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Uncollected FICA on Tips

Handling Reported Tips and Negative Paychecks #

Overview #

This article explains how Pro-Pay handles reported tips, social security and Medicare taxes, and negative paychecks. It covers the legal requirements for employers, Pro-Pay’s approach to these situations, and the reporting of uncollected FICA taxes.

Table of Contents #

  1. Legal Requirements
  2. Pro-Pay’s Handling of Insufficient Funds
  3. Reporting Uncollected FICA Taxes
  4. Negative Checks
  5. Troubleshooting
  6. FAQs

Legal Requirements #

Employers are legally required to collect the employee’s portion of:

  • Social security taxes
  • Medicare taxes
  • Income taxes on reported tips

Pro-Pay’s Handling of Insufficient Funds #

When there are insufficient funds from an employee’s wages, resulting in a “Negative Paycheck,” Pro-Pay takes the following steps in order:

  1. Reduces Federal withholding to zero
  2. Reduces State withholding to zero
  3. Reduces deductions 1-19 to zero, in that order
  4. Reduces Net Pay to zero

These steps are taken as necessary to cover uncollected FICA on tips.

Reporting Uncollected FICA Taxes #

If there are still insufficient funds to collect all employee’s social security and Medicare taxes on tips, the uncollected FICA tax is reported as follows:

  • Payroll Summary report
  • Employee Detail Earnings Report
  • Employee’s pay stub
  • Form 941 line 7c – Current quarter’s adjustments for tips
  • W2 form Box 12 – Codes A & B

The uncollected FICA amount is used as a credit on the Employer’s 941 tax liability, reducing the next tax payment.

Note: If the Employee’s YTD Uncollected FICA amount is greater than zero, Pro-Pay will attempt to collect that amount on the next paycheck.

Negative Checks #

Negative checks may occur when:

  • Pre-scheduled voluntary deductions exceed gross pay
  • Gross pay consists mostly of tips

When negative checks are detected, Pro-Pay displays a warning message during check printing, allowing users to correct these checks before printing.

Troubleshooting #

Issue: Negative Paycheck Warning #

Steps to Resolve:

  1. Review the employee’s gross pay and deductions
  2. Adjust voluntary deductions if necessary
  3. Verify reported tips are entered correctly
  4. Re-run payroll calculations
  5. If issues persist, contact Pro-Pay support

Issue: Uncollected FICA Taxes #

Steps to Resolve:

  1. Ensure all tips are correctly reported in the system
  2. Review employee’s YTD earnings and tax withholdings
  3. Adjust future paychecks to collect outstanding FICA taxes if possible
  4. Consult with a tax professional for complex cases

FAQs #

Q: How does Pro-Pay handle uncollected FICA taxes?

A: Pro-Pay reports uncollected FICA taxes on various reports and forms, and attempts to collect the amount on future paychecks.

Q: Can employees opt out of having uncollected FICA taxes collected from future paychecks?

A: No, employers are legally required to collect these taxes. Pro-Pay automatically attempts to collect them to ensure compliance.

Q: How can I prevent negative paychecks?

A: Review and adjust voluntary deductions, ensure accurate tip reporting, and monitor gross pay vs. deductions regularly.


For additional assistance, please consult our help menu in the Pro-Pay payroll software or visit our website at https://www.Paysoft.com.

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