Federal and Regional Taxes

You use the organization calculation cards to define federal and regional tax calculation rules at the payroll statutory unit (PSU) and legal reporting unit (LRU) levels.

Note:

For tax calculation purposes, you must designate your LRUs as tax reporting units (TRUs).

Info you set for a PSU applies to all TRUs attached to it. Info you set for a TRU overrides the info you set for its parent PSU.

You can set these values using the Legal Entity Calculation Cards task from your implementation project. With this task, you create or configure an organization calculation card for the PSU.

You can configure the options for these taxes.

At these levels	These are the available taxes
Federal	Federal income tax (FIT) Federal Unemployment Tax Act (FUTA) Medicare Social Security (SS)
State	State disability insurance (SDI) State family leave insurance (FLI) State income tax (SIT) State long term care (LTC) State medical leave insurance (MLI) State unemployment insurance (SUI)
Local	City taxes County taxes School district income tax

You can override these tax values at the TRU level using the Legal Reporting Unit Calculation Cards task. For further info, see Configure Organization Calculation Cards for the US in the Help Center.

Before you configure federal and regional taxes, consider the following.

• What are the prerequisites?

• How does the payroll process identify a person's home and work address?

• What federal calculation rules can you change?

• What regional calculation rules can you change?

• How do you set calculation rule overrides?

• How do you set tax overrides?

• How do you set school district income taxes?

Prerequisites for tax configuration

Before you start, make sure you have defined the following.

• Your US legislative data group

• A legal address for the legal entity

• Any jurisdictions required for the legal entity

• All the appropriate PSU and TRU calculation cards

How the payroll process identifies tax addresses

Before the payroll process can begin calculating taxes, it has to determine each person's resident and work default tax addresses.

When you perform a payroll run, the process:

1. Uses the following hierarchy to determine the person's work tax addresses.

   Address source	Priority	How you set it
   Work-at-Home = Yes	1 Overrides assignment, location address override, and location address	Use Working at Home on the Employment task. For further info, see Hire an Employee in the Help Center.
   Assignment-level location override	2 Overrides location address override and location address	Use Work Tax Address on the Employment task.
   Location override address	3 Overrides the location address	Use the Locations task to define an address of Location override type.
   Location address	4	Use the Locations task to define the main address.

2. Uses the following hierarchy to determine their resident tax address.

   Address Type	Priority
   US Resident Tax Address	1
   Home Address	2

3. Determines the related withholding status and any additional info from the Tax Withholding card.

4. Based on this info, extracts the relevant regional tax data from the Vertex database.

5. Calculates the taxes.

The following can also impact your tax calculations.

• Resident and work location tax addresses are derived by the following

  • Tagged earnings by work location

    Used when a unit of paid time is to be taxed in a different jurisdiction.

    For example, use tagged earnings when entering 8 hours of time working in a different location than where the person normally works. When tagged as such, the payroll process taxes the calculated pay for those units of time at the designated jurisdiction. If the employee doesn't have withholding elections for the tagged jurisdiction, the process automatically calculates the tax at the highest withholding status or allowance elections.

  • Employee Earnings Distribution Overrides card

    For further info, see Employee Earnings Distribution Overrides Card in the Help Center.

  • Work default tax address hierarchy

    Taxation is derived based on where the person is located as of the last day of the pay period. For example, if you make a pay period change mid cycle, the taxation is based on the location at the end of the pay period.

  • Resident address hierarchy

  • State reciprocity rules

    For further info, see State Reciprocity Agreements in the Help Center.

• Wage basis rules determine the taxable income

  For further info, see Tax Wage Basis Rules for the US in the Help Center.

• Payroll run type

  Run type	How it works
  Regular	These elements tax at the supplemental rate if you've set the supplemental earnings element run type to: Process separately Pay separately Otherwise, they tax at the W-4 rate.
  Supplemental	All earnings are taxed at the supplemental rate.

• Tax Withholding card (tax card) captures an employee's filing status and exemptions at the federal, state, county, city, school district, and tax district levels

  This card also captures the SUI and SDI state and any employee-level overrides.

• When using the percentage method for tax calculation, Vertex automatically rounds the withholding to the nearest whole dollar for these states.

  • Colorado

  • Idaho

  • Maine

  • Mississippi

  • Missouri

  • Montana

  • North Carolina

  • North Dakota

  • Oklahoma

  • West Virginia

Federal calculation rules

You can define the following calculation rules on the organization cards.

Tax type	What you can select	What it does
FIT	Supplemental Tax Calculation Method	Indicates how the process taxes supplemental earnings. You can select the following. Aggregation Cumulative Aggregation Flat Percentage Do this from Calculation Component Details for the FIT component. For further info, see Tax Calculation Methods for the US in the Help Center.
	Tax Withholding Rules	Taxes all earnings based on withholding rules. You can select: All states Only states under state tax rules If you select this, you must add those states in Regional Component Group. Do this from Calculation Component Details for the FIT component.
	Enable Period-to-Date Tax Calculation	By default, multiple regular payroll runs in the same period are taxed as if they're individual payments. When you set this to Yes, multiple payroll runs are taxed as if they're paid as one payment. This option can possibly increase the tax bracket. Do this from Calculation Component Details for the FIT component. Note: This applies to SIT as well.
	Aggregate Overtime Premium Rate for all TRUs within the PSU	Determines how to calculate the premium overtime rate of multiple TRUs under the same PSU. Do this on the Overtime Rules calculation component.
	Enforce Federal Income Tax Look-Back Rule	Determines if the payroll process withholds FIT from the employees' supplemental earnings using the aggregate tax method instead of the flat rate. Do this from Enterable Calculation Values on Calculation Cards for the FIT component. For further info, see Federal Income Tax Look-Back Rule in the Help Center.
Medicare	Self-Adjustment Method	Evaluates the earnings and tax amounts to ensure they're correct with a given tax rate. When all subject earnings reach the annual maximum limit, the payroll process no longer calculates the tax. For further info, see Self-Adjustment Methods for Tax Withholding in the Help Center.
FUTA	Employer Self-Adjustment Method	Evaluates the earnings and tax amounts to ensure they're correct with a given tax rate. When all subject earnings reach the annual maximum limit, the payroll process no longer calculates the tax. For further info, see Self-Adjustment Methods for Tax Withholding in the Help Center.
	Federal Unemployment Employer Rate override	If you have locations in a FUTA credit reduction state, your FUTA rate might change. FUTA credit reduction rates are predefined for each of the states that require a credit reduction and are updated annually. In certain circumstances, you must override these rates. Use the Calculation Value Definitions task to set an override rate. For further info, see Federal Unemployment Tax Act Calculations in the Help Center.
Social Security	Self-Adjustment Method	Evaluates the earnings and tax amounts to ensure they're correct with a given tax rate. When all subject earnings reach the annual maximum limit, the payroll process no longer calculates the tax. For further info, see Self-Adjustment Methods for Tax Withholding in the Help Center.
Limit taxes	Federal Tax Limit Enforcement Level	Define how the payroll process tracks limits for federal taxes. For further info, see Limit Taxes in the Help Center.
	State Tax Limit Enforcement Level	Define how the payroll process tracks limits for state taxes.

To define these calculation rules:

1. Start the Legal Entity Calculation Cards task from your implementation project, and open the card.

2. Select Federal.

3. Provide the effective date, and select the appropriate calculation component.

4. In Details, set the values you want to use.

5. Click Save and Close.

Regional calculation rules at the PSU level

You can define the following regional calculation rules on the PSU organization card.

Tax Type	What you can select	What it does
SDI	Self-Adjustment Method	Evaluates the earnings and tax amounts to ensure they're correct with a given tax rate. When all subject earnings reach the annual maximum limit, the payroll process no longer calculates the tax. For further info, see Self-Adjustment Methods for Tax Withholding in the Help Center.
	SDI Employee Rate override	Sets the rate override for those states where the employee pays SDI.
State FLI	Exempt from Family Leave Insurance	For eligible states, identifies all employees in the PSU as exempt.
	Exempt from MLI Employer Liability	For eligible states, identifies this PSU as exempt.
	Family Leave Insurance Wage Limit	For eligible states, sets the wage limit for this PSU.
	FLI Employee Percentage	For eligible states, sets the percentage for employee FLI contributions.
	FLI Employer Percentage	For eligible states, sets the percentage for employer FLI contributions.
	MLI Employee Percentage	For eligible states, sets the percentage for employee MLI contributions.
	MLI Employer Percentage	For eligible states, sets the percentage for employer MLI contributions.
State LTC	Exempt From Long Term Care Insurance	For eligible states, identifies all employees in the PSU as exempt.
	Long Term Care Insurance Employee Percentage	For eligible states, sets the percentage for employee LTC contributions.
	Long Term Care Insurance Wage Limit	For eligible states, overrides the wage limit for this PSU.
SIT	Calculate PA Resident Tax for Non-PA Work Location	For Pennsylvania PSUs, enables the calculation of Pennsylvania resident taxes for employees working in locations out of the state. For further info, see Pennsylvania Local Earned Income Tax in the Help Center.
	City Tax Withholding Rule	Indicates if all earnings are taxed based on the defined city tax withholding rule.
	County Tax Withholding Rule	Indicates if all earnings are taxed based on the defined county tax withholding rule.
	Resident Wage Accumulation	Identifies the appropriate resident wage accumulation method. The payroll process automatically withholds for all states using the default action for each state. For further info, see the Calculation Guide for the United States Vertex Payroll Tax Q Series.
	Supplemental Tax Calculation Method	Indicates how the payroll process taxes supplemental earnings. You can select the following. Aggregation Alternate Flat Rate Annualized Previous Aggregations Default Method Flat Rate Flat Rate Combined Percentage of Federal Tax Tiered Flat Rate Tiered Flat Rate, Multiple Tables For further info, see Tax Calculation Methods for the US in the Help Center.
	TCD Combined Filing Proxy	For registered combined filers for Pennsylvania Act 32 taxes, specifies the Tax Collection District (TCD) combined-filing proxy. For further info, see Configuration Requirements for Third-Party Tax Filing in the Help Center.
	Enable Period-to-Date Tax Calculation	Taxes multiple payroll runs as if they're paid as one payment. You configure this at the FIT level. For further info, see Federal calculation rules, above.
SUI	Credit Employer SUI Wages Earned in Other States	Enforces how the payroll process calculates SUI wage credits for employee transfers. For example, some don't give credit for SUI paid in other work states. For further info, see Limit Credits for State Unemployment Insurance in the Help Center.
	Self-Adjustment Method	Evaluates the earnings and tax amounts to ensure they're correct with a given tax rate. When all subject earnings reach the annual maximum limit, the payroll process no longer calculates the tax. For further info, see Self-Adjustment Methods for Tax Withholding in the Help Center.
	SUI Employee Rate override	Sets the rate override for those states where the employee also pays SUI.
	SUI Employer Rate override	Sets the rate override. Employer contribution payments under the SUI compensation laws vary based on each employer's experience with unemployment. The employer experience rate varies for every employer and changes over time. In general, the less involuntary unemployment your workers experience, the lower your rate. Note: For states that have taxes in conjunction with SUI or SDI, you must increase your SUI or SDI employer rates appropriately. Carefully examine your state-issued rate notifications to determine if the state has included these special taxes in the overall rate notification. For example, the following special taxes are cases where this kind of SUI rate adjustment would be required. Kentucky SUI Service Capacity Upgrade Fund Massachusetts SUI Workforce Training Fund Nevada SUI Career Enhancement Program Nevada SUI Bond Obligation Assessment South Carolina SUI Administration Contingency Assessment
	SUI Wage Limit for Employer	Establishes SUI wage limits at the TRU and PSU levels. For further info, see Wage Limits for State Unemployment Insurance in the Help Center.
County Tax	Resident wage accumulation	Identifies the appropriate resident wage accumulation method. For further info, see the Calculation Guide for the United States Vertex Payroll Tax Q Series.
	Taxation threshold hours	Sets the number work hours after which the payroll process begins calculating and withholding taxes. This field is informational.
City Tax	Resident wage accumulation	Selects the appropriate resident wage accumulation method. For further info, see the Calculation Guide for the United States Vertex Payroll Tax Q Series.
	Taxation threshold hours	Sets the number work hours after which the payroll process begins calculating and withholding taxes. This field is informational.

To define these calculation rules:

1. Start the Legal Entity Calculation Cards task from your implementation project, and open the card.

2. Select Regional.

3. In Calculation Card Overview, under the Actions menu, select Create.

4. Select the appropriate state, and click OK.

5. Provide the effective date, and select the appropriate calculation component.

6. In Details, set the values you want to use.

   You must click Save before you can add any county or city rules.

7. Repeat these steps to define the appropriate values at the county and city levels.

Calculation rule overrides

If you have multiple TRUs assigned to a PSU, you can set overrides on the TRUs. Use the Legal Reporting Unit Calculation Cards task.

To define these calculation rules:

1. Start the Legal Reporting Unit Calculation Cards task from your implementation project.

2. Select the appropriate component group.

3. Define the overrides.

Tax overrides

To override a value or rule associated with an organization calculation card:

• Use the Legal Entity Calculation Cards task from your implementation project. You set overrides for federal and regional taxes at the PSU level.

  For further info, see Configure Organization Calculation Cards for the US in the Help Center.

• To set these overrides at the TRU level, use the Legal Reporting Unit Calculation Cards task from your implementation project. Any settings you make on the TRU organization card override the settings on the PSU organization card.

• To make changes to an individual employee's Tax Withholding card, use the Calculation Cards task. These settings override those on the organization cards.

  You can override the following on a person's card.

  Override method	What it does
  Regular Amount	Uses a set amount, such as $100.
  Regular Rate	Uses a regular rate indicated as a percentage.
  Supplemental Rate	Uses a supplemental rate for supplemental wages indicated as a percentage.
  Supplemental Amount	Uses a set amount for supplemental wages, such as $100.

  For further info, see Tax Withholding Card in the Help Center.

School District Income Taxes

For states that levy school district income taxes, you must manually enter the school district on the person's Tax Withholding card.

• Depending on the state, you enter the school district under either the City or County node.

  For example, you enter Kentucky school districts under County. Enter Ohio school districts under City.

  For resident addresses in a township:

  1. Set the tax district on the address.

  2. Enter the proper school district on the tax card.

• For Pennsylvania Act 32 jurisdictions, enter it on the residency certificate.

For further info, see Tax Withholding Card in the Help Center.