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Gross-up for Employer Paid FICA and CA SDI

Nina Tchistiakova Updated by Nina Tchistiakova

This gross-up utility should be used when the employer is paying the employee's social security, Medicare, and CA SDI 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.

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

See also California Information Sheet DE 231Q, Social Security/Medicare/SDS Taxes Paid By An Employer, and IRS Publication 15-A, Employer's Supplemental Tax Guide, Section 7, Special Rules for Paying Taxes.

Summary

If an employer pays their employee’s FICA (social security and Medicare) and CA SDI 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 FICA and CA SDI taxes is also subject to employee FICA and CA SDI 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 due to FICA is not subject to further FICA taxes. It is also not subject to FUTA, state UI, and SDI taxes. However, the gross-up amount due to CA SDI is subject to all taxes. To accommodate the taxing requirements, a special Income Item must be created that is subject to only the appropriate taxes (federal and state income taxes). The FICA gross-up amount would be added to this income item. The CA SDI gross-up amount can be added to regular wages since it is subject to all taxes.

If the employee is not a household or agricultural employee, then the entire 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(s) to either regular wages or the Gross-up Income Item, or both, 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, Medicare, and CA SDI tax should be in the appropriate fields.
  2. Click the Gross-up for Employer Paid FICA and CA SDI 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. 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. The appropriate gross-up amount will be added to the wages item.
  4. 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 FICA gross-up amount. If it 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 6. If the employee is NOT a household or agricultural employee then go to step 6.
  5. 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 and state income taxes are checked. 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.
  6. For household and agricultural employees the FICA gross-up amount will have been added to the FICA GU income item and the CA SDI gross-up amount will have been added to the wages field confirmed in step 3. For all other employees the total gross-up amount will have been added to the wages in the wage field confirmed in step 4. You are done.

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