Wiki: US Taxation Supplemental Pay Processing

US TAXATION SUPPLEMENTAL PAY PROCESSING
Overview
Federal Level
Federal Supplemental Tax Methods
Prorating Taxable Benefits for Federal Supplemental Pay
State Level
State Supplemental Pay
State Supplemental Tax - WITH or WITHOUT Regular Pay
IPUTP - Supplemental Tax Method by State
IPRLU - Supplemental Tax Method by Employee
Prorating Taxable Benefits for State Supplemental Pay
Notes

US TAXATION SUPPLEMENTAL PAY PROCESSING#

Overview#

This document describes the US Supplemental Pay Processing that is used in the Symmetry Tax Engine (STE).

Federal Level#

Federal Supplemental Tax Methods#

The Supplemental tax for federal withholding is computed using the federal percentage (i.e. 25% of wages on the first $1,000,000 in supplemental wages and 35% of wages on any amount over $1,000,000).
At the Employee level on IPRLU, the employee specifies the employee's Federal Supplemental Tax Method that determines if the Supplemental tax should be calculated for this employee.
If Federal Supplemental tax is to be calculated for an employee, UPCALC will internally pass the 'FLAT' Percentage method to Symmetry that will calculate FSP tax using the federal 25% or 35%.
Regardless if the Supplemental Wages are paid WITH or WITHOUT the Regular Wages, Federal Supplemental tax is calculated using this 'FLAT' Percentage method by Symmetry

For Example: Sup is Paid with Regular Wages, when FSP Method = 'Flat Percent Method'

US_Taxation _Supplemental Pay Processing_01.JPG

PC 6010 FSP Tax 916.96 x 25%= 229.24

Prorating Taxable Benefits for Federal Supplemental Pay#

When a supplemental pay is paid with a regular pay, the taxable benefit deductions may be prorated between both Federal and Supplemental wages. This is controlled by the set up of elements attached to specific pay components as indicated below.

Prorating the taxable benefit deductions will cause a slight difference in the tax calculated. Clients will need to consider their business processes to determine if they would prefer the taxable benefits to be prorated or not. Some clients may want to prorate section 125 deductions and not 401k deductions.

UPCALC reviews the set up of the following Federal PC Usages to determine if it should prorate the taxable benefit deductions:

7901	Pre-FWT 125 Exemption - Reg Tax (PPE)
7902	Pre-FWT 401K Exemption - Reg Tax (PPE)
7903	Pre-FWT 403B Exemption - Reg Tax (PPE)
7904	Pre-FWT 457 Exemption - Reg Tax (PPE)
7905	Pre-FWT Roth 401K Exemption - Reg Tax (PPE)
7906	Pre-FWT Roth 403B Exemption - Reg Tax (PPE)
7907	Pre-FWT FSA Exemption - Reg Tax (PPE)
7908	Pre-FWT HSA Exemption - Reg Tax (PPE)
7909	Pre-FWT Simple IRA Exemption - Reg Tax (PPE)

7921	Pre-FWT 125 Exemption - Suppl Tax (PPE)
7922	Pre-FWT 401K Exemption - Suppl Tax (PPE)
7923	Pre-FWT 403B Exemption - Suppl Tax (PPE)
7924	Pre-FWT 457 Exemption - Suppl Tax (PPE)
7925	Pre-FWT Roth 401K Exemption - Suppl Tax (PPE)
7926	Pre-FWT Roth 403B Exemption - Suppl Tax (PPE)
7927	Pre-FWT FSA Exemption - Suppl Tax (PPE)
7928	Pre-FWT HSA Exemption -Suppl Tax (PPE)
7929	Pre-FWT Simple IRA Exemption - Suppl Tax (PPE)

The proration logic will occur when:

No supplemental element is associated to the Supplemental PC Usages listed above (i.e. 7921, 7922), UPCALC will prorate all of the section 125 and 401k deduction amounts between Regular and Supplemental.
A supplemental element has been associated to the Supplemental PC Usages listed above, the element is defined with PCs and those PCs have amounts, UPCALC will use the element and prorate the taxable benefits defined in the element. This should NOT be the same element as the one associated to the regular earnings Pre-Tax Benefit PC (i.e. 7901, 7902). This setup option is used when not all of the pre-tax benefits listed in the element used in the regular Pre-Tax Benefit PC (i.e. 7901, 7902) should be applied to supplemental earnings, therefore a different element is needed.

The proration logic will NOT occur when:

A supplemental element has been associated to the Supplemental PC Usages but the element is empty (no PCs defined).
A supplemental element has been associated to the Supplemental PC Usages but the PCs within the element do not have amounts in the pay.

Set Up Options to Prorate Section 125 Taxable Benefits between Federal and Supplemental:

In IPPC do not associate an element to PC Usage 7921 - Pre-FWT 125 Exemption - Suppl Tax (PPE). This will cause UPCALC to prorate all of the section 125 taxable benefit deductions that are defined in the element tied to PC Usage 7901 - Pre-FWT 125 Exemption - Reg Tax (PPE).
If only certain Sect 125 deductions should be prorated, define an element in IPPE that only lists the 125 deductions that should be prorated between Federal and Supplemental. In IPPC, attach this element to the Pay Component tied to PC Usage 7921 - Pre-FWT 125 Exemption - Suppl Tax (PPE). The element should not be the same as the one associated to the regular Pre-Tax Benefit PC (i.e. 7901)

Set Up Options to Prorate 401k Taxable Benefits between Federal and Supplemental:

In IPPC do not associate an element to PC Usage 7922 - Pre-FWT 401K Exemption - Suppl Tax (PPE). This will cause UPCALC to prorate all of the 401k/457 taxable benefit deductions that are defined in the element tied to 7902 - Pre-FWT 401K Exemption - Reg Tax (PPE).
If only certain 401k or 457 deductions should be prorated between Federal and Supplemental, define an element in IPPE that only lists the 401k and 457 deductions that should be prorated. In IPPC, attach this element to the pay component tied to PC Usage 7922 - Pre-FWT 401K Exemption - Suppl Tax (PPE).

After UPCALC or Trial Calc, go to the Pay Jurisdiction tab in IPPH, where you can click the Jurisdiction '00-000-0000 Federal' entry and scroll down the 'Tax Identifier' list. The prorated 125 and 401K amounts are stored for these Benefit usages with description 'Pre-FWT 125 Exemption - Supplemental Tax (PPE)' etc.

The following is an example of proration:

PC 1010 Regular Earnings	2307.6900
PC 2002 Bonus $	1000.0000
PC 4020 Medical EE (sect125)	50.0000
PC 4041 401K Dedn	33.0800
PC 6000 Fed Tax	393.2000
PC 6003 Fed Supp Tax	243.7200
PC 8000 Fed Tax Earns	2249.7300
PC 8010 Fed Sup Earns	974.8800
PC 6055 Res SIT Tax	138.0000
PC 6057 Res Supp Tax	61.0000
PC 8055 Res SIT Earn	2249.7300
PC 8058 Res Supp Earn	974.8800
PC 8400 Pre-Fed Earnings	2307.6900
PC 8403 Pre-Fed Sup Ern	1000.0000
PC 8153 Pre Fed 125 Earn	34.8800
PC 8154 Pre Fed 401 Earn	23.0800
PC 8156 Pre Fed Sup 125	15.1200
PC 8167 Pre FSP 401 Earn	10.0000
PC 8551 Pre-SIT Earnings	2307.6900
PC 8453 Pre-SIT Suppl Earns	1000.0000
PC 8353 Pre-SIT 125	34.8800
PC 8354 Pre-SIT 401/403/457	23.0800
PC 8356 Pre-SIT Supp 125	15.1200
PC 8357 Pre-SIT Supp 401K	10.0000

UPCALC prorated both sect 125 and 401k taxable benefits against regular and supplemental wages for federal and state.

PC 4020 Medical EE (sect125) $50.0000

PC 8153 Pre Fed 125 Earn	34.8800 prorated amt on reg wages
PC 8156 Pre Fed Sup 125	+ 15.1200 prorated amt on supp wages
	50.00

PC 4041 401K Dedn $33.0800

PC 8154 Pre Fed 401 Earn	23.0800 prorated amt on reg wages
PC 8167 Pre FSP 401 Earn	+ 10.0000 prorated amt on supp wages
	33.08

The Pre-Fed Earnings are reduced accordingly:

Pre-Fed Earnings	2307.6900
Pre Fed 125 Earn	-34.8800
Pre Fed 401 Earn	-23.0800
Fed Tax Earns	2249.7300

The Pre-Fed Supp Earnings are reduced accordingly:

Pre-Fed Sup Ern	1000.0000
Pre Fed Sup 125	- 15.1200
Pre FSP 401 Earn	- 10.0000
Fed Sup Earns	974.8800

The FIT Tax is based on $2249.73 The FSP Tax is based on $974.88

On the Pay Jurisdiction tab in IPPH, you can click the Jurisdiction '00-000-0000 Federal' entry and scroll down the 'Tax Identifier' list, the prorated 125 and 401K amounts are stored as 'Pre-FWT 125 Exemption - Supplemental Tax (PPE)' etc.

The following is an example of the same pay, without proration:

PC 1010 Regular Earnings	2307.6900
PC 2002 Bonus $	1000.0000
PC 4020 Medical EE (sect125)	50.0000
PC 4041 401K Dedn	33.0800
PC 6000 Fed Tax	386.9200
PC 6003 Fed Supp Tax	250.0000
PC 6055 Res SIT Tax	136.0000
PC 6057 Res Supp Tax	63.0000
PC 8000 Fed Tax Earns	2224.6100
PC 8010 Fed Sup Earns	1000.0000
PC 8055 Res SIT Earn	2224.6100
PC 8058 Res Supp Earn	1000.0000
PC 8400 Pre-Fed Earnings	2307.6900
PC 8403 Pre-Fed Sup Ern	1000.0000
PC 8153 Pre Fed 125 Earn	50.0000
PC 8154 Pre Fed 401 Earn	33.0800
PC 8551 Pre-SIT Earnings	2307.6900
PC 8453 Pre-SIT Suppl Earns	1000.0000
PC 8353 Pre-SIT 125	50.0000
PC 8354 Pre-SIT 401/403/457	33.0800

UPCALC did not prorate the sect 125 or 401k deductions against regular and supplemental wages.

The Pre-Fed Earnings are reduced accordingly:

Pre-Fed Earnings	2307.6900
Pre Fed 125 Earn	-50.0000
Pre Fed 401 Earn	-33.0800
Fed Tax Earns	2224.6100

The Pre-Fed Supp Earnings are not reduced since the sect 125 and 401k taxable benefits were not prorated. Pre-Fed Sup Ern 1000.0000

The FIT Tax is based on $2224.6100 The FSP Tax is based on $1000.0000

State Level#

State Supplemental Pay#

At the State level, Symmetry Tax Engine uses the following tax methods to calculate tax on supplemental wages: **Flat
- Current Aggregation
- Previous Aggregation

UPCALC needs to pass one of these Supplemental Tax Methods to the Symmetry Tax Engine

For a state that has a specific Supplemental Flat percentage, the Flat Rate method can be used.

Not all states have a specific flat percentage for Supplemental wages, for these states, the 'Current Aggregation' method should be used.

The current aggregation method adds the regular wages to the supplemental wages and computes withholding using the annualized method on the combined total. The difference between the withholding on the combined total (regular and supplemental) and the withholding on regular wages is the supplemental wage withholding.

The 'Previous Aggregation' method will not be supported until there is a need to use this method.

Below, is a list showing states that are with and without the Supplemental Tax Percent

From this list, the following states do not supply a Flat percent and therefore the 'Current Aggregation' method is used in order to calculate State Sup Tax:
AK, AZ, CT, DE, FL, HI, KY, LA, MA, MD, MS, NH, NJ, SD, TN, TX, UT, WA, WY, PR

From this list, the remaining states will use the 'Flat' method in order to calculate State Sup Tax

From this State list, the Default Supplemental Tax Method is set for each state internally by the system.

Depending on if the Supplemental Wages are paid WITH or WITHOUT the Regular Wages, each state may provide a different method to calculate the State Supplemental Tax. (Please read below.)

At the Employee level on IPRLU, the employee will specify the State Supplemental Tax Method that determines if the Supplemental tax is to be calculated for this employee for a pay.

If State Supplemental tax is to be calculated by Symmetry, then the Default Sup Tax Method of 'Flat' or 'Current Aggregation' method will be passed to Symmetry.

The Supplemental Tax Method cannot be overridden in IPUTP from ‘CURRAGG’ to ‘FLAT’. If the State does not provide a Percent, the SymmetryTaxEngine must calculate the Supp tax with ‘CURRAGG’, otherwise Symmetry is not able to calculate the Sup Tax.

If the user prefers to calculate the Supplemental Tax using a flat percentage even though the State legislation states to use the Current Aggregation method, this can be accomplished by using the State Supplemental Tax Method in IPPGU or IPRLU. The value of the Supplemental Tax Method could be defined as ’31-Concur-% Meth (IDGV %)’ with a flat percentage specified in IDGV. This method forces the UPCALC program to internally calculate the Supplemental tax.

The following table lists the States that are with and without the Supplemental Tax Percent as of Sept 2006. US_Taxation _Supplemental Pay Processing_02.JPG

State Supplemental Tax - WITH or WITHOUT Regular Pay#

Depending on if the Supplemental wages are paid WITH or paid WITHOUT the Regular wages, each State may have different methods to handle Supplemental taxes. Please refer to this link:

http://www.payroll-taxes.com/PayrollTaxes/supplemental_states.htm

An example for the state of Maryland below shows the differences of the State Supplemental Tax results when the 'FLAT' or 'CURRAGG' tax methods are used.

Maryland GEO: 24-001-1713506 Allegany
Paid with Regular Wages	Paid at Different Time than Regular Wages
Add to regular wages and withhold on total	Withhold at 6.25% plus rate applicable to county of residence Or add to regular wages, compute tax on total, and subtract tax withheld on regular wages

Local Level Supplemental Tax method uses the same State Level Supplemental Tax method'

For Example: State of Maryland:
1. Supplemental is paid with Regular wages, when SSP method = 'Flat Percent Method'
  - this actually uses the 'Paid at Different Time than Regular Wages' method
    
    US_Taxation _Supplemental Pay Processing_03.JPG
    
    Maryland Sup Rate 916.96 x 6.25% = 57.31
    Local Rate for Allegany County, MD 916.96 x 0.0305 = 27.97
    = 85.28: PC 6052
    Res SIT + Res Supp Tax 214.07 + 85.28 = 299.35
    Note: Higher than 'CURRAGG' method
2. Sup is paid with Regular wages, when SSP Method = 'Current Aggregation'
  
  US_Taxation _Supplemental Pay Processing_04.JPG
  
  Res SIT + Res Supp Tax 214.07 + 71.52 = 285.59
  
  Note: same result as Vertex below
3. Sup is paid with Regular wages, Vertex Supplemental tax for Maryland:
  
  US_Taxation _Supplemental Pay Processing_05.JPG
  
  Work SIT = Res SIT + Res Supp Tax = 285.59

In conclusion for Maryland:

When Sup is paid WITH Regular Wages, the 'Current Aggregation' method should be used.
When Sup is paid WITHOUT Regular Wages, the 'Current Aggregation' or 'Flat' method can be used.

IPUTP - Supplemental Tax Method by State#

When UPUTR is run, UPUTR automatically loads in two Miscellaneous Identifiers for each State to provide the Default Supplemental Tax Method:

SUP_PAID_WITH_REG
SUP_PAID_WITHOUT_REG

US_Taxation _Supplemental Pay Processing_06.JPG

Default Value - this contains 'FLAT' or 'CURRAGG' depending on each state
Provided By - always 'Internal'. When UPCALC is passing State Misc Parms to Symmetry, UPCALC will not pass the State Misc Parm that are with 'Provided By' = 'Internal'

In UPCALC, if an employee is paid Supplemental Wages with the Regular Wages in the same pay, then the 'SUP_PAID_WITH_REG' default value will be used

In UPCALC, if an employee is paid Supplemental Wages without the Regular Wages in the same pay, then the 'SUP_PAID_WITHOUT_REG' default value will be used

IPRLU - Supplemental Tax Method by Employee#

At the Employee level, the employee may optionally override the default State Sup Tax Method on IPUTP for:
SUP_PAID_WITH_REG
SUP_PAID_WITHOUT_REG
If there is no override by employee, there is no need to set up these Misc Tax Parm
US_Taxation _Supplemental Pay Processing_07.JPG
For IPRLU Federal and State Tab Suppl Tax Method explanation, please refer to: PR_US_IPRLU_methods_v1.0.doc or later
when an employee is paid with Supplemental wages, the IPRLU Federal and State Tab Suppl Tax Method determines if the Supplemental Wages are to be taxed or not, and which Suppl Tax Method is to be used
once when the State Supplemental tax is to be calculated by Symmetry, then IPUTP State specific tax method from SUP_PAID_WITH_REG or SUP_PAID_WITHOUT_REG will be passed to Symmetry for calculation depending on if the Supplemental wages are paid with or without Regular wages, therefore FLAT or CURRAGG is passed

Prorating Taxable Benefits for State Supplemental Pay#

Like with the Federal Supplemental Pay, taxable benefits may be prorated between regular state wages and supplemental wages when both are paid together. This is controlled by the set up of elements attached to specific pay components as indicated below.

UPCALC reviews the set up of the following State PC Usages to determine if it should prorate the taxable benefit deductions: If the State Level Benefit PC Usages are not set up on IPPC, then the Federal Level Benefit PC Usages that are described in the Federal section will be used.

7951	Pre-State 125 Exemption - Reg Tax (PPE)
7952	Pre-State 401K Exemption - Reg Tax (PPE)
7953	Pre-State 403B Exemption - Reg Tax (PPE)
7954	Pre-State 457 Exemption - Reg Tax (PPE)
7955	Pre-State Roth 401K Exemption - Reg Tax (PPE)
7956	Pre-State Roth 403B Exemption - Reg Tax (PPE)
7957	Pre-State FSA Exemption - Reg Tax (PPE)
7958	Pre-State HSA Exemption - Reg Tax (PPE)
7959	Pre-State Simple IRA Exemption - Reg Tax (PPE)

7971	Pre-State 125 Exemption - Suppl Tax (PPE)
7972	Pre-State 401K Exemption - Suppl Tax (PPE)
7973	Pre-State 403B Exemption - Suppl Tax (PPE)
7974	Pre-State 457 Exemption - Suppl Tax (PPE)
7975	Pre-State Roth 401K Exemption - Suppl Tax (PPE)
7976	Pre-State Roth 403B Exemption - Suppl Tax (PPE)
7977	Pre-State FSA Exemption - Suppl Tax (PPE)
7978	Pre-State HSA Exemption -Suppl Tax (PPE)
7979	Pre-State Simple IRA Exemption - Suppl Tax (PPE)

The proration logic will occur when:

No Supplemental Element is associated to the Supplemental PC Usages listed above, UPCALC will prorate all of the section 125 and 401k deduction amounts between Regular and Supplemental
A Supplemental Element has been associated to the Supplemental PC Usage, the Element is defined with PCs and those PCs have amounts, UPCALC will use the Element and prorate the taxable benefits defined in the element. This element should not be the same element as the one associated to the regular Pre-Tax Benefit PC (i.e. 7901, 7902)

The proration logic will NOT occur when:

A Supplemental Element has been associated to the Supplemental PC Usages listed above but the Element is empty (no PCs defined).
A Supplemental Element has been associated to the Supplemental PC Usages listed above but the PCs within the Element do not have amounts in the pay.

Set Up Options to Prorate Section 125 Taxable Benefits between State Regular Wages and Supplemental:

In IPPC do not associate an element to PC Usage 7971 - Pre-State 125 Exemption - Suppl Tax (PPE). This will cause UPCALC to prorate all of the section 125 taxable benefit deductions that are defined in the element tied to PC Usage 7951 -Pre-State 125 Exemption - Reg Tax (PPE).
If only certain Sect 125 deductions should be prorated, define an element in IPPE that only lists the 125 deductions that should be prorated between Federal and Supplemental. In IPPC attach this element to the Pay Component tied PC Usage 7971 - Pre-State 125 Exemption - Suppl Tax (PPE).

Set up Options to Prorate 401k Taxable Benefits between Federal and Supplemental:

In IPPC do not associate an element to PC Usage 7972 - Pre-State 401K Exemption - Suppl Tax (PPE). This will cause UPCALC to prorate all of the 401k/457 taxable benefit deductions that are defined in the element tied to PC Usage 7952 - Pre-State 401K Exemption - Reg Tax (PPE).
If only certain 401k or 457 deductions should be prorated between Federal and Supplemental, define an element in IPPE that only lists the 401k and 457 deductions that should be prorated. In IPPC attach this element to the Pay Component tied to PC Usage 7972 - Pre-State 401K Exemption - Suppl Tax (PPE).

After UPCALC or Trial Calc, on IPPH - Pay Jurisdiction tab, user can click the Jurisdiction entry for the appropriate Jurisdiction name and scroll down the 'Tax Identifier' list, the prorated 125 and 401K amounts are stored for these Benefit usages with description 'Pre-State 125 Exemption - Reg Tax (PPE)', etc.

The following is an example of proration:

PC 1010 Regular Earnings	2307.6900
PC 2002 Bonus $	1000.0000
PC 4020 Medical EE (sect125)	50.0000
PC 4041 401K Dedn	33.0800
PC 6000 Fed Tax	393.2000
PC 6003 Fed Supp Tax	243.7200
PC 8000 Fed Tax Earns	2249.7300
PC 8010 Fed Sup Earns	974.8800
PC 6055 Res SIT Tax	138.0000
PC 6057 Res Supp Tax	61.0000
PC 8055 Res SIT Earn	2249.7300
PC 8058 Res Supp Earn	974.8800
PC 8400 Pre-Fed Earnings	2307.6900
PC 8403 Pre-Fed Sup Ern	1000.0000
PC 8153 Pre Fed 125 Earn	34.8800
PC 8154 Pre Fed 401 Earn	23.0800
PC 8156 Pre Fed Sup 125	15.1200
PC 8167 Pre FSP 401 Earn	10.0000
PC 8551 Pre-SIT Earnings	2307.6900
PC 8453 Pre-SIT Suppl Earns	1000.0000
PC 8353 Pre-SIT 125	34.8800
PC 8354 Pre-SIT 401/403/457	23.0800
PC 8356 Pre-SIT Supp 125	15.1200
PC 8357 Pre-SIT Supp 401K	10.0000

UPCALC prorated both the sect 125 and 401k taxable benefits against regular and supplemental wages for both Federal and State.

PC 4020 Medical EE (sect125) $50.0000
PC 8353 Pre-SIT 125	34.8800 prorated amt on reg wages
PC 8356 Pre-SIT Supp 125	+ 15.1200 prorated amt on supp wages
	50.00

PC 4041 401K Dedn $33.0800
PC 8354 Pre-SIT 401/403/457	23.0800 prorated amt on reg wages
PC 8357 Pre-SIT Supp 401K	+ 10.0000 prorated amt on supp wages
	33.08

The Pre-State Earnings are reduced accordingly:

Pre-SIT Earnings	2307.6900
Pre-SIT 125	- 34.8800
Pre-SIT 401/403/457	- 23.0800
RES SIT Earns	2249.7300