A few years back, I accidentally dropped the maximum on an employee deduction below what had already been withheld.  I can’t remember now why I did that (I think maybe I was trying to ‘get ahead’ for the next year) – but I do remember how surprised I was to see the difference between the (lower) maximum for the year and the (higher) total withheld for the year added back into the employee’s next check.

I recently had the opportunity to take this one step further when I had a client present me with the question of how to handle the need to reimburse an employee part of their 401K deduction.  With the whole tax-sheltered aspect thrown in, I decided to step through the process and test it to make sure it really did work.  Rather than leveraging the maximums, I took a slightly different route that gave me better control of the reimbursement to the employee.

Let’s start by looking at Sandra Martinez (Emp# MART0001) in the Fabrikam test company, and looking at her deduction summary.  For our illustration, let’s assume that Sandra wanted her 401K deduction to stop at the end of Oct.  In other words, she has had $32.31 too much deducted. 

For a starter reference, below is her starting Employee Summary information (always a good idea to know where you are starting, so you can verify you made it to the end result).  Sandra is getting paid a nice easy number of $1000 per period, so that makes it easy on us.

What we do want to change is a small setting on the 401K deduction card.  For this next check, we want to require a transaction to be entered instead of allowing the deduction to calculate as it normally would.  To do this, we mark the Transaction Required checkbox as shown below.  Since we want to enter a dollar amount, we will also need to change the method to fixed amount – otherwise, our entry would have to be a percentage.

For our transaction, we need to specify three things:  (1) a transaction type of deduction, (2) the deduction code of 401K and (3) the adjustment amount as a negative number.

Now we build the batch.  I went ahead and used the default build ID of REGULAR, then added the restriction to process just the employee range of MART0001 to MART0001, and marked our batch with our deduction adjustment.  To keep things simple, I unmarked all other deductions and benefits with the exception of the 401K.  Notice the deduction reflects as a negative deduction on the build report, and the benefit follows thru to show as 5% of the deduction.

We finish out by posting the check – making sure to change the date to Dec 2017.

Now all we need to do is verify the results on the Deduction Summary and Employee Summary screens. 

Notice, December is showing a negative $30 total to offset Nov, reflecting a total $30 401K deduction for the fourth quarter.  Also, while our gross and FICA wages increased by the $1000 of salary amount, our federal wages, which were sheltered from the 401K deduction we just reimbursed, have increased by $1032.31.

Don’t forget to inactivate that 401K deduction record so we don’t have to do this again!