W2 Warning about Social Security Limit for a Prior Year

Symptom:  Running W2’s in Aatrix and getting warning message:
Box 3 (social security wages) + Box 7 (social security tips) is equal to the Social Security wage limit for a prior year.
 
 
 
Cause: During the year, a workstation used to calculate payroll for the employee did not have the current years tax update applied to it. While MIP typically has a full release before the end of the year that release does not have the coming years tax information in it. There is a separate tax update that must be installed in January. This update increases the SS subject earning wage limits for the coming year as well as provides the new tax tables for the year.
 
Resolution: To resolve this exit out of Aatrix, go into Activities>Payroll>Setup/Adjust Employee Balances and create an adjustment for the prior year. Go to the Taxes Tab. Put in a line for tax type SS. Fill in the missing values for Employee and Employer Subject Earnings as well as Employee and Employer Tax. You should not have to put anything in Gross Taxable Earnings as those do not cap out.
 


The amount that you put in is the difference between what it capped out at for the prior year and what it should have been in the tax year being reported on. If the employees earnings in that tax year reached that years Social Security max then it would be the difference between that tax years max and the previous years max.
 
Save this adjustment and then pull the infomration into Aatrix again. The error message should go away.
 
NOTE: This adjustment does not affect accounting in any way. You will need to do accounting entries to recognize the additional tax expense/liability.
 
Question- Does this mean that not enough Social Security Tax was witheld?
 
Answer- Yes. Not enough employee or employer social security tax was witheld. You should contact your tax authortity or the IRS about the best way to handle this situation as both the employee and employer owe additional taxes.
 
Question- Does this mean that the Federal Income Tax was also not correct?
 
Answer – Maybe. Federal Income Tax is an estimate only, not a fixed percetange like Social Security. Any differences between what was witheld at the prior year vs current year rates will be resolved by the employee when they file their tax return.
 
Question – What about Medicare Taxes?
 
Answer – Tradtionally Medicare rates and the threshold subject to additional Medicare Witholding do not increase every year, so it should not be a problem.