Question: Our organization allows employees to make Tax Deductible Payroll Deductions to a qualified organization including the Organization that employs the employee. How best to handle these Tax-Deductible Payroll Deductions on the employees paycheck.
Answer:
All deductions are handled through deduction codes. If an employee is making a charitable contribution via payroll deductions, you would want to go to Maintain>Payroll>Deduction Codes. It doesn’t matter if the employee is contributing to the organization they work for or another organization, the process is the same.
Create a new deduction code.
Fill in the appropriate information.
Select the GL account that the donations will accrue into.
If you have any questions about the W2 Box Number, you should consult your tax advisor. In most cases it is not used for charitable deductions.
On the Calculation Tab choose the appropriate calculation method. If the amount donated is unique to each employee, then use the Amount on Timesheet method.
Fill in the Earnings Tab if needed and the Schedule Tab as appropriate.
On the taxes tab select the taxes that are reduced by this donation. Taxable earnings will be reduced by the amount of the donation for the taxes selected.
NOTE: The employer should still provide appropriate documentation about the amount of the donation to the employee for tax purposes so that they have when filing their tax returns.