Appendix: (USA) U.S. Tax Methods and Calculations

This appendix discusses:

• Special tax withholding status.

• Supplemental tax calculations.

• Aggregate taxation of multiple checks.

Special Withholding Tax Status

You specify the special withholding tax status for each employee in the Special Withholding Tax Status field on the Federal, State, or Local Tax Data page, referred to in the table below as the "Employee Tax Data page."

This table shows how Payroll for North America withholds tax based on the value selected in the Special Tax Status field for the Annualized Taxation method and the Supplemental Taxation method:

See Also

(USA) Entering U.S. Employee Tax Data

Supplemental Tax Calculations

Supplemental Tax Calculations

This section provides an overview of supplemental tax calculations and discusses these supplemental tax methods:

• Aggregate − No Annualize

• Aggregate

• Aggregate − No Tax else Percent

• Percent of Taxable Gross

• Non-resident Supplemental

• Special Table

Understanding Supplemental Tax Calculations

This section discusses:

• Two-tiered U.S. federal supplemental tax rates.

• Supplemental Tax Methods.

Two-Tiered U.S. Federal Supplemental Tax Rates

Any supplemental wage payments paid after an employee's YTD taxable supplemental payments have exceeded $1 million during the calendar year must be taxed at a higher federal supplemental tax rate.

Create a special accumulator code to store each employee's taxable gross for supplemental payments to identify the correct point at which the higher federal supplemental withholding tax rate should be applied. Enter this special accumulator on the Earnings Table - Special Process Page with T selected in the Effect on Special Balance field for each earnings code identified as using the supplemental tax method.

If you have multiple companies, you must use the same special accumulator for every company's supplemental earnings. This setup enables the system to make the determination of whether an employee’s annual supplemental wage payments have exceeded $1 million across all companies (active or inactive), regardless of whether Common Paymaster functionality has been invoked among the companies. As long as companies share the same calendar year balance ID, the YTD earnings balances for all companies is evaluated to determine which federal supplemental rate should be applied. There is no special setup required on the Company Table.

See Establishing Special Accumulator Codes.

Note. If you did not specify the supplemental payment special accumulator for all supplemental earnings codes, you can run the 2 Tiered Supplemental Adjustment Program SQR report (TAX5162T) to correct the special accumulator balances.

See (USA) TAX5162T – Two-Tiered Supplemental Adjustment Program.

Supplemental Tax Methods

PeopleSoft Payroll for North America tax processing supports the various tax calculation methods required by some states for supplemental earnings, including the use of aggregate tax methods.

The methods used for calculating withholding tax on supplemental payments may differ depending on the following criteria that you specify on the Federal Tax Table - General page:

PeopleSoft delivers the required value in these fields for each state. The possible values are:

• Aggregate − No Annualize

• Aggregate

• Aggregate − No Tax else Percent

• Percent of Taxable Gross

• Special Table with Exemptions

• Special Table

• Non-Resident Supplemental

This section provides an explanation and examples of each of these methods.

Note. PeopleSoft uses the term "normal wages" to mean the employee's pay from regular (REG) earnings taxed using the annualized tax method.

Aggregate − No Annualize

This method is valid only for Delaware and is used only for supplemental wages paid separately from normal wages.

Normal wages are annualized, but supplemental wages are not annualized, as follows:

• Annualize the employee's normal wages and compute tax on this amount.

• Annualize normal wages, add in the supplemental wages, and compute tax on the total.

• Subtract the difference in the tax amounts. The remainder is the withholding on the supplemental wages.

Example

A Delaware employee, single with one allowance, earning $500 per week, is paid a $5000 bonus as a separate check.

Aggregate

For supplemental wages paid with normal wages, calculate withholding (using the annualized method) as if the aggregate of supplemental and normal wages were a single wage payment for the normal payroll period.

Example for Payment with Regular Wages

A Maine employee, single with one allowance, is paid a $1000 bonus on the same paycheck as his normal weekly earnings of $500:

For supplemental wages paid separately from normal wages, calculate withholding by aggregating supplemental wages with normal wages from the current payroll, if any, or with any other wages paid (confirmed checks only) in the prior on-cycle period. Using the annualized method, compute the tax on the combined total. Subtract the annualized tax on the normal wages. The deannualized remainder is the withholding on the supplemental wages.

Note. If the employee has not been paid any annualized wages this year, the supplemental earnings will be taxed at the employee's pay frequency specified on the pay group table. If there are multiple supplemental earnings for the same period (earnings paid in the same on-cycle timeframe), compute the tax on the combined total. Subtract the annualized tax on the wages paid in that period. The deannualized remainder is the withholding on the current supplemental wages.

Example for Separate Payment

A Maine employee, single with one allowance, is paid a $1000 bonus as a separate check. No normal wages are paid in the current payroll. The employee's last previous on-cycle confirmed paycheck in the current year was for normal weekly earnings of $500:

Multiple Supplemental Wage Payments

The aggregate method accumulates all supplemental wage payments made after the last regular wage payment in order to perform tax calculations.

For example, if an employee is paid on a monthly payroll cycle on the first day of each month and the employee is also paid supplemental wages throughout the month, the system considers the employee’s regular wages and the supplemental wages paid throughout the month when computing withholding using the aggregate method.

For example, Frank Smith is paid regular wages of $2000 on July 1, commissions of $500 on July 5, commissions of $400 on July 15, and commissions of $600 on July 25. When calculating the withholding on the July 25 payment using the aggregate method, the system adds the $600 paid on July 25, the $400 paid on July 5, the $500 paid on July 15 and the regular wage amount of $2000 paid on July 1 in order to determine the true tax bracket for the monthly payroll period.

Aggregate − No Tax else Percent

When supplemental wages are paid separately from normal wages, withholding depends on whether tax was withheld on the employee's current payment of normal wages, if any, or on previous on-cycle payments (in the same pay group).

If no tax was withheld on either condition, calculate tax on supplemental wages using the Aggregate Method described previously for supplemental wages paid separately.

If tax was withheld on either condition, calculate tax using a flat percent rate as specified by the state, without regard for marital status or allowances.

Example

A Connecticut employee, single with one allowance, is paid a $1000 bonus as a separate check. The employee's last previous on-cycle normal paycheck in the current year was for normal weekly earnings of $500, from which $10.92 Connecticut tax was withheld. Using the flat rate of 4.5 percent specified by Connecticut, calculate the Connecticut tax to be withheld on the bonus:

4.5% X $1000 = $45

Percent of Taxable Gross

Calculate the tax to be withheld on supplemental wages by using the special flat rate specified by the state, without regard for marital status or allowances.

This method may apply both to supplemental wages paid with normal wages and to supplemental wages paid separately.

Example

An employee subject to Indiana withholding is to be paid a $4000 bonus. Using the flat rate of 3.4 percent specified by Indiana for supplemental wages, calculate the Indiana tax to be withheld on the bonus:

3.4% X $4000 = $136

Non-resident Supplemental

When supplemental wages are paid separately from normal wages to a nonresident employee, calculate tax using a flat percent rate specified for nonresidents, without regard for marital status or allowances.

Example

A nonresident of Yonkers employed in Yonkers and subject to Yonkers tax is to be paid a $2000 bonus as a separate payment. Using the flat rate of .5 percent specified by Yonkers for nonresidents, calculate the Yonkers tax to be withheld on the bonus:

0.5% X $2000 = $10

Special Table

This method is for Georgia and West Virginia only. The system uses the annual rate computed from the job record.

Aggregate Taxation of Multiple Checks

Aggregate taxation of multiple checks is appropriate when you need to pay an employee more than once (multiple confirmed pays) within a single pay period, such as a weekly employee who is paid for several different jobs or assignments within the week. Aggregate taxation prevents the system from taxing each payment as if the earnings were for the entire week, which would result in underpayment of taxes.

The aggregate tax method works by totaling the payments identified for aggregate taxation, calculating what the withholding tax should be on the aggregate total for the period, subtracting what's already been withheld in previous payments, and withholding the difference on the paycheck currently being processed.

To aggregate taxation of multiple checks:

1. Verify that the tax method specified for the earnings code on the Earnings Table – Taxes page is Specified on Paysheet.

2. Enter the identical value in the Aggregate ID field on the pay calendars for all pay runs that you want to aggregate.

   To aggregate taxation across multiple checks, the pay calendar Aggregate ID field must be populated with a value. The system aggregates together all pay calendars with the same aggregate ID value (including off-cycle payrolls) for the purposes of tax calculations. All wages paid on calendars with the same aggregate ID are combined, then annualized and taxed accordingly. This is the only purpose for the Aggregate ID field on the pay calendar.

   Note. If you are processing an off-cycle against the on-cycle calendar, you need to enter the aggregate ID only on the on-cycle calendar. To add standalone off-cycle calendars to be aggregated together, the pay period end date must be the day after the first confirmed check's pay period end date.
   
   If you enter the same aggregate ID on multiple pay calendars, then for a given employee, each succeeding check (whether off-cycle or on-cycle) calculated under each of these pay calendars is aggregated with all of the already-calculated qualifying checks of the previous pay calendars which were set up using the same aggregate ID.
   
   If a pay calendar has a unique aggregate ID, then for a given employee, succeeding off-cycle and on-cycle checks are aggregated with any already-confirmed qualifying off-cycle checks for that pay calendar.

3. On the off-cycle paysheet, change the tax method to Aggregate.

   This step is not required for on-cycle checks that are processed against on-cycle calendars using the same aggregate ID. When the paysheet is system-generated, the tax method is set to aggregate, and can be viewed in the Additional Data link on the payline.

Note. When you set up the pay calendar with an aggregate ID, the system does not withhold from the succeeding checks processed any additional tax amounts or percentages entered in the employee's tax data. However, if you have already processed a check with additional tax withholding before entering an aggregate ID on the pay calendar, the additional taxes that have already been withheld will be aggregated with succeeding checks. No additional tax withholding will be taken from any check processed with an aggregate ID on the pay calendar.

See Also

Entering Special Options and Tax Methods for Earnings Codes

Building Pay Calendars Manually

Viewing and Updating Paysheets and Paylines