Reporting Adoption Assistance on the Employee's W2

There are two different plans in which employers can assist employees with adoption assistance. One is a written plan in which the employer agrees to provide the employee a cash payment to cover the expenses of adoption. Adoption assistance can also be provided using a type of cafeteria plan (Section 125) specific to adoption assistance. When the adoption assistance Section 125 plan is in place, employees will have money withheld from their pay on a pre-tax basis. Keep in mind, the adoption assistance type of cafeteria plan (Section 125) for adoption assistance is slightly different than other types of cafeteria plans supported by the software. The cafeteria plan (Section 125) for adoption assistance has a cash value and will be treated as wages for Medicare taxation purposes.

If the adoption assistance plan involves a cash payment to the employee, the payments should be processed through payroll, so the payment is reported on the employee’s W2 properly. These payments should be included with the employee’s regular pay using Payroll Payments - Future or Payroll Payments - Current and the Pay Type of Adoption Assistance. Adoption Assistance Pay Types are processed as follows:

• Exempt from Federal taxation.

• Exempt from Ohio taxation.

• Not exempt from Medicare taxation.

• Exempt from SERS/STRS.

• Exempt from OSDI

• Not exempt from ODJFS wages.

The type of cafeteria plan for adoption assistance is slightly different than other types of cafeteria plans supported by the software. The type for adoption assistance has a cash value and is treated as wages for Medicare taxation purposes, where other cafeteria plans are not.

The CORE/PAYROLL ITEM CONFIGURATION program allows you to determine whether or not the Section 125 plans in place at your district are treated as wages or not. By default, all existing Section 125 plans will be treated as the non-wage type. When running PAYROLL ITEM CONFIGURATION, you will note two options for the Section 125's. If necessary, districts should contact their legal advisors for clarification as to whether or not their plan is to be treated as wages.

The CORE/PAYROLL ITEM CONFIGURATION program also allows you to enter in a PAYROLL ITEM type of "ADOPTION ASSISTANCE" for those Section 125 plans set up for adoption assistance. This change will cause during the payroll run, to treat section 125 plans correctly. The "ADOPTION ASSISTANCE" plan types will be handled in the following manner:

• Exempt from Federal taxation

• Exempt from Ohio taxation

• Exempt from Medicare taxation

• Not exempt from ODJFS wages

• Exempt from SERS/STRS

• Exempt from OSDI

The total amount is placed in Box 13 of the W2 form, with a code of "T" by REPORTS/W2 Report and Submissions.

To properly set up section 125 adoption assistance plans, a district must add the Payroll Item configuration record as an Adoption Assistance Type and flag it as a section 125 treated as wages Annuity Type.

Difference from Classic - If the Adoption Assistance Pay Type was NOT USED prior to the last pay of the calendar year, the Adoption Assistance (NC2) payment amount must be entered under the CORE/ADJUSTMENT JOURNAL in order for the Adoption Assistance amount to show correctly on the W2 form and to ensure that the Quarter balances.  The W2 Report will automatically adjust the Medicare and city, if applicable, the total and taxable gross amounts.   The software provides the ability to withhold city tax on non-cash earnings. This can be activated by checking the "Tax Non Cash Earn" field on the city tax record in the CORE/PAYROLL ITEM CONFIGURATION program. No manual adjustments are needed.