Tax Calculation Methods

The payroll process uses calculation methods supported by Vertex data. Different calculation methods are available for each type of pay run and each type of jurisdiction.

The payroll process includes all earnings types during Regular pay runs, including supplemental earnings, and processes only supplemental earnings types in Supplemental runs.

Tax calculation methods involve the following considerations.

• What taxes does the process calculate

• What taxes are eligible for self-adjustment

• What calculation methods are available for:

  • Federal income tax (FIT)

  • Other federal taxes

  • State income tax (SIT)

  • State unemployment (SUI) and disability insurance (SDI) taxes

• How you configure taxes on the organization calculation cards

Calculation by tax type

Tax calculations are applicable for these taxes.

• FIT

• Federal Unemployment Tax Act (FUTA)

• Medicare

• Social Security (SS)

• SIT

• State transit tax

• State unemployment insurance (SUI)

• State disability insurance (SDI)

• County income tax

• City income tax, including boroughs and townships

• School tax

• Family leave insurance (FLI) and medical leave insurance (MLI)

• Long term care (LTC) insurance

• Head taxes, including local services taxes and occupational privilege taxes

• Mental health tax

Calculation self adjustment

You can perform self-adjustments on these tax types.

• FUTA

• Medicare

• SS

• SDI

• SUI

For additional info, see the Self-Adjustment Methods for Tax Withholding in the Help Center.

Calculation methods for FIT

These are the calculation methods available for FIT.

Calculation method	Run type	Calculate on period-to-date amount	What it does
Default	Regular	No	Takes the wages in a regular run. Calculates the tax, independent of how many regular runs are in a pay period.
Default	Regular	Yes	Takes the wages in all the regular runs for the period. Calculates the tax.
Aggregation	Supplemental	N/A	Takes the wages in all the regular and supplemental runs for the period. Calculates the tax.
Cumulative Aggregation	Supplemental	N/A
Flat Percentage	Supplemental	N/A	This is the default method for supplemental payroll runs. The payroll process applies the appropriate flat percentage as set by the IRS.

Calculation methods for other federal taxes

These are the calculation methods available for FUTA, Medicare, and SS taxes.

Calculation method	Run type	Self-adjustment method	What it does
Flat Rate	Regular and Supplemental	Bypass Collection	Earnings are exempt from tax. Note: Wage accumulation still occurs for these taxes.
Flat Rate	Regular and Supplemental	No Self Adjust	Withholding calculations don't self-adjust retroactively for any rate changes. The payroll process uses the new rate only for taxable wages.
Flat Rate	Regular and Supplemental	Self Adjust	Bases the withholding calculations on year-to-date earnings, instead of earnings within a pay period. This provides the most accurate calculation. For retroactive rate changes, the payroll process self-adjusts the tax withholding or liabilities in the next available pay run.
Flat Rate	Regular and Supplemental	Self Adjust at Maximum	Similar to the Self Adjust method, except adjusts for changes only after the maximum taxable wage base is reached.

Calculation methods for SIT

These are the calculation methods available for SIT.

Calculation method	Run type	Resident wage accumulation	What it does
Default	Regular	None or default	Calculates the tax based on the amount paid in the run.
Default	Regular	Credit Resident tax by Work tax, always accumulate wages	Calculates the resident tax. Reduces the tax by the amount of work tax withheld. It always accumulates wages for the residence, even if resident tax is $0.
Default	Regular	Credit Resident tax by Work tax, accumulate wages if taxed	Calculates the resident tax. Reduces the tax by the amount of work tax withheld. It accumulates wages only if it's withholding taxes.
Default	Regular	No resident tax if work tax greater than zero, always accrue	Does not withhold residence tax if there is a work tax, but it always accumulates wages.
Default	Regular	No resident tax if work tax greater than zero	Does not withhold residence tax if there is a work tax, and it only accumulates wages if there is a resident withholding.
Default	Regular	No resident tax if work tax on nonresident, always accrue	Does not withhold residence taxes if there is a work state tax. Wages accumulate for the residence.
Default	Regular	No resident tax if work tax on nonresident, accrue if taxed	Does not withhold residence tax if there is a work state tax. Wages only accumulate when there is a tax withheld.
Default	Regular	No resident tax if work or residence location mismatch, accrue if taxed	Calculates work tax only and disregards resident tax.
Default	Regular	Calculate tax independent of all other jurisdictions	Calculates resident tax independent of work tax.
Aggregation	Supplemental	Refer to settings described in Regular runs	Takes the amount paid in a regular run and calculates the tax, independent of how many regular runs are in a pay period.
Alternate Flat Rate	Supplemental	Refer to settings described in Regular runs	Applies to California only for required 10.23% taxation on certain supplemental wages.
Annualized Previous Aggregations	Supplemental	Refer to settings described in Regular Runs	Combines the annualized Regular pay amount from the previous pay period with the Supplemental pay. Tax is calculated on this total amount. The state tax for Regular pay in the previous pay period is subtracted from the total taxes for the year to determine the tax for the current pay period.
Default Method	Supplemental	Refer to the setting described in Regular runs	Takes the amount paid in a regular run and calculates the tax, independent of how many regular runs are in a pay period.
Flat Rate	Supplemental	Refer to the settings described in the Regular runs	Multiplies the wages by a flat rate percentage.
Flat Rate Combined	Supplemental	Refer to the settings described in the Regular runs	Multiplies the Supplemental pay amount for the current pay period by a flat percentage. The tax on the Regular pay is calculated using the annualized method. The total tax is the sum of these two calculations.
Percentage of Federal Tax	Supplemental	Refer to the settings described in the Regular runs	Multiplies the federal supplemental tax amount by a flat percentage rate. This percentage is unique for each state that uses this method.
Tiered Flat Rate	Supplemental	Refer to the settings described in the Regular runs	Multiplies an employee's wages by a percentage rate. This percentage rate varies based on the amount of an employee's wages.
Tiered Flat Rate, Multiple Tables	Supplemental	Refer to the settings described in the Regular runs

Calculation methods for SUI and SDI

These are the calculation methods available for SUI and SDI.

Calculation method	Run type	Self-adjustment method	What it does
Flat Rate	Regular and Supplemental	Bypass collection	Earnings are exempt from wage accumulation and tax.
Flat Rate	Regular and Supplemental	No self adjust	Withholding calculations don't self-adjust retroactively for any rate changes. The payroll process uses the new rate only for taxable wages.
Flat Rate	Regular and Supplemental	Self adjust	Bases the withholding calculations on year-to-date earnings, instead of earnings within a particular period. This provides the most accurate calculation. For retroactive rate changes, the payroll process self-adjusts the tax withholding or liabilities in the next available pay run.
Flat Rate	Regular and Supplemental	Self adjust at maximum	Similar to the Self Adjust method, except adjusts for changes but only after the maximum taxable wage base is reached.
Flat Rate	Regular and Supplemental	Quarterly self adjust	Performs adjustments for rate changes on a quarterly basis. Available for state taxes only. Use this method in cases where a state changes its rate midyear. By checking each quarter individually to determine adjustments, it maintains the integrity of the calculations before the change.

Organizational tax calculations

For info on configuring taxes at the organization level, see Configure Organization Calculation Cards for the US in the Help Center.