Tax Calculation Rules

You set up tax calculation rules to define the information that the system uses when calculating employee taxes. Tax calculation rules are used to define various taxation components that make up the total tax calculation scheme for a specified employee tax scale. You can set up tax calculation rules for different types of earnings, including regular pay, leave pay, or termination payments. These rules enable the system to correctly identify the different types of earnings in each tax scale, and to calculate taxes accordingly.

The system uses input and output numbers to calculate and store tax information. You must assign input numbers to all pay types, taxable benefits, and pretax deductions that employees receive. When calculating taxes, the system uses the input numbers that are assigned to the PDBAs, along with the employee's country and tax scale, to determine which tax rule to use to calculate the tax on a particular type of earnings. Nine inputs are available.

Calculated tax amounts are stored in the Tax Detail File table (F07353) by output number, tax area, and tax type. After all tax calculations for an employee are complete, the system totals each record in the table to determine the total tax amount for the employee.

Note: For any tax rules with the same country and tax scale, output numbers must be unique. The use of the same output number can cause existing tax records in the Tax Detail table (F07353) to be overwritten and can cause tax calculations to be incorrect. For example, each tax rule that you set up for New Zealand for tax scale M should use a different output number.

You can assign an override rate to a tax rule or you can set up the tax rule to calculate the tax amount by retrieving the rate from the tax parameters. When you assign an override rate, the taxes that are associated with all earnings that use the tax rule are calculated using the override rate. To use the rates that are set up in the tax parameters, you must enter the tax parameter code in the Rate Code field.

Important:

To ensure that the system correctly calculates tax amounts, you must create a tax rule of TX for every tax scale that you set up. If the organization pays employees Annual Leave Loading payments, you must create a tax rule of LL for every tax scale. You enter the tax-free threshold for Annual Leave Loading in the LL tax rules. Additionally, if you distribute lump sum payments during employee terminations, you must set up tax rules LA,LB,LC,LD, and LE.

For specific instructions about the values that you must enter when setting up tax rules, contact the account representative. Because tax calculations periodically change, the account representative can provide you with the most current information for setting up tax rules.

You should also be aware of special requirements for calculating pretax deductions and excludable pay types and benefits.

See "Setting Up Tax Information" in the JD Edwards EnterpriseOne Applications Payroll Implementation Guide.

Before you can set up tax calculation rules, you must verify that all of the tax scale codes that you need to accurately calculate tax amounts are entered in user-defined code (UDC) table 75/SC. Contact customer support for information about which codes to use.

See UDCs for Australia and New Zealand.

Set up tax rates, limits, and adjustment amounts for each tax scale.

See Setting Up Tax Calculation Parameters.