w-2 correction wizard - church management software ... wizard.pdf · date created: 12/01/2006...

Date Created: 12/01/2006 Updated: 12/19/2006 1

W-2 Correction Wizard Shelby v5.6.3000

Overview

During the month of January, Shelby's Support department receives numerous calls regarding

adjusting employee W-2s. Many users simply become overwhelmed at the flood of amounts,

compensation types, deduction types, tax amounts, special W-2 codes, and so forth.

To help alleviate these problems, Shelby is incorporating a new W-2 Correction Wizard on

the 2006Year-End Release. The Wizard simplifies corrections by allowing you to specify what

is wrong with the W-2, instead of calculating and entering a solution. In turn, the Wizard

creates a manual check automatically with the appropriate calculations based on the specified

problem.

For example, assume you forgot to divide a minister's check between his salary and his housing

allowance (you included his housing in his salary), and thus, his W-2 basis is wrong. Using the

Wizard, you would simply select the minister, select the problem from a simple menu, and

choose which checks need to be adjusted. The Wizard will do the "thinking" for you, and

create a manual check based on your input.


What the Wizard is For

You can use the Wizard to correct these problems:

• Change an employee marked as a "non-minister" to a "minister", and vice versa.

• Change a compensation distribution to a different compensation distribution, or split a

payment between two compensation types.

• Change a deduction distribution to a different deduction distribution, or split a payment

between two distribution types.

• Add a non-cash compensation.

• Apply or change state and/or local tax types.

What the Wizard is Not For

You cannot use the W-2 Correction Wizard for the following problems:

• Do not use the W-2 Correction Wizard to add additional compensations or deductions

(except for non-cash compensations).

• The W-2 Correction Wizard DOES NOT affect employee record settings. If an

employee’s record is missing a tax table, a contribution distribution, or has the Check Here if Minister check box marked incorrectly, you will still need to go into the

employee’s record and make needed changes. This will prevent future checks from

having mistakes.


The Process in Brief

Regardless of the W-2 problem you are trying to fix, the basic process of making a correction

is virtually the same. To correct a problem, you:

1) Identify the Problem – Spotting a problem is actually the hardest part of the correction

process. In the following Determining What is Wrong section, we have supplied you

with a few pointers that will assist you in this process.

2) Find the Incorrect Checks – Use Payroll Inquires to find which checks were incorrect.

3) Start the W-2 Correction Wizard – Once you have identified the problem, start the

W-2 Correction Wizard to create a hassle-free manual check.

4) Select the Employee Who Has the Problem – You correct one employee at a time.

On this screen, you will see a red checkmark in the Adjs. (Adjustment) column if this

individual has been corrected at least once already using the W-2 Correction Wizard.

You can still make multiple corrections for an individual; just one correction at a time.

5) Choose a Course of Action – As stated previously, you can make someone exempt

from FICA withholding by changing his minister’s designation, change distribution

types (compensations and deductions), add non-cash compensations, and add or change

state and local tax tables.


6) Pick the Incorrect Checks – Place checkmarks next to the incorrect checks, or click

the Adjust column heading to select or deselect all checks.

7) Pick the Changes You Need to Make to the Checks – This part varies from action to

action, but in the case of adding or changing compensations (including non-cash gifts)

and deductions, you will choose which distribution to add to the record and choose an

amount of money to move. If you are adding or changing tax tables, you will pick the

appropriate tax tables from a pull-down list.


8) Review the Changes – Finally, a grid view will display the amounts in each box on

your W-2, and will indicate which boxes have changed as a result of running the W-2

wizard.


What to Do Before Using the Wizard

Determining What is Wrong

Before you can start using the W-2 Correction Wizard, you have to properly identify the

problem. Although spotting potential problems can be tough, the section below provides a few

tips that will help you spot items that may need correcting.

Verify that Ministers' W-2s Appear Correct

1) The figure in box 1 plus the minister's housing allowance (which may be listed in box

(14), but is not required) plus any pre-tax deductions should be equal to the minister's

annual salary.

2) Box 2 should be blank, unless the minister has requested you to withhold federal taxes

from his paycheck at some point during the year.

3) Boxes 3, 4, 5, and 6 should be blank since the IRS considers ministers to be self-

employed for FICA taxation purposes.

4) If the minister has a non-cash compensation, then box 12 should have a code C entry.

5) If the minister contributes to a 403(b) through a payroll deduction, then box 12 should

have a code E entry.

6) Housing Allowance amount may be listed under box 14, but it is not required.

7) Verify that boxes 15 through 20 contain the correct state tax information.

8) If your state collects state income taxes, check to see if box 1 matches box 16. These

boxes will most likely match. It is possible, however, that your state's tax regulations

may vary from those of the federal government concerning certain compensations and

deductions.

9) Repeat steps 1. through 8. for each minister.

Verify that Non-Ministers' W-2s Appear Correct

1) Box 1 will not match boxes 3 and 5 when the employee has a tax deferment, such as a

401(k) or 403(b). Otherwise, they should match.

2) If box 1 and box 3 do not match, then an item should be listed in box 12.

3) If the employee has a non-cash compensation, then box 12 should have a code C entry.

4) If the employee contributes to a 401(k) through a payroll deduction, then box 12 should

have a code D entry.

5) Verify that boxes 15 through 20 contain the correct state tax information.

6) If your state collects state income taxes, check to see if box 1 matches box 16. These

boxes will most likely match. It is possible, however, that your state's tax regulations

may vary from those of the federal government concerning certain compensations and

deductions.

7) Repeat steps 1. through 7. for each non-minister.


Finding the Incorrect Checks

After you have determined what is wrong on the W-2, you will next have to use the Inquiries

section of the Payroll module to find which checks were wrong. For example, if a minister has

figures in boxes 3, 4, 5, and 6, open Inquiries and look for checks that had FICA withheld.

Take note of which checks were wrong; you will need this information when you begin

running the W-2 Correction Wizard.


Making a Backup of Your Data

It is strongly advised that you make a backup of your data before running the W-2 Correction

Wizard, especially the first time you choose to run the utility.

If you elect not to make a backup prior to running the W-2 Correction Wizard, you can remove

any corrections made by the wizard by deleting the manual check entries from the Manual

Checks area instead of saving the entries. See the Finalizing the Entries/Manual Checks

section to learn more about saving the correction entries.


Correcting Wrong Minister Types

How an Employee Becomes Marked with the Wrong Minister Type

If you navigate to the Employee Information area and open an employee’s record, you will find

a Check Here if Minister option on the second tab, 2. Payroll Info. This option determines if

the employee is a minister or non-minister. When an employee is a minister, the employer is

not required by the IRS to withhold FICA (Social Security and Medicare), and is exempt from

federal tax withholding.

Selecting this checkbox will prevent FICA taxes from being withheld from any paychecks, and

marks the person exempt on the Taxes tab to prevent federal taxes from being deducted from

the paycheck.

It is common for people to accidentally forget to select this checkbox when creating a

minister’s payroll record for the first time. Perhaps this checkbox was accidentally selected for

a non-minister. Sometimes an employee will become a minister in the middle of the tax year,

and the payroll manager will forget to update this checkbox.

Whatever the reason for marking the checkbox incorrectly, fixing this problem is quick and

easy using the W-2 wizard.


Minister Type Correction in Action

The following scenario and step-by-step instructions will help you understand how a problem

might arise and how to fix it using the W-2 Wizard.

Mr. Stanley K. Burrell was a lay worker for First Church of the City until June 2006. At that time, he received his ordination certificate from the church, and became the Youth Minister. Although the financial secretary, Mrs. Cash, changed his tax tables to exempt, she forgot to update his Check Here if Minister checkbox. As a result, the church withheld FICA until December 2006. Rev. Burrell had no concerns since he owes the FICA tax money at the end of the year anyway, but Mrs. Cash now needs to correct the W-2 so that boxes 4, 5, and 6 on the W-2 are blank.

The following steps will demonstrate how you might correct a similar problem.

1) Open the Payroll module.

2) Click on Utility on the menu bar at the top of the Payroll Home Base screen.

3) Choose W-2 Correction Wizard from the menu.


4) Choose the appropriate year using the Calendar Year pull-down field.

5) Click the Next button at the bottom of the window.

6) Click on the name to highlight the employee whose W-2 needs correcting.


8) Make sure the Change ‘Minister’ Designation radio button is selected.


9) Make sure the Make Minister radio button is selected.

10) Select the checks to be changed.

11) Select the checks you need to correct.



13) Enter a date in the Date for Transaction field.

14) Observe the before and after columns to check the results of the change. Since the tax

money has already been withheld, the wizard moves the amounts from boxes 4 and 6

and puts it in box 2, allowing the minister to receive a refund. The sum of the

Difference column for boxes 4 and 6 should be equal to the Difference column for box

2. Click the Next button when done. Continue making corrections to other employees,

or click the Close button in the top-right corner of the screen to close the wizard.

Note: Although the W-2 Correction Wizard can be used to change an

employee marked as a minister to a non-minister, it is important to note

that your organization will owe additional monies on your next 941 due to

not paying or withholding the taxes. How to collect the owed taxes is a

matter left up to your organization.

Note: To avoid paying 941 penalties, make separate corrections for groups

of paychecks in the same quarter. Then, use date of the last payroll in the

quarter for the Date for Transaction date.


Changing Compensation and Deduction Distribution Types

How an Employee Might Be Marked with the Wrong Compensation or Deduction Distribution Type

Each payment and deduction an employee has is created by Shelby users in the Payroll

module. These payment and deduction classifications are called “distributions.” Distributions

that share the same taxation properties (subject to federal income tax, subject to state income

tax, etc.) are typically grouped together in “compensation templates” or “deduction templates.”

For example, salary/hourly(regular wages) is a general compensation template used for the

main pay received by the employee, and distributions that may fall under this compensation

template may be Minister Salaries, Custodial Services, Support Staff, Nursery Staff, etc.

Employees being paid using the wrong compensation (or deduction) distribution typically stem

from having duplicate compensation distributions set up under different compensation

templates. For example, a new user may create a new “custodial staff” compensation template

instead of creating a new distribution under the salary/hourly(regular wages) compensation

type.

Compensation Type Change in Action



At the time Rev. Stanley Burrell became the youth minister for First Church of the City, he started receiving compensation for minister housing. When Mrs. Cash changed Rev. Burrell’s from a non-minister to a minister, she received information that the new youth minister (expecting the position would be filled by someone outside of the church) would receive $1000 a month for housing. However, it was decided by the financial board before Rev. Burrell filled the youth minister position that he would receive $1500 a month in housing since he was already an employee. Mrs. Cash needs to correct the last six monthly paychecks to reflect this amount.








8) Select the Change Compensation Distribution Types radio button.



10) Select the checks you need to correct.


12) Select the compensation you are taking money from (Minister Salaries in this scenario).

13) Click the Next button at the bottom of the screen.


14) Select the compensation distribution you wish to move money to.

15) Select the amount of money you wish to move between the two compensations.




18) Observe the before and after columns to check the results of the change. Click the

Previous button to make a correction to the figures, or click the Cancel button to start

over completely. Click the Next button when done. Continue making corrections to

other employees, or click the Close button in the top-right corner of the screen to close

the wizard.


Add Non-Cash Compensation



First Church of the City decided to purchase additional life insurance for the new youth minister, Rev. Stanley Burrell. Since the life insurance policy is over $50,000 in coverage, the church must report the premium about for the extra coverage that exceeds the $50,000 rule as earned income. Mrs. Cash usually applies this amount each year before printing W-2s and now needs to apply the non-cash compensation to Rev. Burrell’s record.






8) Select the Add Non-Cash Compensation radio button.


10) Select the non-cash compensation you wish to add.

11) Enter the dollar amount the non-cash compensation was worth.

12) Click the Next button at the bottom of the screen.

Note: If you do not see the compensation type you need, then it has not yet

been created in the Compensation Information area.



14) Observe the before and after columns to check the results of the change. Click the Next

button when done. Continue making corrections to other employees, or click the close

button in the top-right corner of the screen to close the wizard.


Change State/Local Types

Common Causes of Having the Wrong State and Local Tax

Not applying state and/or local taxes to a minister is a very common occurrence. Spotting when

the appropriate tax tables have not been applied to a non-minister is easy since the check

amount will vary from the expected amount. This is not the case on a minister’s check. Since a

minister is exempt from local and state taxes, the check amount will be the same whether the

local and state tax tables were set within the minister’s employee settings or not.

Having the incorrect tax tables applied to an employee is also a common occurrence in

multiple state areas (locations where one or more states border one another). Employees may

move across the borders of one state into the next on a regular basis, and losing track of these

moves can result in many paychecks with the wrong tax tables.

Adding or Changing a State Tax Type



When Rev. Stanley Burrell became First Church of the City’s youth minister, he decided to move closer to the church by moving from Tennessee (a state with no state income tax) to Mississippi (a state with state income tax). Although as a minister Rev. Burrell is exempt from paying state taxes, this information still has to show up on his W-2. The financial secretary, Mrs. Cash, did not realize that this information should still display on the W-2. She now needs to add the Mississippi – Head of House state tax to each paycheck paid to Rev. Burrell during the months of July through December.








8) Select the Add or Change State/Local Types radio button.



10) You will then see the message box below. Clicking the Yes button allows you to add a

completely new state or local tax table. Clicking the No button allows you to switch

from one state or local tax type already on the record to another. For this example, click

the Yes button.

11) Select the checks that you need to correct.



13) Toggle the Type field to choose the tax table you wish to add to the employee’s record.




16) Observe the before and after columns to check the results of the change. Click the Next

button when done. Continue making corrections to other employees, or click the close

button in the top-right corner of the screen to close the wizard.


Finalizing the Entries/Manual Checks

There is one last step to perform before your W-2 corrections become permanent. The W-2

Correction Wizard does not actually make any changes; it simply creates manual check entries

and places them in the Manual Checks area that must then be saved.

The following steps will walk you through this finalization process.

1) After using the W-2 Correction Wizard to fix problems you encountered on the W-2s,

click the Close button in the top-right corner of the W-2 Correction Wizard window to

close the utility.

2) Upon doing this, you will receive the following message. Click the OK button to

continue.


3) You now need to navigate to the Manual Checks area. Click on Utility on the Payroll

Home Base screen.

4) Choose Manual Checks from the menu.

5) You should see a manual check entry for each W-2 correction you performed. Click the

Save button on the toolbar in the top-left hand corner of the Manual Checks screen.


6) Click the OK button on the Backup Warning message.

7) Choose a posting period, date, and description (optional) for the General Ledger journal

entry.

8) Click the OK button to continue.

9) Review and print the check register report, if desired. Click OK on the subsequent

confirmation messages.


Contact Us:

We want to hear from you!

Shelby Marketing: (800) 877-0222 [email protected] Shelby Support: (888) My-Shelby [email protected] Customer Service: (901) 757-2372 [email protected] Training: (800) 654-1605 [email protected] Workshops: (800) 654-1605 [email protected]

Trademarks: All brand names and product names used in this article are trade names, service

marks, trademarks, or registered trademarks of the respective owners. Shelby Systems, Inc. is

not associated with any product or vendor mentioned in this publication.

Copyright 2001, 2002, 2003, 2004, 2005, 2006 SSTips Publishing, a division of

Shelby Systems, Inc. All Rights Reserved. Alfred Johnson, Managing Editor. Bobby Easley,

Assoc. Editor.

w-2 correction wizard - church management software ... wizard.pdf · date created: 12/01/2006...

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