Payroll deductions and benefits: garnishments, fringe benefits, retirement plans, and Form W-4

When payroll takes money from an employee's pay, such as health premiums, retirement deferrals, garnishments, or union dues, the company holds it until it pays the carrier, plan, or agency. Record each as a liability and clear it when paid. The balance in each liability account at any point should equal what has been withheld and not yet remitted.

Reconcile these accounts to the provider's reports and the payment records each month. A balance that grows points to a missed payment.

Some benefit premiums are taken before tax, which reduces taxable wages for employee withholding purposes. Others are after tax. The type affects what wages are reported, so check how each is set up. Employer contributions to benefits are an expense of the company.

A garnishment is a court or agency order to withhold part of an employee's pay and send it to a creditor, such as for child support, taxes, or a judgment. The order says how much and where to send it, and federal and state rules limit how much can be taken. Withhold as ordered, remit by the deadline in the order, and keep the order and proof of each payment.

Some benefits given in kind are taxable wages. Examples include personal use of a company vehicle, certain group-term life insurance above a threshold, and some gifts and awards. Calculate the value and add it to payroll in the period the benefit was provided, not in a catch-up at the year end. The IRS publishes rules on valuing and reporting them.

Employee deferrals are the employee's money and must be deposited into the plan promptly. The Department of Labor sets rules for how soon, and late deposits can create penalties and reporting problems. Reconcile the amounts withheld with the amounts deposited, and record the employer match as an expense when it is earned.

When an employee gives you a new Form W-4, put it into effect within the time the IRS allows, and keep it with the payroll file. Do not change an employee's withholding on a verbal request. If an employee asks, the form is the way.