How does QB handle 401k contribution limits? Does it recognize once an employee hit the legal limit and stop further contribution deductions above the legal limit? Also does it allow an older employee (above 50) to contribute the catch up and stop
The quick answer to your questions is YES. The full answer is as complex as your 401k. Plans can have different formulas and change them in mid year. Here are ways to treat alternatives.
401(k) Catch Up (Article ID: 1010057) : Participants in qualified deferred plans age 50+ can make extra pre-tax catch-up contributions. Those age 50 by calendar year end are deemed 50 on January 1 of the year. Qualified deferred plans have annual limits. Employee contributions are exempt from federal income tax withholding (and most state withholding), but subject to Medicare, Social Security and FUTA tax.
Users must manually change maximum annual limits in payroll items each year. Set up those not qualifying for catch-up with normal annual limits. The catch-up maximum is the lesser of the dollar amount or employee's compensation reduced by any other elective deferrals made during the year. See the Deferred Compensation chart for more information.
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How Do I Set Up 401(k) for Tier Percentage Scales (Article ID: 1008630) where the company matches 100% up to a given % and then a lesser %. Example: 1% ompany matches 100% of the employee contribution, 2%-6% Company matches 50% of the employee contribution.
The total % withheld is a combination of the 100% match and the 50% match. The total % that the company is withholding can be entered either on the Employee setup, in which case you would enter 0 in the "Default rate and limit" section of the item setup or in the item setup.Calculating the % Rate:
If the company is matching 100% (dollar for dollar) up a certain % and then a different % "X" up to the max, you must calculate, what is X% of the percentage points above the 100% match. Then add the calculated % to the % that is the 100% match and enter this final % the "Default rate and limit" section of the item setup.
For example, a company matches 100% on the first 1% and then matches 50% on the remaining, up to 6%. If an employee contributes 6%, you would calculate: 50% of 5% = 2.5%. Then add the 2.5% (This represents the 50% company contribution) to the 1% (100% company contribution). The resulting 3.5% is then entered in the "Default rate and limit" section of the item setup.
If a customer wants to track how much has been contributed for each % then create multiple company contribution payroll items. One for each percentage increment, up to the max. For example, a company matches 100% on the first 1% and then matches 50% on the remaining, up to 6%.
Payroll items:
1% Contribution (This item would be set to 1% in the default rate and limit section.)
2% Contribution (This item would be set to 1.5% in the default rate and limit section.)
3% Contribution (This item would be set to 2% in the default rate and limit section.)
4% Contribution (This item would be set to 2.5% in the default rate and limit section.)
5% Contribution (This item would be set to 3% in the default rate and limit section.)
6% Contribution (This item would be set to 3.5% in the default rate and limit section.)
If an employees chooses to deduct 6% you would use the 6% Contribution payroll item. If in mid-year the employees decides to only contribute 4% you can then use the 4% contribution item. Because you have multiple items you can then track how much was contributed at each rate.
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