Changes to FICA Rates & Microsoft Dynamics GP
With recent legislation, the FICA/Social Security rate for employees is 4.2 percent for 2011. However, the employer rate remains at 6.2 percent. If you have installed the latest tax update for Microsoft Dynamics GP, you probably have noticed that both the employer and employee rates calculate as 4.2 percent. Microsoft Dynamics GP currently stores only one rate for FICA/Social Security to be used for both employee and employer calculations. Microsoft is working on an update to address this by adding functionality to store the rates separately. This update is expected to be released the week of January 24, 2011. The update will correct payroll inquiries and reports for any payrolls processed in 2011. However, it will not update general ledger postings for payrolls prior to the update.
What Does This Mean for You?
Employee withholding will calculate correctly if you installed the Round 1 Tax Update for 2011. However, the employer rate will calculate at 4.2 percent, rather than 6.2 percent. This means the FICA/Social Security employer tax expense and liability will post to the general ledger (GL) incorrectly. You will need to manually adjust the GL to account for the additional 2 percent employer tax expense. You also will need to include this additional amount in your tax payments to the government.
For example, if the FICA taxable wages for your payroll are $100,000, then the FICA/Social Security would calculate as $4,200 and the GL posting would show:
- FICA Employer Tax Expense DB $4,200 (4.2 percent * 100,000)
- FICA Employer Tax Liability CR $4,200 (4.2 percent * 100,000)
This is incorrect, as the employer FICA/Social Security rate should actually be 6.2 percent, and you will need to adjust the GL as follows:
- FICA Employer Tax Expense DB $2,000 (2 percent * 100,000)
- FICA Employer Tax Liability CR $2,000 (2 percent * 100,000)
This correction is necessary to account for the 2 percent difference between the Dynamics GP calculated amount and the correct rate. You also can calculate the total tax amount using the calculated FICA/Social Security tax amount as follows: ($4,200/.042)*.062=$6,200.
It is important that you not only adjust the GL for this difference, but that you also include this in your payment to the government. If you need assistance with this calculation, contact our support center at 877.BKD.SPRT (877.253.7778) or GPsupport@bkd.com.
Printing the 941 Report
If possible, the 941 report for 2010 should be printed before installing the 2011 tax tables. If this is not possible, the tax tables can be manually modified with the 2010 rate before printing, but be sure to reset to the 2011 rate afterwards. The Microsoft update to be released the week of January 24, 2011, will update the functionality of the 941 so that the user date in Dynamics GP will determine which FICA rate is used and no manual edit will be required. If you need assistance with adjusting the tax tables manually prior to the release of the update, contact our support center at 877.BKD.SPRT (877.253.7778) or GPsupport@bkd.com.
Building the Year-End Wage File
Due to the changes in the FICA/Social Security rate, Microsoft recommends that the year-end wage file be generated before applying the 2011 tax tables. If the 2011 tax tables have already been installed, they can be manually modified with the 2010 rate before you build the year-end wage file. Afterward, the rate can be reset to the 2011 rate. If you need assistance with this process, contact our support center at 877.BKD.SPRT (877.253.7778) or GPsupport@bkd.com.
“The FICA/Social Security withholding changed for employees from 6.2 percent to 4.2 percent in 2011. Round 1 included the change to both the Employee and Employer portion due to Microsoft Dynamics GP calculation being based from one amount. Due to this, General Ledger posting, inquiries and reports that show FICA amounts for employers will be calculated using 4.2 percent for payruns that are processed with Round 1. Round 2 Tax Update will include changes to the employer portion to bring back to 6.2 percent. We understand the challenges you face with this; however, it was important to release with accurate employee paychecks starting January 1, 2011.”
For more information, contact:
Sales & Marketing Specialist, BKD Technologies