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 #
- Legal Requirements
- Pro-Pay’s Handling of Insufficient Funds
- Reporting Uncollected FICA Taxes
- Negative Checks
- Troubleshooting
- 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:
- Reduces Federal withholding to zero
- Reduces State withholding to zero
- Reduces deductions 1-19 to zero, in that order
- 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:
- Review the employee’s gross pay and deductions
- Adjust voluntary deductions if necessary
- Verify reported tips are entered correctly
- Re-run payroll calculations
- If issues persist, contact Pro-Pay support
Issue: Uncollected FICA Taxes #
Steps to Resolve:
- Ensure all tips are correctly reported in the system
- Review employee’s YTD earnings and tax withholdings
- Adjust future paychecks to collect outstanding FICA taxes if possible
- 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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