Wiki: U.S. TAXATION

U.S. taxation is calculated in the UPCALC (payroll Calculation) process using Annualization Method, Overridden Flat Amount, Percentage Method, or any of the other methods available.

UPCALC uses an external file provided by Vertex® to calculate U.S. Taxation. This information is accessed through the HLServer. Pay components used to store taxation and government calculation results are defined in the Pay Component (IPPC) form with the US PC usage from the Pay Component Usage (IPCU) form.

Pay elements (IPPE) are used to define which pay components are subject to each different tax.

Default tax calculation methods are found on the pay rule (IPRLU) form for each employee.

Pay categories (defined in IPPGU) can override default tax information.

U.S. FEDERAL TAX CALCULATIONS#

Vertex calculates the Federal tax regardless of the Work and Residence Jurisdiction codes that are passed to Vertex. After Vertex is called, UPCALC will retrieve the Federal tax results and store into the proper Federal tax pay components.

When calculating supplemental pay, you should also pass the 125 and 401K exemption amounts that are applicable for the supplemental gross amount. If the FED SUPPL - 125 and FED SUPPL - 401K elements are zero, the FED TAX - 125 and FED TAX - 401K elements will be prorated to the regular gross and supplemental gross.

U.S. STATE TAX CALCULATIONS#

When calculating the State tax, Vertex takes into consideration the Work and Residence Jurisdiction codes that are passed and the State Reciprocation. The Work Jurisdiction code of the employee is derived from their primary assignment record (IEAS) that is being paid in the time sheet on the IPPH form. The Residence Jurisdiction code is from the employee’s Personal (IEPI) record, where they live, that is effective for the time sheet. You can override both work and residence jurisdiction for each timeliest on the IPPH form.

When UPCALC calls the Vertex module to calculate the State tax, there is a linkage area for State tax calculation that has 2 buffer areas, one for the Work State area and one for the Residence State area. The Vertex module calculates the appropriate Work and/or Residence State tax and passes back the 2 buffer areas to UPCALC. UPCALC will then retrieve the State tax results and store into the proper Work State tax pay components and/or the Residence State tax pay components.

The SUI and SDI calculation are always based on the Work Jurisdiction code regardless of whether Residence State tax has been calculated.

When calculating Supplemental Pay, you should also pass the 125 and 401K exemption amounts that are applicable for the supplemental gross amount. If the ST TAX SUPPL 125 and ST TAX SUPPL 401 elements are zero, the ST TAX - 125 and ST TAX - 401K elements will be prorated to the regular State gross and supplemental State gross.

Alternate State Tax Method#

When using an Alternate State Tax Method for AZ the Filing Status and the number of Exemptions for both Federal and State must be the same. Although the Alternate State Methods are a percentage of Federal Tax – Vertex performs separate calculations for Federal and State taxation. This means that for State Tax the Federal amount is recalculated based on the State Filing Status and Exemptions and the Alternate percentage is then calculated.

U.S. LOCAL TAX CALCULATIONS#

When calculating the Local County and City tax, Vertex takes into consideration the Work and Residence Jurisdiction codes. The Work Jurisdiction code of the employee is from the employee’s primary assignment (IEAS) record that is being paid in the time sheet on the IPPH form. The Residence Jurisdiction code is from the employee’s Personal (IEPI) form, where they live, that is effective for the time sheet. You can override both work and residence jurisdiction for each timeliest on IPPH form.

When UPCALC calls the Vertex module to calculate the Local tax, there is a linkage area for Local tax calculation that has 4 buffer areas - 1 for the Work County area, 1 for Work City area, 1 for Residence County area and 1 for the Residence City area. Then the Vertex module calculates the appropriate Work and/or Residence County and City tax and passes back the 4 buffer areas to UPCALC. UPCALC will then retrieve the County and City tax results and store into the proper Work tax pay components and/or the Residence tax pay components.

The School district tax and Head Tax will be done according to both the Work and Residence Jurisdiction codes and passed back to UPCALC in the appropriate buffer area (mostly in the Residence area).

125 PLAN PROCESSING – CASH OPTION AND NON-CASH OPTION#

If an employee has an option of receiving cash in lieu of the 125 plan benefits, then Vertex will take into consideration the 125 cash option in calculating SUI and SDI. You should set up a pay component for cash option 125 plan and a pay component for non-cash option 125 plan. Then as the 125 plan contribution is calculated, store the 125 plan amount into the proper cash 125 plan pay component or non-cash 125 plan pay component depending on if the employee elects to receive cash 125 or not.

In elements FED TAX - 125, FED SUPPL - 125, ST TAX - 125, ST TAX SUPPL 125, CNTY TAX - 125, CITY TAX - 125, include both the cash 125 pay component and non-cash 125 plan pay component. In element 125 CASH OPT, only include the cash option 125 plan pay component. You may also include the cash option 125 plan pay component in GROSS PAY element if the 125 cash option is paid directly towards the employee’s Pay.

When UPCALC is run, as the 125 CASH OPT has a non-zero value, then Vertex will take into consideration the 125 plan cash option when calculating the SUI and SDI.

VACATION PAY PROCESSING#

You may override the number of tax weeks on the pay header form to indicate the number of weeks the vacation is being paid. Then the pay header Tax weeks will be taken into consideration with their normal number of tax weeks per pay from the payroll form to come up with a proration factor for the taxable earnings at the federal, state and local levels.

The value in the element FED TAX REG EARNS (indicated on the Pay Component with the PC Usage of 6051) is used as the vacation gross to calculate taxation.

If the value of element VACATION EARNS (indicated on the Pay Component with the PC Usage of 6032) is greater than zero then this amount will be stored separately as the Vacation Pay earnings.

All taxable earnings at the federal, state and local levels will be adjusted according to the number of weeks, proration factor before calling Vertex. On return from Vertex, all taxes calculated will be stored normally.

MULTIPLE TAX JURISDICTION PROCESSING#

In Wiki , each time sheet (pay header) contains the tax jurisdiction to be used for taxation purposes. Taxes are calculated according to the Pay Header's Work and Home Jurisdiction. One time sheet cannot be paid with multiple tax jurisdictions.

If an employee works in multiple tax jurisdictions in one pay period, the employee should have multiple time sheets (Pay Headers) entered into the system. Each time sheet specifies the work jurisdiction the employee works in. The home jurisdiction for these time sheets should be the same assuming the employee has not moved during the pay period.

If the 'Normal Tax Method' is used for multiple time sheets within a pay period, each time sheet will be evaluated on its own and thus resulting in a lower estimated annual income and therefore lower tax amount being withheld.

The user can use the following tax methods for multiple tax jurisdictions:

Federal Level:Use 'Cumulative Averaging Method' or 'Period To Date (PTD) Method'
State Level:Use 'PTD' method
Local Level:Use 'PTD' method