Example: Wages Are Lower Than Total Pretax Deductions

Assume that an employee has standard pretax deductions of 100.00 USD and 50.00 USD, but earnings for this pay period are only 95.00 USD. When the system initially calculates the employee's pay, it applies the 50.00 USD pretax deduction, but omits the 100.00 USD pretax deduction because wages do not cover the second deduction in its entirety. Because of the arrearage rule for the 100.00 USD deduction, the system does not place the amount in arrears. That is, the system will not try to deduct this amount in future pay periods.

When the system subtracted pretax deductions from the gross wages, no taxable gross remained and no taxes were calculated. However, the 100.00 USD deduction was not taken. Therefore, taxes must be recalculated on 45.00 USD (gross wages minus only the pretax deduction that is being taken).

On the Payroll Register, the record for the employee might be:

Category	Amount
Gross Wages	95.00
Taxes	4.39
Pretax deduction	50.00
Total Deductions	54.39
Net Pay	40.61

See also:

• Correcting Errors in Pre-Payroll Processing.