Payroll Non-Taxable Income

[tenalea]

Neil,

I am already encountering this issue for another reason. I have two non-taxable payroll items (car allowance and health insurance premium reimbursement). Our CPA has told us that both of these are reported as income but they are not taxable income because they go towards expenses the minister pays. So they are supposed to be in Box 1 of the W-2 and on the quarterly report, but no income taxes or social security or medicare taxes go against these items.

I can not come up with a way in Power Church to have these items show up in Box 1 only but not have any taxes come out of them. So far I have to manually edit both the quarterly report and W-2's. This is tiresome and cumbersome.

I would like Power Church to simply have the option that says Non-Taxable Income But Include in Box 1 Wages. This would fix both issues for me.

I look forward to hearing from you.
Tena

[NeilZ]

Neil,

I am already encountering this issue for another reason. I have two non-taxable payroll items (car allowance and health insurance premium reimbursement). Our CPA has told us that both of these are reported as income but they are not taxable income because they go towards expenses the minister pays. So they are supposed to be in Box 1 of the W-2 and on the quarterly report, but no income taxes or social security or medicare taxes go against these items.

I can not come up with a way in Power Church to have these items show up in Box 1 only but not have any taxes come out of them. So far I have to manually edit both the quarterly report and W-2's. This is tiresome and cumbersome.

I would like Power Church to simply have the option that says Non-Taxable Income But Include in Box 1 Wages. This would fix both issues for me.

I look forward to hearing from you.
Tena

What version of Powerchurch do you have?? Version 11.x has the capability of creating an income pay item that is non-taxable.

Another user had the same type of problem (non-taxable income) and the answer is in this thread:

viewtopic.php?f=3&t=9103

[tenalea]

Boy, you are fast!

We have version 11.5.

I do have the payroll items set up using the "More Options" drop down box. I also understand that by unchecking the social security and medicare boxes it keeps these amounts out of boxes 3 and 5.

My problem is that I also have to uncheck "Federal Withholding" because neither car allowances or medical insurance reimbursements should have income taxes taken out of them. If I check the box, then Power Church takes income taxes out on them. When I uncheck that box, then it leaves the income out of box 1 of the W-2 and takes it off the quarterly report.

They are simply both non-taxable income items that still have to show up on the employee W-2 and on the quarterly report.

Any help that you can give would be appreciated.

Thanks,
Tena

[Jeff]

If it goes into box 1 on the W2 then the employee is going to have to pay income tax on it. The church is just withholding an estimate of what the employee is going to have to pay when they do their taxes.

I would make sure you understood what your CPA wanted you to do. Do you have a reference to an IRS publication for what you are attempting to do? I do not know of any amounts that would go into box 1 that you would not pay income taxes on. But then again, this has been the day for payroll issues.

[tenalea]

Hi Jeff....thanks for the feedback.

I'm not sure if I am explaining myself clearly. Technically it is "taxable income" for the minister but the CPA has instructed that we don't need to withhold taxes on it because they are a "wash" on the ministers income tax return. For example:

+$1000 - Income from Reimbursement of Health Insurance Coverage
-$1000 - Deduction of $1000 for Health Insurance Payments
$0 - Net Result on Income Tax Return

So if we withhold taxes on the insurance reimbursements, they are paying in extra taxes that are not necessary. Our CPA actually processed our payroll for several years and that is the way they handled it.

But on the bright side, I did find a workaround solution in Power Church.

When I process my quarterly reports or W-2's, I change the payroll item to "taxable", check the federal withholding box only and then process my quarterly reports and W-2's. The items all showed up correctly.

Then I simply change them back to non-taxable when I process payroll.
Hope that helps someone else!