Handling Third Party Insurance in ESC Accounting

An insurance company has notified you that they paid your employee and withheld FICA, MC and, possibly, Federal Withholding. They sent in the tax they withheld, but your company is responsible for the employer portion of the FICA & MC.  You need to show the gross and the taxes withheld on the W2. Below are instructions on handling 2 different scenarios: FICA & MC only and FWT, FICA & MC.

FICA & MC Only

Set up an Addition

• Name – Disability
• Type – Addition
• Method – Flat Amount
• Vendor – Leave Blank
• Liability Account – Invalid Account
• Limit Type – None
• Reporting Type – Compensation
• Check the box beside Tracks Third Party Sick Pay
• Taxes That Apply To This Item – FWT, FICA Employee, FICA Company, MC Employee and MC Company.

Set up a Deduction

• Name – Disability Deduct
• Method – Flat Amount
• Vendor – Leave Blank
• Liability Account – Invalid Account
• Limit Type – None
• Reporting Type – None
• Taxes That Apply To This Item – None

Create a Manual Check

Go to Employees → Write Manual Paycheck and enter the appropriate dates and mark as already printed. Delete all items in the Addition/Deduction section, then choose the Disability Addition and enter the gross paid by the insurance company. Add the Disability Deduct and the net paid (as a negative number) by the insurance company.

Press EDIT TAX and change the FWT amount to 0, and make sure the employee FICA and MC match what was deducted by the insurance company.  Net should be 0.  Click SAVE.

Next, go to Vendors → Pay Tax. Enter Vendor used for Federal Taxes, Type is Federal Tax Deposit.  Account will be the Invalid Account.  Enter the appropriate date.

Remove all check marks in the left column except for the Employee FICA and Employee MC amount for the manual check just entered. (This is the amount deducted from the employee’s check and sent in by the insurance company). Click Save.

At this point:

• The gross amount will show up on the W2 in boxes 1, 3 & 5 and the Third-party sick pay box will be checked.
• The FICA & MC that was deducted from the check will show in the appropriate boxes on the W2.
• The company portion of the FICA & MC is still in your liability account and Pay Tax screen for you to pay.
• The Invalid account is back to 0.

FWT, FICA & MC

If the insurance company withheld Federal Withholding and you need to report it on the employee’s W2, set up a Tax Item specifically for this purpose.  To do this, go to Employees → Payroll Tax Items and fill in the following information:

• Name – FWT Ins (or something to indicate to you what it is for)
• Tax Method – Formula
• Tax Formula – Federal Withholding
• Vendor – Enter the same Vendor that is on your regular Federal Withholding Tax
• Liability Account – Enter the same account that is on your regular Federal Withholding Tax
• Put a check in the box beside Tracks Taxes for Third Party Sick Pay

Set up an Addition

• Name – Disability
• Type – Addition
• Method – Flat Amount
• Vendor – Leave Blank
• Liability Account – Invalid Account
• Limit Type – None
• Reporting Type – Compensation
• Check the box beside Tracks Third Party Sick Pay
• Taxes That Apply To This Item – FICA Employee, FICA Company, MC Employee, MC Company and FWT Ins.

Set up a Deduction

• Name – Disability Deduct
• Method – Flat Amount
• 146
• Vendor – Leave Blank
• Liability Account – Invalid Account
• Limit Type – None
• Reporting Type – None
• Taxes That Apply To This Item – None

Go to Employees → Enter Employees and choose the affected employee(s). Click the Payroll tab and add the FWT Ins tax item to each of the employees who had Federal Withholding taxes withheld from their disability payments.

Go to Employees → Write Manual Paycheck, enter appropriate dates and mark as already printed. Delete all items in the Addition/Deduction section, then choose the Disability Addition and enter the gross paid by the insurance company. Add the Disability Deduct and the net paid (negative number) by the insurance company.

Check to make sure the employee FICA and MC match what was deducted by the insurance company. The amount of the FWT Ins will most likely need to be edited. If any changes are needed, press Edit Tax to allow for any necessary changes.  Net should be 0.  Click Save.

Go to Vendors → Pay Tax. Enter Vendor used for Federal Taxes, Type is Federal Tax Deposit.  Account will be the Invalid Account. Then, enter the appropriate date.

Remove all check marks in the left column except for the FWT Ins, Employee FICA and Employee MC amount for the manual check(s) just entered. (This is the amount deducted from the employee’s check and sent in by the insurance company). Click Save.

At this point:

• The gross amount will show up on the W2 in boxes 1, 3 & 5 and the Third-party sick pay box will be checked.
• The FWT, FICA & MC that was deducted from the check will show in the appropriate boxes on the W2.
• The company portion of the FICA & MC is still in your liability account and Pay Tax screen for you to pay.
• The Invalid account is back to 0.