How to setup a 401k, Pension, Cafeteria, and Roth Plans in Sage 100 Payroll

Summary

How to setup a 401k, Pension Plan, Cafeteria Plan, or Roth Deduction in Sage 100 Payroll Version 2018 and higher.

Resolution

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Setting up the 401k / Pension plan deduction

Steps to create a new deduction code for 401k/Pension plan:

(Note: Similar steps are used to create a Cafeteria Plan type of deduction, with the exception of choosing the deduction type of Cafeteria Plan)

1. In Payroll, Setup, Deduction Code Maintenance, create a new deduction code for the 401k deduction and a description.
2. Select the deduction type of Pension
   Select a calculation method:
   • Fixed Amount
   • Percentage of Gross **
   • Based on Reg. Hrs Worked
   • Based on Total Hrs Worked **
   • Equal to Earnings Codes
3. Assign applicable Tax Rule.

Note: The deduction can reduce the taxable income only if the earnings code used with the deduction code is subject to the tax.

**See additional information section below for more details if using these types of calculation methods.

Setup a Roth IRA Contribution:

1. In Payroll, Setup, Deduction Code Maintenance, create a new deduction code for the 401k deduction and a description.
2. Select the deduction type of Pension
3. Select a calculation method:
   • Fixed Amount
   • Percentage of Gross **
   • Based on Reg. Hrs Worked
   • Based on Total Hrs Worked **
   • Equal to Earnings Codes
4. Select applicable Tax Rule
5. Select Box 12 code either AA,BB or EE (**see IRS instructions for Box 12 code definitions to determine which code is applicable.

Setting up an Employer Contribution deduction based on percentage of gross wages:

1. In Payroll, Setup, Deduction Code Maintenance, create a Pension type deduction based on Percentage of Gross Wages. Assign an applicable Tax Rule to the deduction.
2. In Payroll, Setup, Deduction Code Maintenance, create an Employer Contribution type deduction based on Percentage of Gross Wages
3. If multiple deduction rates are being used for various employees, go into Employee Maintenance and click Deductions button, to open the Voluntary Deductions window
   • Select the Employee 401k deduction code and the corresponding deduction rate and click Ok
   • Select the Employer Contribution deduction code rate as based on the employer matching limit and click Ok

Consider the following scenario:

For example, the Employer Match is 50% of Employee contribution, up to a maximum of 6%. The Employee deduction rate would be 6%. The Employer Contribution rate would 3%. (i.e.. Employer Contr. 50% x Employee deduction 6% = 3%).

This would establish a limit on the amount matched by the employer. If an employee were to deduct more than 6%, the Employer Contribution rate would remain at 3%, thus maintaining the limit. If an employee wishes to deduct less than 6%, a lower Employer Contribution rate must be used.

For example, with an Employee deduction of 5%, a corresponding Employer Contribution rate of 2.5% would be used to establish the limit. (i.e. Employer Contribution 50% x Employee deduction 5% = 2.5%).

So ultimately, only two Deductions codes are required to achieve this result with the appropriate rates established in Employee Maintenance on the Voluntary Deduction screen.

Note: In Sage 100 Payroll 2.0 Percentage of Gross or the Based on Total Hours Worked calculation methods have the option to calculate deductions based on specific earnings types. For more details, see related article What Calculation Methods are Available in Deduction Code Maintenance

Example: You can set up a 401k deduction based on regular, sick, and vacation earnings only.

After selecting either Percentage of Gross or the Based on Total Hours Worked calculation method, click the Earnings button

In the Based on Earning Types window, select one or more check boxes corresponding to the earnings types based on which the deduction will be calculated. Select the All check box to select all earnings types. Clear any check boxes corresponding to earnings types to exclude from the calculation.