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 listed: Federal Income Tax, Social Security Tax, Medicare Tax, Federal Unemployment Tax, State Income Tax, and State Unemployment Tax, are program provided tax items and cannot be deleted from the list or edited.

Social Security and Medicare are both employee and employer taxes. Calculation of these taxes is controlled by the program. Federal Unemployment (FUTA) is an employer tax and is controlled by the program.

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. CAUTION: Editing or deleting program provided state tax items may lead to incorrect calculations. However, that being said, there are circumstances that require the user to edit the tax item. For 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.

Other Tax Items

Other Tax items may be added, edited, or deleted using the appropriate button below the Tax Items list. To delete a tax, click to highlight the item in the list and click the Delete button below the list. Note that the program will not delete items 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).

To edit a tax, click to highlight the item in the list and click the Edit button below the list.

The user may wish to add a tax item applicable to a state not supported by the program. To add a tax item, click the Add button below the list. A description of each field on the Tax Setup screen is below.

Tax Setup Screen

Full Name

When adding a tax item, the user may choose from a dropdown list of program provided state tax items or type the name of a new tax item. Note: 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.

Abbreviation

The abbreviated name entered here will display on the Payroll grid and Payroll Journal reports.

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.

Taxing State

Both a taxing state and tax type (W/H or UI) must be selected. 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.

Calculation Method

This determines how the amount of tax will be entered on the Payroll grid.

Percentage – The program will calculate the tax automatically based on the subject wages, Quarterly Rates (%), and Maximum Wages. Rates for each quarter must be entered. The rate specific to the date of the paycheck will be used to calculate the tax. Once the maximum year-to-date subject wages has been reached, the tax is no longer applicable and the amount will be zero (or blank in the Payroll grid). If the maximum wages is left blank, then there is no limit. If the rate is left blank, then the tax will not be calculated.

Percentage (weekly wage cap) – The program will calculate the tax automatically based on the subject wages, Quarterly Rates (%), and Maximum Wages. Rates for each quarter must be entered. The rate specific to the date of the paycheck will be used to calculate the tax. The Maximum Wages field is the weekly wage cap amount. For Live Payroll users who have entered a payroll period for the employee, the cap amount is adjusted to reflect the payroll period. For example, for a check based on a weekly payroll period, the tax would be capped at the entered Quarterly Rate times the Maximum Wages (cap amount). However, for a check based on a biweekly payroll period, the tax would be capped at twice that amount. If the user doesn't enter a payroll period on the withholding tab for the employee, or the user has After-the-Fact Payroll instead of Live Payroll, then the tax on each check would be capped at the amount entered in the Maximum Wages field. If the Maximum Wages field is left blank, then there is no limit. If the rate is left blank, then the tax will not be calculated.

Amount Per Hour Worked – The program will calculate the tax automatically based on the hours worked for the income items checked as subject to the tax, as entered on the paycheck, and the Amount/Hour. The amount per hour must be entered in dollars and cents. If the rate is left blank, then the tax will not be calculated.

Amount Per Total Hours – This calculation is similar to the Amount Per Hour Worked but also includes hours for all income items regardless of whether they are checked or not.

Fixed – The program will enter the same fixed Deduction Amount for the tax for each paycheck entered as long as at least one income item is entered that is subject to the tax. If a Maximum Amount is entered, then once the total year-to-date amount of tax equals the maximum, it will no longer be calculated.

Variable – The program does not calculate the tax. The user must enter the amount on each paycheck.

Rate Schedule – Users should not select this calculation method. Only the program provided "Local Income Tax", "New York City", and "Yonkers" have the Rate Schedule as the calculation method. If the user has the Live Payroll option, the program will calculate the tax using a withholding rate schedule. After-the-Fact Payroll users must enter the amount of tax manually in the grid.

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. Choices include box 12, box 14 (other), or box 19 (local).

Box 12 Code

If the tax amount is being summarized on Form W-2 in box 12, this box determines what code to select next the tax amount on the form.

Box Description

If the tax amount is being summarized on Form W-2 in box 14 or 19, a description must be entered to accompany the amount (if box 14) or the name of the locality (if box 19). Due to space limitations on the form, the description must be short.

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. For example: a non-payroll income item would not generally be subject to a tax. Program provided income items are checked appropriately automatically for each program provided tax. For user added taxes, be sure to check the correct income items.

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. For example: a 401(k) deduction would be exempt from CA SDI. Program provided deduction items are checked appropriately automatically for each program provided tax. For user added taxes, be sure to check the correct deduction items.

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.

OK button

Click the OK button to save a new tax item or to save changes made to an existing tax item.

Cancel button

Click the Cancel button to exit the screen without saving any changes.

See also Payroll Items.

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