Deduction and Contribution Limits
Background
A deduction is money withheld from a paycheck in order to pay taxes, insurance, garnishments, or other payments. See a full definition of Deduction in our Payroll Glossary. In Patriot Software, a contribution is a company-paid amount that is only included on a pay stub for informational purposes. It does not affect the paycheck amounts.
Using Deduction and Contribution Limits in Patriot Software
Both Deductions and Contributions can be set up with dollar limits so that once the limit is reached, the Deduction or Contribution will automatically stop. The limits fields are optional, and if a limit is not needed, you can leave the field blank.
💡NOTE: The software will stop at the IRS elective deferral limit for employees, but employers will need to set limits on the employer contribution to ensure the contribution does not exceed the IRS or plan limits. Contribution limits and requirements can vary based on the specific plans and in some instances combined employee/employer limits also apply. It’s crucial to review your plan’s details or consult with your advisor or administrator to understand the applicable limits.
Pay date limits are most often used with employee-level child support and other garnishment deductions. These deductions are normally a specific percentage of disposable income, up to a specific dollar amount each pay date. If there is not enough net pay to deduct the entire child support or garnishment amount, the deduction will still calculate on the percent of disposable income.
A monthly limit is useful for benefit premiums that are the same each month regardless of how many pay dates are in the month. Once the monthly limit has been reached, the deduction or contribution would stop, and then automatically start again on the first pay date of the next month. For example, if you are paid biweekly, a monthly limit would prevent the deduction/contribution from happening if there is a third pay date in the month.
The calendar year annual limit is most often used with IRS contribution limits such as 401(k) and HSA contributions. Once the annual limit has been reached, the deduction or contribution will stop, and then automatically start again on the first pay date of the next calendar year. Calendar year limits will automatically be set for the following deduction types:
- 401(k) and Roth 401(k)
- 403(b) and Roth 403(b)
- 457(b) and Roth 457(b)
- Simple IRA
- HSA Single
- HSA Family
- FSA
- FSA Dependent Care
If you use multiple deductions with the same deduction types in the above list, each year-to-date deduction total will count toward the combined IRS contribution limit. For example, if you use two different 401(k) deductions on an employee, both deductions would stop for the year when the combined deduction limit reaches the IRS limit for the year for 401ks for employees under 50. If you choose “Yes” on the “Catch Up?” field when setting up the employee’s deduction, the limit will be increased to allow for the higher catch-up limit.
Lifetime limits are most often used with long-term deductions such as wage garnishments or loan repayments that are not based on time intervals. Once the lifetime limit has been reached, the deduction would stop and not restart again unless the lifetime limit is increased or removed by the user.
[RELATED ARTICLE: Company-Level Deduction Setup: Field-Level Help]
[RELATED ARTICLE: Employee-Level Deductions in Patriot Software]
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