Example of Wage Basis Rules
To illustrate how wage basis rules affect a tax calculation, let's look at an example where an employee's earnings included in the wage basis vary, depending upon where the employee lives.
Taxable Earnings by Region
Brittany is a salesperson who receives a salary of 2,000 each month. Brittany also has a company car she drives. She is responsible for reporting her "Personal Use" of the company car in order to be taxed properly. Brittany works in her company's East Coast district, and she spends 50 percent of her time in New York and 50 percent of her time in Pennsylvania. The State of New York taxes Brittany for her personal use of the company car; however, Pennsylvania doesn't. Last month, Brittany reported personal use that equated to 100 (50 personal use in New York, and 50 personal use in Pennsylvania).
For example:
-
In New York, imputed earnings such as personal use of company car amounts are included in the taxable wages.
-
In Pennsylvania, imputed earnings such as personal use of company car amounts are NOT included in taxable wages.
This table shows the tax calculations that apply for each region.
|
Region |
Earnings in Salary |
Eligible Imputed Earnings |
Taxable Amounts |
Deduction Amount |
|---|---|---|---|---|
|
New York |
1000 |
50 |
1050 |
35 |
|
Pennsylvania |
1000 |
(50 - Exempt) |
1000 |
30 |
The wage basis rules for this tax calculation are as follows:
|
Region (Reference Value) |
Primary Classification |
Secondary Classification |
Use in Wage Basis? |
|---|---|---|---|
|
New York |
Standard Earnings |
Regular |
Y |
|
New York |
Imputed Earnings |
Personal Use of Company Car |
Y |
|
Pennsylvania |
Standard Earnings |
Regular |
Y |
|
Pennsylvania |
Imputed Earnings |
Personal Use of Company Car |
N |
Setting Up and Verifying the Wage Basis Rules
- Use the Element Classifications quick action under Payroll and check if the secondary classification of Personal Use of Company Car is available under the primary classification of Imputed Earnings for an US LDG.
- Use the Elements quick action and create an element for Company Car for the US LDG. When you create the element, under the Standard Rules section, select the element as Nonrecurring and the Employee Level as Assignment Level.
- Use the Component Group Rules quick action under Payroll and navigate to Regional > Related Deductions > State Tax, to create the wage basis rules. Create a wage basis rule for the secondary classification of Personal Use of Company Car and the state of NY. Ensure that for Pennsylvania’s Primary Classification of Imputed Earnings the Use in Wage Basis value is set to N.
- Run a QuickPay for Brittany and check the State of Earnings to verify that the Calculated Earnings, the Imputed Earnings, Taxable Ammounts, and Deductions are as given in the table in the previous section, for both Pennsylvania and New York.