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Gross-up for Employer Paid FICA

Nina Tchistiakova Updated by Nina Tchistiakova

This gross-up utility should be used when the employer is paying the employee's social security and Medicare taxes but NOT the federal, state, and local income taxes. To include income taxes in the gross-up calculation (NET to GROSS), see the option for Gross-up for All Taxes and Deductions on the Options menu.

California employers should see Gross-up for Employer Paid FICA and CA SDI on the Options menu.

See also IRS Publication 15-A, Employer's Supplemental Tax Guide, Section 7, Special Rules for Paying Taxes.

Summary

If an employer pays their employee’s social security and Medicare taxes without deducting them from the employee’s pay, they must include the amount of the payments in the employee’s wages for federal and state income tax withholding. If the employees are not household or agricultural employees, then this increase in the employee’s wage payment for the employer's payment of the employee’s social security and Medicare taxes is also subject to employee social security and Medicare taxes. This again increases the amount of the additional taxes the employee must pay. To account for the increase in wages that must be reported, the check must be "Grossed up". The increased pay is called the gross-up amount.

Be sure that the employee's Employment Type is set correctly on the Employee Information screen.

If the employee is a household or agricultural employee, then the gross-up amount is not subject to further FICA taxes. It is also not subject to FUTA and state UI taxes (check your state's regulations). To accommodate the taxing requirements, a special Income Item must be created that is subject to only the appropriate taxes (federal, state, and local, if applicable, income taxes). The gross-up amount would be added to this income item.

If the employee is not a household or agricultural employee, then the gross-up amount is subject to all taxes (the same as wages). A special Income Item is not necessary and the gross-up amount can be added to regular wages.

This utility menu item will set up the Gross-up Income Item, if necessary, and add the gross-up amount to either regular wages or the Gross-up Income Item, as appropriate.

Procedure

  1. Place the cursor on the check (any field) that you want to gross up. The NET amount of pay received by the employee should be already entered as wages and the calculated amount of social security and Medicare tax should be in the appropriate fields.
  2. Click the Gross-up for Employer Paid FICA item on the Payroll Grid Options menu. The program will check the employee's Employment Type setting to determine if he/she is a household or agricultural employee. Be sure the setting is correct.
  3. If the employee is a household or agricultural employee then the program will try to identify an Income Item already set up for this employer with the proper tax settings for the gross-up amount. If the employee is NOT a household or agricultural employee then the program will try to locate the regular wages income item. It must be either the program provided Salary (Regular Pay (salary)) or Reg Wages (Regular Pay (hourly)) income item. If the program finds the appropriate item, the user is asked to confirm the choice. Click YES if the displayed Income Item is correct and go to step 5.
  4. If the employer doesn't already have an Income Item with the proper settings for the household and agricultural employee gross-up, then the program will create one and display the settings in the Income Item Setup screen.
    Note that only federal, state, and local, if applicable, income taxes are checked. If the user has added any custom local income taxes that should be subject to such a gross-up, then they may check those taxes also. Consult the state and/or local employer's payroll guide.
    Click OK when finished and answer YES to mark existing employees as subject (if prompted) and the Income Item (FICA GU) is added to the employer's setup and appears in the grid.
  5. For household and agricultural employees the gross-up amount will have been added to the FICA GU income item. For all other employees the gross-up amount will have been added to the wages in the wage field confirmed in step 3. You are done.

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Garnishments

Gross-up for Employer Paid FICA and CA SDI

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