Table of Contents

Tax Items

Greg Hatfield Updated by Greg Hatfield

A list of Tax Items pertaining to an employer is shown on the Payroll Setup tab on the Edit Employer/Payer Information screen, which can be accessed by clicking the Edit Client button directly above the Client List on the main screen. The first six taxes are program-provided and cannot be deleted or edited.

The state UC rate can be changed. See Changing State UC Rate.
  • Federal Income Tax
  • Social Security Tax (both employee and employer)
  • Medicare Tax (both employee and employer)
  • Federal Unemployment Tax (FUTA)
  • State Income Tax, and
  • State Unemployment Tax (SUI)
    State Unemployment (SUI) is an employer tax. The user must enter the employer's state and state ID numbers, the state's maximum UI wages, and the employer's state UI rate for each quarter on the State Setup tab. The rate and maximum UI wage limit are used to calculate the SUI liability on state forms and reports.
Federal Income Tax and State Income Tax are only program calculated in Live Payroll. In After-The-Fact Payroll, the amount of tax must be entered manually on each employee paycheck.
Custom user created taxes can be differentiated from the program provided taxes by the light yellow shading on the Payroll Setup tab used to identify those user created Payroll Items. The title bar of the Tax Items screen also specifies whether the item is program provided or user created.

State Tax Items

In addition to the six tax items listed above, the program provides tax items specific to each of the states currently supported for state forms. When the user adds a Payroll State to the State Setup tab, tax items applicable to that state will be added to the Tax Item list on the Payroll Setup tab. These items can be edited or deleted by the user.

Example: New Jersey has four separate additional tax items. NJ DI and NJ UI/WF/HC are worker taxes. The rates for these two taxes are mandated by state law and normally would not be changed by the user unless the rate changed during the year. However, the two employer taxes added, NJ DI and NJ WF/HC, must be edited by the user to enter the rates specific to that employer.
Editing or deleting program provided state tax items may lead to incorrect calculations.

Changing State UC Tax Rate

State UC rates often change annually on an Employer basis (many states modify the employer’s rate based on their history of Employee UC claims).  You may notice that the rate is not changeable on either the quarterly reporting forms, nor on the State UC Payroll Tax Item itself (under Payroll Setup tab).   Instead, you change the UC rate under the States Setup tab, which is found as follows.

  1. Select the desired client, then click Edit Client.
  2. Click States Setup, and enter the new UI Rate in the appropriate Quarter’s field as a percent:
    In this example, the employer’s California rate is 3.4% (.034).  
  3. Click Save then Close. If a prompt appears to refresh the updated client information, click Yes.
    Your new UC rate will now automatically import into your next State UC return as provided in Payroll System.
  4. If a previously saved UC report needs the new rate, re-open it then click Yes when prompted to refresh the client information.

Deleting a Tax Item

  1. Select a Tax Item.
  2. Click Delete.
    The item cannot be deleted if paycheck data already exists for that item. The user must manually delete all paycheck data specific to that item, including tax amount and subject wage amount. See the Options button above the Payroll grid to display the wage columns.

Editing a Tax Item

The user may wish to add a tax item applicable to a state not supported by the program.

  1. Select a Tax Item.
  2. Click Edit.

Adding a Tax Item

  1. Click Add. The following are elements that can be added to the item.
    Program provided items are marked automatically.
    For user added taxes and deductions, be sure to mark the correct income items.
    1. Full Name. Choose from the list or input a custom one.
      The Local Income Tax item is reserved for calculating local taxes using a rate schedule. When editing an existing tax item, the dropdown list is not available but the Full Name may be edited.
    2. Abbreviated Name. Displays on the Payroll Grid and Payroll Journal reports.
    3. Paid By. The tax may be paid by the employee or the employer. Taxes paid by the employee appear as an item in the Payroll grid for deduction from the paycheck. Employer taxes appear on the State Summary Report, Payroll Deduction Worksheet, and, in some cases, on state forms, as a liability for the employer.
    4. Taxing State and Tax Type. Required. When the taxing state is specified, the program will calculate the employer liability only for reports pertaining to that state.
      The state that an employee's wages are taxed for income tax or withholding (W/H) purposes, and the state that the wages are taxed for unemployment (UI) purposes, must be specified separately on the Employee Information screen.
      A tax setup for NY as the UI state, for example, would only affect paychecks saved for employees whose UI taxing state was NY.
    5. Calculation Method. This determines how the amount of tax will be entered on the Payroll Grid. See Calculation Methods.
    6. Total on Form W-2. The user may use this to specify in which box on Form W-2, if any, to summarize the tax amount.
      Due to space limitations on the form, the description must be short.
    7. Incomes Subject to the Tax. A list of all income items currently set up for this employer is displayed. The user can determine which income items are subject to the tax by checking the box next to the income item.
      Example: a non-payroll income item would not generally be subject to a tax.
      For user added taxes, be sure to check the correct income items.
    8. Deductions Exempt from the Tax. A list of all deduction items currently set up for this employer is displayed. The user can determine which deduction items are exempt from the tax by checking the box next to the deduction item.
      Example: a 401(k) deduction would be exempt from CA SDI.
    9. Subject Wages. It is the interaction between subject income items and exempt deduction items that determine the total income or wages that is subject to a tax. The calculated amount of wages that is subject to a tax is entered in the wage column for that tax.
      To display the Wages columns and view or manually edit the wages subject to a tax item, see the Options button on the Payroll Grid.
  2. Click OK to save the new item or Cancel to exit without saving.

See also Payroll Items.

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