Effective July 1, 2011, FRS (Florida Retirement System) members must contribute 3% of their salary as retirement contribution. This is on a pre-tax basis (salary is reduced by the 3% employee contribution before determining the federal income tax deduction). The employer will automatically deduct the employee contributions. This employee contribution (3%) for FRS will not reduce FICA/Medicare Wages.
Elected Board Members are also subject to the 3% contribution deduction. Newly elected members may opt out of the FRS within the first six months of their election. There is no provision in the statutes that allows for an opt out after that time.
What this means to the employee is that their compensation is reduced by the 3% FRS contribution. However, their income tax withholding is reduced accordingly (taxable compensation is reduced by the 3%). Compensation for purposes of FICA is unchanged.
Employer reporting issues:
- Affect on employee W-2 – the amount is not included in Box 1 as Wages and it is included in Box 3 (social security wages) and Box 5 (Medicare wages). Additionally, the amount is included in Box 14 (other) with a description of FRS 3%.
- Affect on 941 – the amount is not included on Line 2 (wages subject to federal withholding tax) and the amount is included on Line 5a (subject to social security taxes) and 5c (subject to Medicare taxes).
Instructions for QuickBooks Users:
- Set up a new Payroll Item –Custom setup – as a deduction- name - FRS 3%
- Under Liability Account – choose the Expense Account where you code your payment to FRS
- Tax Tracking Type - Other
- Taxes – check Federal Withholding (yes you want to do this)
- Calculate based on quantity - Neither
- Default rate and limit 3% - no upper limit
Employee Setup in QuickBooks - Choose each employee that is a member of FRS
- Go to Payroll and Compensation Info
- Add FRS 3% under the Item Name of the Additions, Deductions and Company Contributions section.
- Suggestion: test an employee’s payroll to be sure that FICA is calculating at 4.2% and Medicare at 1.45% based on compensation pre FRS. (Example $100 compensation with $3 FRS deduction – Social Security and Medicare should be calculated based on $100).
941 Reporting in QuickBooks - need to override your 941 report Line 2 wages to not include the 3% deducted from Gross Wages. Print a Payroll Summary Report and use Adjusted Gross Pay for Line 2.
W2 reporting in QuickBooks - need to override Box 1 on all W2’s to not include the 3% deducted from Gross Wages. Print a Payroll Summary Report and use Adjusted Gross Pay for Box 1.
At present, QuickBooks does not have a tax tracking type that will work correctly, so overriding is necessary. If you need help setting this up, please call Judy at 321-426-3018.