Cumulative Tax Withholding

Sometimes an employee has earnings that are accrued unevenly across the year, such as commissions. In these cases, you can use the cumulative tax withholding method during payroll processing.

This method makes sure the payroll process properly calculates their taxes.

You have two options for calculating cumulative tax withholding.

• Configure it on Tax Withholding card

  This applies to supplemental payroll runs and Supplemental element classifications for that employee.

• Configure it on your payroll statutory unit (PSU) or tax reporting unit (TRU) organization cards

  This applies to:

  • All employees associated with that card, including those who haven't requested cumulative withholding

  • Supplemental earnings only

Configure the Employee Tax Withholding Card

You enable the cumulative tax withholding method on the worker's Tax Withholding calculation card, in the federal Withholding Information section. Set the Cumulative Taxation to Yes.

Configure the Organization Card

You can enable cumulative tax withholding at the PSU or TRU levels.

Note: This enforces cumulative withholding on all employees associated with that card, including those who haven't requested it.

1. Use the Calculation Rules for Tax Reporting and Payroll Statutory Unit task to open the appropriate organization calculation card for editing.

2. In Component Groups, click Federal.

3. In Calculation Component, select the Federal Income Tax component.

   Add it if it doesn't already exist.

4. In Federal Income Tax: Details, expand Federal Income Tax Organization Information.

5. Select the Supplemental Tax Calculation Method supplemental tax calculation method.

6. Click Save and Close.

How Cumulative Taxes Are Calculated

Here's what happens when you run the payroll process.

1. Calculates the employee's cumulative wages for the calendar year (the tax period).

2. Calculates the average amount of cumulative wages.

   It divides the cumulative wages by the number of payroll periods during which those wages were earned.

3. Calculates the cumulative withholding amount.

   It computes the total taxes due as determined by the percentage withholding method. These taxes are based on the average cumulative wages determined in the previous step. The process assumes the wages had been earned in each pay period throughout the calendar year.

4. Calculates the taxes owed.

   It subtracts the taxes already withheld by the employer throughout the calendar year from the total amount determined in the previous step. Any remainder is the amount of tax to be withheld from wages paid to the employee for the payroll period.