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, must have defined and configured these components.

• Your US legislative data group (LDG)

• 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 Viriginia