How to set up a 401(k) deduction that has a matching benefit in Payroll in Microsoft Dynamics GP

Many employers match a percentage of an employee's 401(k) contributions up to a defined amount of the employee's gross wages.

For example, a company may decide to match 50 percent of an employee's 401(k) contribution up to 4 percent of the employee's gross wages. The employee can decide to withhold more than 4 percent of the gross wages. However, the amount that exceeds 4 percent of the gross wages is not matched by the company.

First, you have to set up the 401(k) deduction. Then, you have to set up the matching benefit.

Set up the 401(k) deduction

1. In Microsoft Dynamics GP, point to Tools on the Microsoft Dynamics GP menu, point to Setup, point to Payroll, and then click Deduction.
2. In the Deduction Setup window, type the code name that you want in the Deduction Code field, and enter a description in the Description field.
3. Select the Deduction Type as Standard typically. 
4. Specify the Start Date and End Date .
5. In the TSA Sheltered From area, click to select the appropriate check boxes for taxes to shelter from.
6. In the Method list, click Percent of Gross Wages.
7. In the Deduction Tiers area, click Single. In the box next to the Single field, type a default percentage. Or, leave the default percentage as 0.00%.
   
   
   Note The percentage that you enter in the Deduction Tiers area will be the default percentage when you assign the deduction to employees. You can change the percentage when you assign the deduction to the employees.
8. Click the appropriate frequency in the Frequency list.
9. If it is required, enter any maximum deduction amounts in the Maximum Deduction area for Pay Period, Calendar Year and/or Lifetime.
10. If you want this deduction to be based on only certain pay codes, click Selected in the Based on Pay Codes area, and then insert the appropriate pay codes from the Pay Codes area.
11. Type the appropriate information in the following fields:
    • W-2 Box
    • W-2 Label
12. Click Save.

Set up the matching 401(k) benefit

1. In Microsoft Dynamics GP, point to Tools on the Microsoft Dynamics GP menu, point to Setup, point to Payroll, and then click Benefit.
2. In the Benefit Setup window, type a benefit code in the Benefits Code field.
3. In the Description field, type a description.
4. In the Start Date field, enter the start date. If the benefit has an end date, enter the end date in the End Date field.
5. In the Subject To Taxes area, click to select the appropriate check boxes.
6. In the Method field, click Percent of Deduction.
7. In the Benefit Tiers area, click Single, and then type the percentage that you want to match.
   
   For example, if the company matches 50 percent of the employee contribution, type 50%.
8. In the Frequency list, click the appropriate frequency.
9. In the Maximum Benefit area, enter any maximum benefit amounts.
10. In the Based on field, click Deduction, and then click Selected. Next, insert the deduction that you created into the Selected box.
    
    Note This deduction is the deduction that you created in step 2 in the "Set up the 401(k) deduction" section. This is the deduction on which the benefit will be based.
11. In the Employer Maximum field, type the maximum percent of the gross wages that you want to match. (Note.  This field will be grayed out if the matching deduction is set up as a fixed amount. This field is designed to work with percentages.)
    
    For example, if the company matches up to 4 percent of the employee's gross wages, type 4%.
12. Type the appropriate information in the following fields:
    • W-2 Box
    • W-2 Label
13. Click Save.

Assign the 401(k) deduction to an employee

1. On the Cards menu, point to Payroll, and then click Deduction.
2. In the Employee Deduction Maintenance window, type an employee ID in the Employee ID field. In the Deduction Code field, type the deduction code that you created.
3. When you are asked whether you want to use the default information from the Deduction Setup window, click Default.
   
   The default entries from the Deduction Setup window will populate specific fields. However, you may want to enter a specific percentage of the gross wages that the employee wants to withhold from each paycheck.
4. Click Save.

Assign the matching benefit to an employee

1. On the Cards menu, point to Payroll, and then click Benefit.
2. In the Employee Benefit Maintenance window, type an employee ID in the Employee ID field. In the Benefit Code field, type the benefit code that you created.
3. When you are asked whether you want to use the default information from the Benefit Setup window, click Default.
   
   The default entries from the Benefit Setup window will populate specific fields. However, you may want to change the matching benefit as necessary for specific employees.
4. Click Save.

Sample calculations

Calculation 1

Consider the following scenario:

• You want to match 50 percent of the deduction up to 4 percent of gross wages
• The employee wants to withhold 4 percent of gross wages or less on the deduction

In this scenario, the benefit will be 50 percent of the deduction. The benefit is calculated as follows: In this scenario, the specific benefit is calculated as follows:

Calculation 2

If the employee wants to withhold more than 4 percent of gross wages, the benefit will match 50 percent up to 4 percent of the gross wages. The benefit will be calculated as follows: In this scenario, the specific benefit is calculated as follows: