Taxes

This document gives the basic formula used to calculate taxes and the setups that must be complete in order for a tax to be deducted on a payroll check.

Calculating Payroll

Tax amounts are calculated using the following formula:

Notes on the diagram above:

• #1 - Pay codes are set up to increase federal wages using the Pay Code Maintenance window (PR> Maintenance> Pay Code> Gross to Increase section> Federal, State, Regional, Other toggles). 
• #1 - Benefits and deductions are set up to increase or decrease the gross amount using the Deduction/Benefit Maintenance window (PR> Maintenance> Deduction/Benefit> General tab> Gross to Decrease or Gross to Increase section> Federal, State, Regional, Other toggles). 
• #1 - The pay periods per year is pulled from the pay schedule attached to the employee record (PR> Maintenance> Employee> Financial tab> Pay Schedule field). 
• #1 - If the annualized gross wage is less than the minimum income on the tax, the tax will not be applied. A minimum tax is attached to a tax record line item using the Tax Table Maintenance window (PR> Maintenance> Tax Table> Minimum Income field). 
• #2 - The standard deduction is attached to an entry on the tax table using the Tax Table Maintenance window (PR> Maintenance> Tax Table> Open a record> Standard Deduction field).
• #2 - The standard deduction will only be multiplied by the number of dependents on the employee record if the Multiply standard deduction toggle is checked on the tax table line item (PR> Maintenance> Tax Table> Open a tax table line item> Multiply standard deduction toggle).
• #2 - The number of dependents is entered on the employee record using the Taxes tab of the Employee Maintenance window (PR> Maintenance> Employee> Taxes tab> Federal Dependents, State Dependents, Regional Dependents, and Other Dependents fields).
• #3 - The tax amount due is calculated from the tax table using the following formula:
  • The Minimum Tax is pulled from the tax table level break that applies to the taxable wage (PR> Maintenance> Tax Table> Open the tax table line item that applies to the employee> Minimum Tax column that applies to the level).
  • The Taxable Wage is pulled from step 3 of the Calculating Payroll diagram. This is the taxable gross (for example, Federal gross wages) plus any benefits on the paycheck that are set up to increase the taxable gross, less any deductions that are set up to reduce the taxable gross.
  • The Applicable Level Amount is selected using the Level column on the tax table based on the taxable wage. For example, if an employee has calculated taxable wage of $50,000, select the level break that is less than $50,000 (for example, $23,350), and just below the level break that is greater than $50,000 (for example, $72,120).
  • The Tax rate from the tax table is pulled from the Percentage column of the level break that applies to the employee. 
  • The Pay periods per year is pulled from the pay schedule attached to the employee record (PR> Maintenance> Employee> Financial tab> Pay Schedule field). 
• #4 - Tax credits are attached to a tax record using the Tax Table Maintenance window (PR> Maintenance> Tax Table> Tax Credit field). 

Setup

The following must be set up to deduct taxes from a payroll check: