Frequently Asked Questions - LexisNexis

When a tax is selected, its calculation is based on the Gross Wages plus the Employer Contribution.
When a tax is not selected, its calculation is based on the Gross Wages minus the Employee Contribution.
In this illustration, the federal income tax calculation is based on the gross wages plus the company contribution.
The calculation for all other taxes is based on the gross wages minus the employee contribution.
To handle more complicated tax calculations, set up the employee contribution as one pretax deduction with its
own set of tax rules and set up the company contribution as a second pretax deduction with its required tax rules.
Consult the firm's accountant or plan administrator to determine which tax rules to use with the plan.
• Contributions per period Enter the percentage of gross wages to deduct from the employee's pay plus
the percentage contributed by the company.
• Company paid portion Enter the percentage of the total that is paid by the company.
• Yearly maximum If there is a maximum the employee and company can contribute per year, enter the
amount in this box. When the total contributed by the employee and the company reach this amount,
Payroll will stop deducting for this plan.
• Paid so far this year If Payroll was just installed and contributions have already been made this year,
enter the amount already contributed by both the Employee and the Company in this box.
• W2 box To show the total employee contribution on the W2 form, select a box number. Box 13 and 14
require a Code or Label that identifies the plan. Consult the firm's accountant or plan administrator to
determine the proper code or label to use.
Example:
Alumni Law Firm has a retirement plan to which both the employee and the employer contribute. The employee
contribution is 3% of their gross wages. The employer will contribute another 3%. The maximum contribution for
both the employee and employer is $6000 per year. When taxes are calculated, federal income tax, state income
tax and local income tax are based on the gross wages minus the employee contribution. All other tax calculation
are based on the gross wages. The employee contribution must be reported in Box 13 with a Code of D.
The following illustration shows how to set up the retirement plan:
A 401(K) Plan Type is used because the federal, state and local tax calculations are based on the gross wages
minus the employee contribution. All other taxes are based on the gross wages.