--- title: "Deductions & Income" description: "## **Overview** The **Company Deductions & Income** page allows Managers to define up to 18 custom (user-defined) income, deduction, or memo items for payroll processing. This feature provides flexibility to accommodate a wide range of payroll scenarios, including special allowances,…" url: "https://proclock.com/help/kb/managers/manager-settings/deductions-income/" updated: "2025-08-06" category: Managers / Settings --- # Deductions & Income ## **Overview** The **Company Deductions & Income** page allows Managers to define up to 18 custom (user-defined) income, deduction, or memo items for payroll processing. This feature provides flexibility to accommodate a wide range of payroll scenarios, including special allowances, reimbursements, deductions, and non-cash benefits, ensuring accurate payroll calculations and W-2 reporting. --- ## **Key Features & Functionalities** - **Customizable Entries:** Define up to 18 unique income, deduction, or memo items. - **Tax Handling:** Specify taxability for each item by selecting applicable tax exclusion checkboxes. - **W-2 Integration:** Assign W-2 box codes for accurate year-end reporting. - **Automated Prompts:** Option to prompt for entry each payroll cycle or automate per-employee amounts. - **Support for Pre-Tax, Post-Tax, and Memo Items:** Accommodates a variety of payroll needs, including pre-tax deductions and non-cash benefits. --- ## **Field-by-Field Explanation** ### **Description** - **Purpose:** Enter a clear, user-defined label for the item (e.g., "Garnishment", "401-K", "Uniform Deduction"). - **Best Practice:** Use concise, descriptive names for easy identification in payroll reports. ### **Type (I, D, M)** - **I (Income):** Amount is added to gross income. Can be included or excluded from specific taxes. - **D (Deduction):** Amount is subtracted from net pay after taxes. Used for items like advances, loans, or uniforms. - **Negative Deduction:** Used for non-taxable reimbursements (e.g., expense reimbursements). - **M (Memo):** Not added or deducted from pay, but can be reported for informational or tax purposes (e.g., fringe benefits). ### **Tax Exclusion Checkboxes** - **Function:** Indicate if the item should be excluded from specific taxes (e.g., Federal, Social Security, Medicare, State, Local). - **Usage:** Check all boxes if the item is excluded from all taxes but must still appear on the W-2 (e.g., unaccountable reimbursements). ### **W-2 Box Codes** - **Purpose:** Assign a code to display the item in the appropriate box on the employee’s W-2 form. - **Box 13:** Use letters A–T for specific pre-tax deductions or benefits. - **Box 10:** Use code "1" for dependent care benefits. - **Box 11:** Use code "2" for non-qualified plans. - **Box 14:** Use code "3" for other items to be shown in Box 14. ### **Check If Used** - **Function:** If checked, the system prompts for a value each payroll cycle. - **Use Case:** For items paid to most employees (e.g., car allowance), check this box to enter amounts per pay period. If set per employee, the amount is calculated automatically. --- ## **Common Use Cases & Examples** ### **Pre-Tax Deduction (e.g., 401-K)** 1. **Description:** Enter "401-K". 2. **Type:** Enter "D" for deduction. 3. **Tax Exclusion:** Check boxes to exclude from taxable income as appropriate. 4. **W-2 Box:** Enter the corresponding letter (A–T) in Box 13. ### **Third Party Sick Pay** 1. **Description:** Enter "Sick Pay". 2. **Type:** Enter "M" for memo. 3. **Tax Exclusion:** Check applicable boxes for tax exclusion. 4. **W-2 Box:** Enter "J" in Box 13. ### **Dependent Care Benefits** - **If paid to employee:** 1. Description: "Child Care" 2. Type: "I" 3. Tax Exclusion: Check as needed 4. W-2 Box: "1" (Box 10) - **If paid to facility:** 1. Description: "Child Care" 2. Type: "D" 3. Tax Exclusion: Check as needed 4. W-2 Box: "1" (Box 10) - **If paid by third party:** 1. Description: "Child Care" 2. Type: "M" 3. W-2 Box: "1" (Box 10) ### **Non-Qualified Plans** - **W-2 Box:** Enter "2" for Box 11. ### **W-2 Box 14 – Other** - **W-2 Box:** Enter "3" for Box 14. --- ## **Frequently Asked Questions (FAQs)** **Q1: What is the difference between Income, Deduction, and Memo types?A:** - **Income (I):** Adds to gross pay, can be taxed or non-taxed. - **Deduction (D):** Subtracts from net pay after taxes. - **Memo (M):** Informational only, does not affect pay but can be reported for tax purposes. **Q2: How do I set up a pre-tax deduction?** - Enter a description, select "D", check tax exclusion boxes, and assign the correct W-2 code. **Q3: What happens if I check all tax exclusion boxes?** - The item is excluded from all taxes but may still appear on the W-2 if required. **Q4: Can I automate recurring deductions or income?** - Yes, set the amount per employee in Employee Deductions for automatic calculation each pay period. **Q5: How do I ensure an item appears on the W-2?** - Enter the appropriate code in the W-2 Box field. --- ## **Troubleshooting Guide** **Issue:** Item not appearing on W-2 **Solution:** - Verify the correct W-2 box code is entered. - Ensure the item is marked as "Used" and has a value for the employee. **Issue:** Deduction not calculating as expected **Solution:** - Check if the deduction is set as positive (for deductions) or negative (for reimbursements). - Confirm the deduction is assigned to the employee in Employee Deductions. **Issue:** Tax exclusion not applying **Solution:** - Double-check the appropriate tax exclusion checkboxes are selected for the item. **Issue:** Unable to enter value during payroll **Solution:** Ensure "Check If Used" is selected for the item.