recording third party disability insurance payment (tdi) paid by an insurance company (third party)

How to Record Third Party Disability Insurance Payment (TDI)

Paid by an Insurance Company (Third Party)

Create a Benefit Code and Assign to Employees:

Create a new Benefit Code that is subject to taxes and assign to employees who have received TDI benefits. To do this, follow these steps. Note: If there is an existing benefit code that can be used, skip this step.

MS Dynamics GP menu >> Tools >> Setup >> Payroll >> Benefit Code

1. In the Benefit Code setup window, set up a

new taxable benefit code a. In the Subject to Taxes section, click all

the check boxes that apply. b. Make sure to check the Transaction

Required box. 2. On the Cards menu, point to Payroll, and

then click Benefit Code. 3. In the Employee ID field, select the employee

who has received TDI benefits. 4. In the Benefit Code field, select the benefit

code from step 2. 5. Click Save. 6. Complete steps 2 to 5 for each employee who

has received TDI benefits.

MS Dynamics GP menu >> Cards >> Payroll >> Benefit

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Create a manual check transaction to record employee TDI taxable wages and employee taxes withheld: 1. On the Transactions menu, point to Payroll, and then click Manual Checks. 2. In the Check Type section, click to select the Manual Check option.

Note: Do not enter a batch ID for these transactions; enter them without saving to a batch. These transactions will post correctly if posted without saving them to a batch and will resolve the issue, “You cannot post a check with a gross amount of zero” which occurs if manual checks contain a Transaction Type of Federal Tax or State Tax.

3. Select Check ID “Subsistence.” Using an alternative checkbook will prevent these checks from updating the bank reconciliation window for the normal operating account.

4. In the Employee ID field, select the employee ID to update, and click Transactions. 5. In the Payroll Manual Check Transaction Entry window from the Transaction Type list, select the benefit and

tax types that have to be adjusted. If applicable, select the appropriate code in the Code field that corresponds to that benefit or tax type.

a. Enter transaction type “Benefit” and the gross amount of the payment indicated from the 3rd party statement.

b. Enter the employee’s portion of FICA, Medicare, and Social Security tax that is indicated on the 3rd party statement and include Gross Wages in the Taxable Wages field.

c. Enter Gross Wages in the Taxable Wages field for the Federal & State tax codes. The amount of taxes should be zero unless the 3rd party withheld taxes. If taxes were withheld, this is what would be entered.

d. When entering the FICA tax codes enter the correct amount of the employer’s FICA tax in the “EFIC Amount” field.

6. Click Save, and then close the window. 7. Except for the employer portion of FICA taxes, these transactions shouldn’t update to the general ledger. It is

recommended that (except for the employer portion of the FICA taxes) to either balance the distributions so that they clear against the same account number and net to zero in the Manual Check Distribution Entry window <OR> as an alternative, after posting these transactions in payroll, delete all of them from the GL batch except for the employer portion of the FICA taxes. It is recommended that the “Post through General Ledger Files” is unchecked in the Payroll Setup window for Manual checks to prevent posting to the GL accidently.

8. If set up correctly in the Payroll Posting Accounts setup window, the Taxable Benefits Expense and Taxable Benefits Payable amounts should clear against the same account number and net to zero.

9. In the Payroll Manual Check-Adjustment Entry window, click Post. 10. Repeat steps 4 to 8 for each employee to be adjusted. 11. Remember to reduce the federal payroll tax liability voucher that is automatically interfaced to Purchasing by the

Payroll PIP application interface for the amount of the “employee” tax liability. The liability amount should be adjusted to reflect only the “employer” portion of the FICA social security & Medicare taxes that will be paid.

MS Dynamics GP menu >> Transactions >> Payroll >> Manual Check

1. Select Manual Check Option. 2. Do not enter a batch ID. 3. Select an alternative Checkbook ID. 4. Select Employee ID. 5. Click on the Transactions button.


Transactions >> Payroll >> Manual Checks >> Transactions button

1. Select Transaction Type “Benefit.”

2. Select Benefit Code “TDI.” 3. Enter gross amount of the

payment indicated on the 3rd party statement.

1. Enter Gross Wages in the Taxable Wages field for the Federal & State tax codes.

2. Amount of taxes should be zero unless the 3rd party withheld taxes. If taxes were withheld, then enter this amount.


Transactions >> Payroll >> Manual Checks >> Transactions button

1. When entering FICA tax codes FICASS & FICAM, enter the correct amount of employer’s FICA tax in the “EFIC Amount” field indicated.

Transactions >> Payroll >> Manual Checks >> Distributions button

1. Except for the Employer portion of FICA taxes balance, the employee portion of the distributions should be entered to clear against the same account number and net to zero.

2. If set up correctly in the Payroll Posting Accounts setup window, the Taxable Benefits Expense and Taxable Benefits Payable amounts should clear against the same account number and net to zero.


IRS Publication 15A Form 941 or Form 944: You and the third party must each file Form 941 or Form 944. This discussion only explains how to report sick pay on Form 941. If you file Form 944, use the lines on that form that correspond to the lines on Form 941 that are discussed here. Form 941, line 8, must contain a special adjusting entry for social security and Medicare taxes. These entries are required because the total tax liability for social security and Medicare taxes (employee and employer parts) is split between you and the third party.

• Employer: You must include third-party sick pay on Form 941, lines 2, 5a, and 5c. There should be no sick pay entry on line 3 because the third party withheld federal income tax, if any. After completing line 6, subtract on line 8 the employee social security and Medicare taxes withheld and deposited by the third party.

• Third party: On Form 941, the third party must include the employee part of the social security and Medicare taxes (and federal income tax, if any) it withheld. On line 2, the third party does not include any sick pay paid as a third party but on line 3, it does include any federal income tax withheld. On line 5a, column 1, the third party enters the total amount it paid subject to social security taxes. This amount includes both wages paid to its own employees and sick pay paid as a third party. The third party completes line 5c, column 1, in a similar manner. On line 8, the third party subtracts the employer part of the social security and Medicare taxes that you must pay.

Form 940. The employer, not the third party, must prepare Form 940 for sick pay.

By John Snyder, Senior Consultant for Armanino's Microsoft Dynamics GP Practice


http://www.amllp.com/microsoft-dynamics-products/microsoft-dynamics-gp

recording third party disability insurance payment (tdi) paid by an insurance company (third party)

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