Exempt Employee W4 Setup in Sage Abra Payroll

When hiring a new employee, they may submit a W4 form indicating that they are exempt from FEDERAL INCOME TAX. What this typically means is that they are actually exempt from federal income tax withholdings and you as an employer are still responsible for tracking the FEDERAL WAGES for reporting on the 941 and W2.

In this circumstance, the appropriate action is not setting FED TAX to exempt on the Employee Tax Withholdings detail (This should only be done if the employee is truly exempt from Federal wages and tax reporting) nor should you NOT add FED to the detail. The correct action is to add the tax code to the employee and set the exemptions to 99. This will allow all wages paid to the employee to increase taxable wages for FED without triggering any withholding. In turn the employee’s wages will flow to Box 2 on the 941 as well as Box 1 on the W2.

If Final Quarter Close has been run for the year for an employee that was set as exempt for all or part of that year, the employees W2 will need to be edited. To edit the W2, go to Payroll > Edit Quarter/Year-End Forms. Select the form type of W2 and the year in question (2010). Then you can directly adjust the Box 1 value for the employee that is being reported incorrectly. This will automatically flow to the W3 and the electronic file.

If however you are still in the middle of processing a quarter or year you can correct the federal wages as a function of editing payroll history. If you are not at Trial Quarter Close you will be able to update the MTD WAGES which in turn flow to the QTD and YTD. If you are at Trial Quarter Close, then you can edit the QTD WAGES which flow to the YTD.

To edit payroll history select Payroll > Edit Payroll History. Choose the employee and mark tax history as COMPLETE. Press Next; enter the employee’s last check date in the Adjustment Effective Date box. The next screen provides access to the FED tax code to make the appropriate adjustment. Once this adjustment is complete, review and adjust the employer tax liabilities. This is done by going to Payroll > Edit Employer Tax Liabilities. Detail the listing (by check date) for FED and you will be able to adjust the WAGES by the amount you adjusted the employee.