12 on the W2, and will PowerChurch accommodate this?

Thanks,
Ed

NeilZ
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Re: 403b employer contribution

Post by NeilZ »

emarino wrote:I want to make an employer contribution to our church's 403b on behalf of our pastors.

First question: The only payroll item that seems appropriate is income and it would be non-taxable. Is this correct?

Second question: I want the debit to be to an expense account, something like "403b contribution". I want the credit to go to accounts payable. When I authorize the company managing our retirement fund to take the contribution by ACH, I will clear the payable to cash. PowerChurch doesn't seem to want me to do this. The payroll item only allows a credit to a cash account. Am I missing something?

Last question: How this should show up in Box 12 on the W2, and will PowerChurch accommodate this?

Thanks,
Ed
In actuality, this is an Employer Liability. Unlike an elective deferral, the IRS classifies this as nonelective contributions the ministers don't pay income tax on this until the money is withdrawn. Unlike elective deferrals to a 403b, these do not need to be reported on the W2. (See IRS pub 517).

So you would set this up in the same way you currently have Social Security & Medicare employer taxes setup. You need an Expense Account setup in the Chart of Accounts for this along with a Liability Account. You could probably use the same Liability acccount you are currently using for any 403b deductions for your ministers.

As far as going to accounts payable, this would work the same it does today when you pay taxes, or pay retirement. You would use the Create Accounts Payables Entries function of Payroll to create the manual check. It would use the liability account setup for the purpose of collecting the retirement funds from the ministers as elective deferrals, and the employer match.

As usual, I advise to do a backup of the accounting files using the Powerchurch backup utility so you can roll back to the start if the results aren't what you expected or want. I also advise talking to a tax accountant to verify all information about 403b deductions/contributions.


Does this help?
Neil Zampella

Using PC+ since 1999.

emarino
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Joined: Fri Dec 28, 2007 2:49 pm
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Re: 403b employer contribution

Post by emarino »

Thanks, Neil. Very helpful.

Ed

emarino
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Joined: Fri Dec 28, 2007 2:49 pm
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Re: 403b employer contribution

Post by emarino »

Returning to this topic now that I am filing quarterly taxes. The employee contribution is pre-tax, but when running the selected payroll data report I don't see this. The 403b contribution is listed as a separate item on the report, but it does not reduce income. I ran a W2 to see how it is reported there, and income is reduced by the amount of the employee contribution. Is this how PowerChurch is intended to work? When filing the 941, shouldn't income be net of the deferral, consistent with the W2?

NeilZ
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Re: 403b employer contribution

Post by NeilZ »

emarino wrote:Returning to this topic now that I am filing quarterly taxes. The employee contribution is pre-tax, but when running the selected payroll data report I don't see this. The 403b contribution is listed as a separate item on the report, but it does not reduce income. I ran a W2 to see how it is reported there, and income is reduced by the amount of the employee contribution. Is this how PowerChurch is intended to work? When filing the 941, shouldn't income be net of the deferral, consistent with the W2?
Your first post said:
I want to make an employer contribution to our church's 403b on behalf of our pastors.
So all the information I listed was about employer contributions. You didn't say anything about EMPLOYEE contributions. That is a separate pay item and should be created as a OTHER DEDUCTION under Maintain Item Descriptions. You have not been deducting anything from the employees, which would have reduced the salary, thus the amount in the payroll check.

To create the pre-tax deduction go into Payroll -> Setup -> Maintain Item Descriptions.

a) click the ADD button, and select OTHER DEDUCTION from the list shown.
b) fill in the information, Item no and Description. For the liability account, use the one you have setup for Employer Contributions since I'm assuming it will go to the same company.
c) For Tax Options, select RETIREMENT DEDUCTION, then for the Box 12 Code, select code E: 403b elective deferral.

I'm sorry to say, basically the congregation was paying for the ministers elective retirement and nothing was coming out of their pay. I can only work with the information I'm given.
Neil Zampella

Using PC+ since 1999.

emarino
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Re: 403b employer contribution

Post by emarino »

I confused my question by tagging this to my first post (as you said, EMPLOYER contribution). Either by following the setup instructions in the manual or by luck - can't remember which - I did set it up as properly, i.e., as you indicated in your reply. I did have a moment of panic when I read what you wrote, but I checked pretty carefully after setting it up to make sure that I actually was withholding pay. It definitely is a retirement deduction, code E is selected, cash is reduced appropriately, and accounts payable is being booked.

I'm not overly concerned about this, because the W2 is correct. But it is confusing that the selected payroll data report implies that this is not pre-tax. It seems like it should agree with the W2. I have not yet run the 941. When I do that, I'll be interested to see what it reports as income.

NeilZ
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Re: 403b employer contribution

Post by NeilZ »

emarino wrote:I confused my question by tagging this to my first post (as you said, EMPLOYER contribution). Either by following the setup instructions in the manual or by luck - can't remember which - I did set it up as properly, i.e., as you indicated in your reply. I did have a moment of panic when I read what you wrote, but I checked pretty carefully after setting it up to make sure that I actually was withholding pay. It definitely is a retirement deduction, code E is selected, cash is reduced appropriately, and accounts payable is being booked.

I'm not overly concerned about this, because the W2 is correct. But it is confusing that the selected payroll data report implies that this is not pre-tax. It seems like it should agree with the W2. I have not yet run the 941. When I do that, I'll be interested to see what it reports as income.
I would check the Payroll Item Summary Report .. it should list the amount being deducted. If you want to see by employee, select that option on the report options screen.

You'll see that the total listed under the 403b pay item is included in the Non-Tax Income total at the bottom of the page. The selected payroll data report just lists what the Pay Items show, so if the salary is 1000.00, it will show 1000.00. The Payroll Item Summary report actually reflects what the check result is, along with any deductions, and it properly totals what is taxable income (according to YOUR tax setup), and what is non-taxable income, which is the deducted 403b.
Neil Zampella

Using PC+ since 1999.

emarino
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Re: 403b employer contribution

Post by emarino »

I just ran the 941 and it does calculate income correctly, i.e., it subtracts the employee 403b deferral from income. I had to manually subtract the deferral from the quarterly payroll report to reconcile the amounts. The 403b is new this year. It's been quite an education!

NeilZ
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Joined: Wed Oct 08, 2003 1:20 am
Location: Dexter NM
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Re: 403b employer contribution

Post by NeilZ »

emarino wrote:I just ran the 941 and it does calculate income correctly, i.e., it subtracts the employee 403b deferral from income. I had to manually subtract the deferral from the quarterly payroll report to reconcile the amounts. The 403b is new this year. It's been quite an education!
Good to hear ... yes it can be interesting. :)
Neil Zampella

Using PC+ since 1999.

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