This Step-by-Step tutorial guides you through Adjusting W2s, which is a 4-step process: First, set up custom compensation distributions. Second, turn "OFF" the Interface with the General ledger. Third, post manual checks to adjust the box amounts on W2s. And lastly, turn "ON" the Interface with the General Ledger so that the next Payroll is posted to the General Ledger.
This Section Includes:
ØSet up Compensation Distributions
ØTurn off the Interface with General Ledger
ØProcess a Manual Check to adjust Box 1
ØProcess a Manual Check to adjust Box 16
ØProcess a Manual Check to adjust Box 3 and Box 5
ØTurn on the Interface with General Ledger
Set Up Compensation Distributions
In order to make adjustments to an employee's W2, custom compensations need to be set up. For example, if you need to adjust Box 1, then set up a custom compensation that is only subject to Federal Withholding. The following steps walk you through this process.
1. From the Payroll menu, select Modify -> Compensation Information.
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2. Click the Add New Compensation link.
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3. Enter a name for the new compensation in the Description field (e.g. W2 - Box 1). Remove all check marks from the right side except for the Subject to Federal Withholding? check box.
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4. Next, click the 
Add New Distribution icon-link.
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5. The Add New Distribution window appears. Enter a name for the Distribution (e.g. W2 - Box 1 Adjustment).
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6. Click the Edit 
icon next to the Regular Pay pay type and then enter an account number. When finished, click the Update button.
NOTE: Since this distribution is not being used to interface with the General Ledger, the account number here can be virtually any account number. But, it is a best practice to use some type of "personnel" account number.
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7. As a time-saving feature, the expense account entered in the Regular Pay pay type is automatically assigned to all the pay types. Verify that the Distribution Name and the Account numbers listed are correct and then click the OK button.
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8. Notice that the new distribution appears in the grid at the bottom of the Compensation Information page. Click the Update button to save your changes.
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9. Repeat steps 2 through 8 to set up other compensation distributions in a similar manner for Box 16, Box 3 and 5 and No Taxes. See the example screen shots below for selecting the correct check boxes for each of compensations.
Box 16
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Box 3 and 5
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No Taxes
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Turn off the Interface with General Ledger
The option to interface with the General Ledger controls whether or not journals are sent to the General Ledger when you process checks or voids in the Payroll application. Since many of the W2 adjustments should only affect Payroll history, the Interface with the General Ledger should be turned off. The following steps walk you through this process.
1. From the Payroll menu, select Modify -> Employer Information.
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2. Uncheck the Interface with General Ledger? check box located on the General Ledger Interface tab.
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3. Click the Update button at the bottom of the page.
Process a Manual check to Adjust Box 1
Some of the common corrections for W2s include Box 1 (Federal wages), Box 3 and 5 (Social Security and Medicare wages), and Box 16 (State wages). This tutorial walks you through the process of correcting Box 1 by processing a manual check.
In the example below, notice that Box 1 is $800. The following steps walk you through entering a manual check to increase Box 1 by $1,000.
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1. From the Payroll menu, select Enter -> Manual Check.
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2. Search for and select the Name of an employee that needs Box 1 increased by $1,000.
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3. Click the Add New Compensation icon-link.
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4. Select the Compensation and Distribution that was setup to adjust Box 1 and then enter the Amount of the adjustment. Click the Apply button when you are finished.
NOTE: If you want to decrease the amount of Box 1 on the W-2, then enter a negative amount.
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5. (Optional) Entering a "No Taxes" distribution stops the Employee Earnings report from being affected by the amount entered on the Box 1 distribution.
Select the No Taxes Compensation and Distribution that was set up for adjusting W2s and then enter the opposite Amount of what was entered for the Box 1 distribution. Click the OK button.
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6. Enter the Check # and Check Date for the Manual Check.
NOTE: It is recommended that you designate a range of check numbers to be used for W2 adjustments that is outside your normal check run (e.g. 9000000-9999999). This helps you identify these check numbers during an audit or for general bookkeeping purposes. Also, it is recommended to use "December 31" consistently as the Check Date for manual check adjustments.
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7. Click the Update button to save your changes.
8. Click the check box next to the Manual Check and then click the Post Manual Checks button.
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9. The Manual Check Register appears. Review this report. If the information is correct, click the Finalize Post button. If the information is not correct, click the Cancel link and make the appropriate changes to the manual check.
NOTE: You should notice that the Posting Date field does not appear next to the Finalize Post button. This indicates that the Interface to the General Ledger has been turned off. If the Posting Date field does appear, you may want to consider going to the Employer Information page and uncheck the Interface with General Ledger? check box.
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10. After posting the manual check, you can run your W2s. Notice that Box 1 has increased by the amount of the manual check. (In this example, Box 1 has increased by $1,000.)
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Process a Manual check to adjust Box 16
Some of the common corrections for W2s include Box 1 (Federal wages), Box 3 and 5 (Social Security and Medicare wages), and Box 16 (State wages). This tutorial walks you through the process of correcting Box 16 by processing a manual check.
In the example below, notice that Box 16 does not match Box 1. (Most likely, this employee was paid with a compensation that was not marked as "Subject to State Withholding", or State tax was not assigned on the Taxes tab of the Employee's record.)
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The following steps walk you through adjusting Box 16 so that it matches the Box 1 amount, which means an increase of $38,880 for Box 16.
1. From the Payroll menu, select Enter -> Manual Check.
2. Search for and select the Name of an employee that needs Box 16 increased by $38,880.
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3. Click the Add New Compensation icon-link.
4. Select the Compensation and Distribution that was setup to adjust Box 16 and then enter the Amount of the adjustment. Click the Apply button when you are finished.
NOTE: If you want to decrease the Amount of a Box on the W-2, then enter a negative amount.
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5. (Optional) Entering a "No Taxes" distribution stops the Employee Earnings report from being affected by the amount entered on the Box 16 distribution.
Select the No Taxes Compensation and Distribution that was set up for adjusting W2s and then enter the opposite Amount of what was entered for the Box 16 distribution. Click the OK button.
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6. Enter the Check # and Check Date for the Manual Check.
NOTE: It is recommended that you designate a range of check numbers to be used for W2 adjustments that is outside your normal check run (e.g. 9000000-9999999). This helps you identify these check numbers during an audit or for general bookkeeping purposes. Also, it is recommended to use "December 31" consistently as the Check Date.
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7. Click the Update button to save your changes.
8. Click the check box next to the Manual Check and then click the Post Manual Checks button.
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9. The Manual Check Register appears. Review this report. If the information is correct, click the Finalize Post button. If the information is not correct, click the Cancel link and make the appropriate changes to the manual check.
NOTE: You should notice that the Posting Date field does not appear next to the Finalize Post button. This indicates that the Interface to the General Ledger has been turned off. If the Posting Date field does appear, you may want to consider going to the Employer Information page and uncheck the Interface with General Ledger? check box.
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10. After posting the manual check, you can run your W2s. Notice that Box 16 has increased by the amount of the manual check. (In this example, Box 16 now matches Box 1.)
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Process a Manual check to adjust Box 3 and Box 5
Some of the common corrections for W2s include Box 1 (Federal wages), Box 3 and 5 (Social Security and Medicare wages), and Box 16 (State wages). This tutorial walks you through the process of correcting Box 3 and Box 5 by processing a manual check.
In the example below, notice that Box 3 and Box 5 are both $900 less than Box 1.
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The following steps walk you through adjusting Box 3 and Box 5 so that they both match the Box 1 amount, which means an increase of $900 for Box 3 and Box 5.
1. From the Payroll menu, select Enter -> Manual Check.
2. Search for and select the Name of an employee that needs Box 16 increased by $38,880.
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3. Click the Add New Compensation icon-link.
4. Select the Compensation and Distribution that was setup to adjust Box 3 and 5 and then enter an Amount.
IMPORTANT NOTE: The amount entered here does not actually adjust the W2 for Box 3 and 5, but an amount is required in order for the Check Gross Pay for FICA window to appear when saving the manual check. The Check Gross Pay for FICA window (Step 8 of these instructions) is where you enter the adjustment amounts for Box 3 and 5.
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5. (Optional) Entering a "No Taxes" distribution stops the Employee Earnings report from being affected by the amount entered on the Box 3 and 5 distribution.
Select the No Taxes Compensation and Distribution that was set up for adjusting W2s and then enter the opposite Amount of what was entered for the Box 3 and 5 distribution. Click the OK button.
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6. Enter the Check # and Check Date for the Manual Check.
NOTE: It is recommended that you designate a range of check numbers to be used for W2 adjustments that is outside your normal check run (e.g. 9000000-9999999). This helps you identify these check numbers during an audit or for general bookkeeping purposes. Also, it is recommended to use "December 31" consistently as the Check Date.
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7. Click the Update button to save your changes.
8. Notice the Check Gross Pay for FICA window appears. Enter the adjustment amount in the Social Security: Gross Taxable as Calculated and Medicare: Gross Taxable as Calculated fields. Click the OK button.
IMPORTANT NOTE: Unlike the two other examples, the Box 3 and Box 5 amounts are adjusted by the amounts entered into these two fields, not the amount entered on the Add New Compensation window (Step 4 of these instructions).
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9. Next, Click the check box next to the Manual Check and then click the Post Manual Checks button.
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10. The Manual Check Register appears. Review this report. If the information is correct, click the Finalize Post button. If the information is not correct, click the Cancel link and make the appropriate changes to the manual check.
NOTE: You should notice that the Posting Date field does not appear next to the Finalize Post button. This indicates that the Interface to the General Ledger has been turned off. If the Posting Date field does appear, you may want to consider going to the Employer Information page and uncheck the Interface with General Ledger? check box.
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11. After posting the manual check, you can run your W2s. Notice that Box 3 and Box 5 have both increased by the amount of the manual check. (In this example, Box 3 and Box 5 now match Box 1.)
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Turn on the Interface with General Ledger
After your W2 adjustments have been processed as manual checks, it is important to turn on the interface with the General Ledger so that the next Payroll run has a journal entry sent to the General Ledger. Follow the steps below to turn on the Interface with the General Ledger.
1. From the Payroll menu, select Modify -> Employer Information.
2. Check the Interface with General Ledger? check box located on the General Ledger Interface tab.
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3. Click the Update button at the bottom of the page.