Payroll Tax

There are two methods for setting up and interpreting payroll tax:

Method 1

Use this method to calculate payroll tax and update the General Ledger at the end of each pay period.

Create an Employer Cost Transaction Type for each state, as required. Enter the rate and the ANNUAL deduction amount against each transaction type once the group is selected. Select the Include in Payroll Tax Report option on the Configuration tab.
Enter the payroll tax transaction type against each employee on the Employee Maintenance > Payroll > Employer Cost form. You can do it in bulk by running the Set Default Payroll Tax TT script on the HR > System > HR Setup > Scripts tab.

Note: The system accrues the payroll tax percentage on the total wages, not the total wages less any deductions that apply (such as the $500,000 threshold). When the payroll tax is paid, a balance remains in the payroll tax expense account that are roughly the tax percentage of the threshold amount. These amounts will must be journalled out when the payroll tax liability is paid.

Method 2

Use this method to accrue payroll tax each pay period. It does not update the General Ledger.

Create an Employer Cost Transaction Type for each state, as required.
Enter the rate and the annual deduction amount against each transaction type once the group is selected.
Create one exempt transaction type for each state for employees whose earnings do not attract payroll tax (if required).
Select the Include in Payroll Tax Report option on the Configuration tab.
Enter the payroll tax transaction type against each employee on the Employee Maintenance > Payroll > Employer Cost form. You can do it in bulk by running the Set Default Payroll Tax TT script on the HR > System > HR Setup > Scripts tab.

If you want to accrue and use the system to calculate the payroll tax then you will need to apply both methods.

When the payroll tax report runs, it does this:

For each employee a payroll transaction type is assigned to, the report collects the values for the transaction types in the accumulator attached to the payroll tax transaction type. This is the Gross Taxable Wages.
Applies the proportion (depending on the date range that is selected) of the deduction against the Gross Wages calculated above. This provides the Taxable Wages.
Multiplies the Taxable Wages by the percentage rate that is entered against the payroll tax transaction type to calculate Payroll Tax payable.

To verify Gross Wages, you can set up a Summary Tree or Analysis Report using the transaction types selected in the Payroll Tax accumulator. The report calculates the tax payable for all the payroll transaction types that you set up.