In the information window of the wage categories, there is an option for indicating a non-cash wage. This option is used to indicate an amount of money that the employee has already received. Since the employee already received the cash, the employer need not pay the wage, but must withhold income taxes on the amount the employee already received. Thus, this option is used to calculate withholding taxes on wages when the employee already received the cash. The most obvious example of this is cash tips. This feature can also be used to report medical or other insurance premium payments, where the employer needs to indicate a withholding tax.
The non-cash wages are added to the gross EI Insurable Earnings and the CPP/QPP Pensionable Earnings, on the T4 form. The taxes calculated by AccountEdge are added to Employee's EI Premium, Employee's CPP contribution, and the Income Tax deducted, on the T4 form.
There are 3 different types of non-cash wages: Reported Tips, Allocated Tips, and Other Non-cash Wages.
- Reported tips
- Automatically assigned to box 7, the Social Security Tips box, on a W-2, and the employer usually needs to withhold taxes on reported tips.
- Allocated tips
- Assigned to box 8, the Allocated Tips box on the W-2, and is the difference between reported tips and the standard tip percentage of gross allocatable receipts set by the authorities. Employers may not need to withhold taxes on the allocated tips amount. You'll need to check with your accounting professional or the IRS for details.
- Other non-cash wage
- Unassigned on a W-2. If you use this wage category, you will have to assign the wage category manually when preparing W-2s. This is a general non-cash wage category. It could be used, for example, if a company pays for medical insurance, and the employee needs to have tax withheld from the expensed medical insurance payment. So, you'll have to determine whether or not you need to withhold taxes on this category. Again, you'll need to check with your accounting professional or the IRS.