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more than you ever wanted to know about SAP Payroll taxes

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more than you ever wanted to know about SAP Payroll taxes Powered By Docstoc
					                                                        SAP US Payroll Tax Class
                                                                    SAP Payroll taxes
                                                             SAP US Payroll Tax Class
SAP Tax Terminology ................................................................................................................................................ 1
Tax Calculation Process ............................................................................................................................................ 2
     Process Overview .............................................................................................................................................. 2
Data Model ................................................................................................................................................................. 3
     Infotypes ............................................................................................................................................................. 3
Configuration of Taxes ............................................................................................................................................... 9
     IMG – Implementation Guide Steps ................................................................................................................... 9
     Tax Companies ................................................................................................................................................ 10
     Load Tax Data .................................................................................................................................................. 11
     Tax Data Maintenance – Tax Authorities ......................................................................................................... 12
     Tax Data Maintenance – Tax Types ................................................................................................................ 15
     Tax Data Maintenance – Tax Areas ................................................................................................................. 16
     Tax Data Maintenance – Tax Models .............................................................................................................. 19
     Useful Reports .................................................................................................................................................. 24
     Tax Data Maintenance – Unemployment Insurance ........................................................................................ 24
     Tax Data Maintenance – Tax Overrides .......................................................................................................... 25
     Tax Data Maintenance – Symbolic Account Split ............................................................................................ 26
     Priority of Tax Wagetypes ................................................................................................................................ 26
Tax Wagetypes ........................................................................................................................................................ 27
     Descriptions of tax wagetypes ......................................................................................................................... 27
     Linking tax wagetypes to other tax data ........................................................................................................... 28
Gross to Net Wagetypes .......................................................................................................................................... 30
Gross-Ups ................................................................................................................................................................ 31
     Cash or Regular Gross-ups.............................................................................................................................. 31
     No-pay Gross-ups ............................................................................................................................................ 34
     Problems with Gross-ups ................................................................................................................................. 35
Reconciling Taxable Wages – No Retrocalculation ................................................................................................. 36
Retrocalculations ...................................................................................................................................................... 37
     Cash vs Tax Perspective.................................................................................................................................. 37
     Gross to Net Equation ...................................................................................................................................... 37
     Forming Retro Differences ............................................................................................................................... 37
     Claims............................................................................................................................................................... 38
Taxation of Retrocalculations ................................................................................................................................... 40
     Tax When Paid (TWP) vs Tax When Earned (TWE) ....................................................................................... 40
     Balanced & Unbalanced Offsets ...................................................................................................................... 40
     Tax Priority & Caps .......................................................................................................................................... 40
     Retroactive changes to gross-ups .................................................................................................................... 41
     Crossing Years ................................................................................................................................................. 42
     W-2 Corrections (W-2C) ................................................................................................................................... 44
                                       SAP US Payroll Tax Class
SAP Tax Terminology
Business Term                       SAP Term      Definition

Federal Employer ID Number (FEIN)   Tax Company   A legal entity for tax reporting purposes

Tax                                 Tax Type      The type of tax levied (required to be paid) by a tax authority

Formula                             Formula       Instructions for how to calculate a tax amount

Wage Base                           Tax Model     A definition of which wages and deductions are considered
                                                  taxable for specific tax authority and type of tax




                Page 1
                                  SAP US Payroll Tax Class

Tax Calculation Process
   Process Overview


             Tax        Other             Year-to-      Previous
          Infotypes   Infotypes          Date Payroll    Payroll




                           SAP Tax Preparation
                             (schema UTX0)




                                   BSI Tax                BSI Tax
                                  Calculation            Formulas



                          SAP Special Processing
                             (schema UTX0)




                               Payroll Results
                          (RT, TCRT, TAX, TAXR,
                            XDFRT, UNB, BAL)




            Page 2
                                       SAP US Payroll Tax Class

Data Model
      Infotypes

Infotype   Title            Description / Notes

207        Resident Tax     This is the tax area where the employee lives. They can only live in one place at a time,
                            and payroll reads this infotype as of the check date.




                   Page 3
                                       SAP US Payroll Tax Class

Infotype   Title            Description / Notes

Infotype   Title            Description / Notes

208        Work Tax         This infotype stores the various tax areas the employee works in – they can work in
                            multiple areas at once, and each is pro-rated by a certain %. The total % can not be
                            more than 100. If it is less than 100, the remainder is allocated to the resident tax area.
                            Payroll reads all the infotype 208’s active during the pay period and pro-rates wages
                            according to each infotype 208 occurrence.




                   Page 4
                                            SAP US Payroll Tax Class

Infotype   Title                 Description / Notes

209        Unemployment State This infotype contains the state and worksite the employee is taxed in for
                              unemployment taxes. For payroll calculations it is read as of the period-end date. If the
                              worksite is filled in then you can use SAP’s Multiple Worksite Reports in Tax Reporter.




                   Page 5
                                               SAP US Payroll Tax Class

Infotype   Title                    Description / Notes

210        Withholding Info         This infotype stores the W-4 or state-equivalent information needed for calculating
                                    withholding taxes. It is read as of the check date. Various tax authorities use different
                                    fields on this infotype, and the available fields change depending on the tax authority
                                    entered (which is also the subtype).

           Tax Exempt Indicator
           codes control which
           wages & taxes get
           calculated: X = no
           taxable wages or
           taxes; R = don’t take
           taxes but do report
           taxable wages; Y =
           don’t take taxes and
           don’t calculate
           reportable or taxable
           wages.

           Def. Form.No. is the
           default formula
           number SAP will use
           for the tax – and that
           can be overridden
           with the ‘Assign
           Form.No.’ field.

           For other fields,
           select them and
           press F1 for the SAP
           help text.

           This screen layout
           will change from one
           tax authority to
           another.




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                                               SAP US Payroll Tax Class

Infotype   Title                    Description / Notes

234        Tax Overrides            This infotype contains various overrides for calculating withholding taxes, and is read as
                                    of the check date.

           Supplemental
           method: Many
           withholding taxes
           have an optional flat-
           rate method that can
           be used. Some have
           more than one
           supplemental
           method – here we
           can override the
           supplemental
           method for an
           employee’s
           paychecks.

           Override amount:
           This amount will
           override any
           withholding tax
           amount calculated by
           the system.

           Empl. Override
           group: This is a code
           created in BSI that
           defines a custom tax
           calculation, such as
           a custom flat-rate for
           certain bonus
           payments. The
           override group has to
           be created in BSI
           and then applied
           here.




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                                              SAP US Payroll Tax Class

Infotype   Title                   Description / Notes

235        Other Taxes             This infotype contains overrides for all other taxes than withholding, and is read into
                                   payroll as of the period-end date.

           The formula numbers
           and ‘Exe.’
           (exemption
           indicators) used here
           serve the same
           purpose as they do
           on infotype 210, but
           for everything except
           withholding taxes.
           Infotype 210 is
           withholding taxes-
           only, and 235 is for
           all other tax types.




                   Page 8
                                          SAP US Payroll Tax Class

Configuration of Taxes
   IMG – Implementation Guide Steps
     Transaction SPRO is used to access the SAP Implementation Guide. The transaction will first display various
     ‘project IMGs’, press F5 or the Enterprise IMG button to get to the complete IMG structure. Open the Payroll
     Accounting -> Payroll: USA -> Tax section.
     If you do not have access to transaction SPRO, you can view the corresponding tables with transaction SE16 (Data
     Browser).




    To get more documentation, double-click on a line’s text. For example, double-click on the ‘Tax’ text line and you
    get this documentation:



              Page 9
                                     SAP US Payroll Tax Class




Tax Companies




 This is the step where Tax Companies are defined and then assigned to each personnel area/subarea combination.
 The tax company is not the same as the Company Code (or accounting company) that is seen on infotype 1. In
 fact, Tax Company does not display on infotype 1. The information entered in the ‘Define tax companies’ (table
 t5utl) step is used for regulatory tax reporting (Tax Reporter). The screen below shows where Tax Company is
 assigned to the personnel area/subarea (table t5u0p):
          Page 10
                                        SAP US Payroll Tax Class


 The Tax Company is where taxes & taxable wages are reported for regulatory purposes. The accounting debits &
 credits go to the Company Code on infotype 1, which may or may not correspond to the Tax Company. For
 example, this screen shows that taxes and taxable wage are reported to the government under ‘Overseas’, and the
 description on the personnel area says the accounting goes to Company Code 001.




 Each tax company is identified by an employer ID number for every tax authority it reports to. Those employer ID
 numbers (EIN’s) are entered in the ‘Define tax identification numbers by BSI tax company’ step (t5uth), and then
 assigned to a tax type within the tax authority in the ‘Define federal/state/local employer ID number’ step (table
 t5uti). SAP Payroll will not calculate a tax if the corresponding EIN does not exist in these tables.
Load Tax Data




 This section is primarily for the first-time system setup, where we copy some data from the BSI Tax Calculation
 system into SAP tables. It is normally maintained by periodic updates to the system that come from SAP.




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                                         SAP US Payroll Tax Class
Tax Data Maintenance – Tax Authorities




 The ‘Check tax authorities’ step (table t5utz) is used to configure certain options for each tax authority. This data is
 delivered by SAP and normally it is also updated by them as new tax authorities come into existence. You might
 want to customize some options here to tailor the system to your needs.




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                                        SAP US Payroll Tax Class




The ‘Sort no.’ controls the sequence in which the tax authorities will be displayed in select lists. The ‘W4’ indicator
controls whether of not you want to require an infotype 210 for the tax authority, make it optional, or not allow one
to exist. The IRS column is to indicate whther of not you want to apply the IRS 10-exemption limit rule to the
authority. The ‘NoUS’ column is used to indicate US Territories & Possesions, such as Puerto Rico and the US
Virgin Islands. The next IMG steps - ‘Check sort number for authority’, ‘Check W-4 and exemption limit indicators’,
and ‘Check status of territories’ are just different views on this same information.
‘Check tax authority mapping’ (table BTXTAXC) is where we map the SAP Tax Authority code to the BSI Tax
Authority code. This is normally maintained by SAP and does not require customer maintenance. BSI has its own
codes for each tax authority, but lets the customer create whatever codes they want to use. Those customer-
defined codes are mapped to the BSI codes here.




          Page 13
                                        SAP US Payroll Tax Class




Each tax authority can have its own set of valid filing status codes, and these are controlled in the ‘Define valid
filings statuses’ step (table t5utk). This data is generally maintained and updated by SAP.




          Page 14
                                           SAP US Payroll Tax Class




Tax Data Maintenance – Tax Types
 Each tax authority can have one of more different types of tax they collect. All the various tax types are defined in
 this step.




 ‘Check tax types’ (table t5utt) is a list of all valid tax types, and ‘Maintain tax types per tax authority’ (table t5utd) is
 where we define which tax types are valid for each authority.

           Page 15
                                         SAP US Payroll Tax Class




Tax Data Maintenance – Tax Areas
 A Tax Area is simply a collection of tax authorities that are applicable to a given location. For example, if you live
 inside Cincinnati, your tax area would include Cincinnati, Ohio and Federal. SAP assigns tax areas to resident and
 work locations.




           Page 16
                                      SAP US Payroll Tax Class




The views for defining tax areas for work and resident locations are very similar. SAP delivers these tax areas with
the system, and updates them as new ones come into existence. The ‘Maintain work-related tax areas’ (table t5utb)
is where we define valid tax areas for the work location.




         Page 17
                                       SAP US Payroll Tax Class
For each tax area we define the tax authorities that correspond to it in the ‘Maintain tax authorities per work tax
area’ step (table t5utw). So here we see that work tax area AL0H includes tax authorities Alabama and Jefferson.




Resident tax areas are setup in a similar manner, but stored in table t5uta. Likewise, resident tax areas are stored
in table t5utr. Resident tax areas have additional functionality that enables the system to suggest a list of tax areas
that may be valid for the employee, based on the employee’s zip code. The ‘Maintain zip code ranges per
residence tax area’ (table t5utf) specifies a range of zip codes for each tax authority. When a new infotype 207 is
created, the system will search this table with the employee’s zip code to get a list of tax areas that might be
appropriate for the employee. Although a zip code range exists for work tax areas, there is no other system
functionality to support that process (i.e it doesn’t work).




          Page 18
                                    SAP US Payroll Tax Class




Tax Data Maintenance – Tax Models




         Page 19
                                       SAP US Payroll Tax Class
The Tax Model is where we define the taxability of wages in SAP Payroll. The ‘model’ is a set of three SAP
configuration tables. The first step ‘Define tax authority model’ (table t5ute) is where we associate each tax
authority with a two digit model number. The model number is just an arbitrary two digit number that was chosen at
the time the system was first setup. If a tax authority changes the way it taxes earnings or deductions, then you
would create a new tax model for it, using the effective dates in t5ute.




The second step is ‘Define taxability model’, or table t5utm. In this table we link each taxable wagetype to a tax
model. There are four aspects to this link – the resident, work and unemployment taxation of the wagetype, and the
taxation for different groups of employees (the tax modifier). The link to the wagetype is via processing class 71 –
called the taxability class. For each taxability class we specify if the wagetype is taxable for the tax authority an
employee lives in, works in, and for unemployment taxes. These three settings can be customized per tax modifier.
For example, we may tax wages for every tax authority for regular employees, but only tax wages for Federal for
expatriates. In that case, we put expatriates and regular employees in different tax modifiers, and control the
assignment of wagetypes to tax authorities via table t5utm.



         Page 20
                                     SAP US Payroll Tax Class
The tax modifier is determined in payroll in rule ZUDG (tax schema ZUA2).


                                              Tax Modifiers

               Tax Modifier     Employee Group

               U1               Domestic employees & other retiree payments

               U2               No longer used (was Sundor)

               U3               US Expatriates

               U4               Retiree stock options (pay types L and S)

               U5               No longer used (was Outbound expats)

               U6               Never used

               U7               Any employee (expat or regular) whose resident tax
                                infotype (208) is set to Puerto Rico




         Page 21
                                      SAP US Payroll Tax Class
Table t5utm is where we link the tax authority and tax types to the wagetype:
       Tax model: The code for a tax authority, from t5ute
       Res/wrk/UI: R = resident tax, W = work tax, U = unemployment tax
       Tax Modif: The tax modifier for the employee
       Tax Class: The processing class 71 value for the wagetype
       Tax type combination: A code from t5uty that specifies which tax types the wagetype is taxable for




         Page 22
                                      SAP US Payroll Tax Class
The third step is where we tell SAP which types of tax to use for each row in t5utm. Table t5uty (define tax type
combinations) is where we define codes to represent a set of tax types. In t5utm, if a tax class is taxable for a
particular combination of resident, work, unemployment and tax modifier, the system then gets the tax type combo
value and looks it up in t5uty to see which types of tax to use. This is how SAP knows which /3xx wagetypes it
needs to build. For example, tax type combo 06 would tell the system to build wagetypes /303, /304, /305 and /306.




         Page 23
                                        SAP US Payroll Tax Class
  The Tax Model Diagram shows how the tables, infotypes and wagetypes come together to tell the system which
 /3xx taxable wagetypes to create:
                                                 Tax Model Diagram




                Employee tax                 Wagetype, processing             Tax type combinations
                  infotypes                       class 71                           (t5utm)
               (207, 208, 209)                     (t512w)




             Tax authority model                Taxability model                  Tax modifiers
                   (t5ute)                          (t5utm)                       (rule UMOT)




                                              Taxable wagetypes
                                                    (/3xx)




Useful Reports
 SAP has a standard program RPUTMDU0 (HR -> Payroll -> Americas -> USA -> Subsequent activities -> Period
 independent -> Tools -> Tax utilities -> Expand tax models) that reads the tax model tables and shows which tax
 types are used for each line of t5utm. There is also a standard report that displays all the tax authorities in the
 system (Display tax authorities on the Tax Utilities menu, or program RPUAUTU1, or view table t5utz via
 transaction se16).




Tax Data Maintenance – Unemployment Insurance
 Every state in the US collects an unemployment tax to fund unemployment insurance claims. This is an employer-
 paid tax, so there is not effect on the employee. However, each state has its own tax rate and that tax rate can vary
 from one company to another in the state. The company-specific tax rate is call the ‘experience rate’ because it’s
 based on the state’s experience in paying out unemployment claims for employees laid-off from a company. The
 more people a company lays-off, the higher the experience rate. This experience rate can change every quarter.
 Client XXX does not pay unemployment taxes based on what is calculated in SAP. Instead, the total taxable
 unemployment wages are multiplied by the experience rate outside of SAP when the quarterly unemployment tax
 returns are filed.
 Some states requires companies to report their unemployment wages per physical site within the state – this is
 called Multiple Worksite Reporting and is controlled via the worksite field on infotype 209. Again, Client XXX does
 not use SAP for its worksite reporting so that part of the system is not used.




           Page 24
                                        SAP US Payroll Tax Class




Tax Data Maintenance – Tax Overrides
 SAP and BSI allow companies to override certain parts of the tax calculation. Most of the configuration is done is
 BSI; the one piece of it done in SAP is to define employee override groups. These groups also need to be setup in
 BSI (Tax Factory). The employee override group can then be entered into infotype 234 or set dynamically in a rule
 in payroll.
 The override groups and rules allow you to override the tax calculation formula so that you can withhold taxes at
 rates different than the standard ones provided by BSI. This is currently used for some stock option and relocation
 payments.




           Page 25
                                         SAP US Payroll Tax Class
Tax Data Maintenance – Symbolic Account Split
 SAP gives you an option to post a given tax type to different FI/CO accounts based on which tax authority or tax
 level (Fed, state, local) it belongs to. For example, Federal taxes are posted to one account, and state/local taxes
 posted to another. The process is simple – look at every tax wagetype and then copy its contents to another
 wagetype that is then posted to the correct account. At Client XXX there are three tax-posting wagetypes – 9TAF
 (Federal), 9TAS (state) and 9TAL (local), generated in rule ZUHF in the tax schema ZUA2.




Priority of Tax Wagetypes
 When deducting tax, the system follows a certain order or priority, This is defined in the ‘Maintain priority of tax
 wagetypes’ step, or table t5us0. Generally there is no need to maintain this table, since it is delivered by SAP to
 take Federal taxes first, then state, then local. There are other settings in this table to control how taxes are
 deducted when not enough money is present, and whether or not the tax wagetype is from regular income or tip
 income.




           Page 26
                                          SAP US Payroll Tax Class

Tax Wagetypes
   Descriptions of tax wagetypes
    These wagetypes store the results of tax calculations; other than the wagetypes for employee taxes, they are not
    really linked to the amount of cash the employee receives.
  Wagetype     Description           Explanation                             Notes

  /3xx         Taxable earnings      This is the amount of earnings          Some tax authorities require the
                                     (payments) that is taxable for each     company top report these wages.
                                     authority and tax type. It does not     Other than that, they are not used in
                                     include pre-tax deductions.             the tax calculation process.

  /6xx         Reportable wages      These amounts are the /3xx earnings     States require companies to report
                                     minus the pre-tax deductions. These     their /610 unemployment wages every
                                     amounts are sent to BSI for taxation.   quarter.

  /7xx         Taxable wages         These are the amounts that are taxed    These amounts are the ones reported
                                     for each authority & tax type. These    on the W-2.
                                     wages reflect tax caps (i.e. for FICA
                                     and unemployment) and reciprocity.
                                     The /7xx wagetypes are returned to
                                     SAP from BSI.

  /4xx         Taxes                 These amounts are for employee and      Contains employee-paid and
                                     employer taxes, based on the /7xx       employer-paid taxes (processing class
                                     wages, as calculated by BSI.            72 determines this)

  /Qxx         Taxable not taxed     Certain wages can be reported as        Imputed income on group-term life
               wages                 taxable, but no tax is required to be   insurance is a good example of a
                                     taken from them.                        taxable-not-taxed earning.

  /Nxx         Uncollected taxes     There are cases where an employee      Uncollected FICA and Medicare taxes
                                     has taxable income, but not enough     will try to balance out in future
                                     money to pay for the taxes on it.      payrolls, and others do not.
                                     Instead of /4xx taxes, SAP records the
                                     amount of uncollected tax in /Nxx
                                     wagetypes. (Taxable wages are not
                                     always cash wages).

  /Ixx         Not reduced wages     In some cases the system is able to     The system will try to reduce wages in
                                     deduct a pre-tax deduction but does     the next payroll by these amounts. If
                                     not have enough taxable income to       an employee has /Ixx wagetypes, then
                                     offset it. The amount of taxable        their FICA/Medicare and other flat-rate
                                     income that could not be offset (i.e.   taxes wont tie back to their /7xx
                                     reduced) is stored in the /Ixx          wages (i.e /703 * 6.2% <> /403).
                                     wagetypes.




              Page 27
                                           SAP US Payroll Tax Class
Linking tax wagetypes to other tax data
 Each tax wagetype also has a split indicator set, and this links it to the tax authority it is reportable to. For example,
 we could have two or three /401 wagetypes in a payroll, and the split links us to the TAX table in the payroll result
 that tells us the tax authority it is reportable to. In the following case we see that a split of ‘01’ links us to Federal in
 the TAX table, and split ‘02’ links us to OH (this is from the Display Payroll Results tool, or report RPCLSTRU):
 RT (Results Table)




 The two-digit number in the ‘C1’ column in the RT links us to the ‘SS’ column in the TAX table. So when the C1 split
 is 01, we know that wagetype is linked to tax authority FED. When C1 is 02, then the wagetype is linked to tax
 authority OH.




            Page 28
                                     SAP US Payroll Tax Class
The TAX table also shows us the data used to calculate taxes in that payroll result. For Federal, we see that this
person had 13 tax exemptions, filed Married, and this was used for his resident and unemployment tax calculations.
If they were exempt from any taxes, we would see that in the ‘Tex indicator’ line – there would be an exemption
indicator under each ‘Tax type’ that was exempted.
TAX Table




         Page 29
                                       SAP US Payroll Tax Class

Gross to Net Wagetypes
   These wagetypes control the amount of cash the employee receives. The various wagetypes used to make
   payments and take deductions all cumulate, or add into these wagetypes. These gross-to-net wagetypes therefore
   may or may not have anything to do with taxable wages or taxes. They simply keep track of how much money to
   pay the employee.


    Wagetype    Description       Explanation                               Notes

    /101        Total Gross       This contains all the cash payments to
                                  an employee – whether those payments
                                  are taxable or not.

    /110        Total EE          All employee deductions that were taken
                Deductions        from the employee’s pay for the current
                                  pay period.

    /5U0        Total EE Taxes    All employee taxes taken from the pay
                                  this pay period

    /560        Net Pay           The total amount of net pay for the       If the employee deposits their
                                  employee.                                 pay into multiple accounts, then
                                                                            there will be a /559 for each
                                                                            account. The sum of /559 equals
                                                                            /560.




            Page 30
                                          SAP US Payroll Tax Class

Gross-Ups
  Cash or Regular Gross-ups
   A gross-up is a guaranteed net payment of a taxable wage to the employee. For example, the company wants to
   pay a $100 award to an employee, and since that is taxable income, the employee owes taxes on it. So we know
   that is the employee is to get $100 in net pay, we need to have a higher gross, or taxable, amount. This amount is
   added to taxable income, and when taxes are deducted from it we get back to the original $100 net payment.
   In SAP there are two wagetypes for a gross-up – the net wagetype and the gross wagetype. The net wagetype
   does not really pay anything – it is not cumulated to /101 (Total Gross), so it does not add any cash income to the
   payroll. And although it is not taxable, it has processing classes 68, 69 and 71 set so that we know what to include
                                                                                      st
   in the gross-up. The link between the net and gross wagetype is stored in the ‘1 der. WT’ field in table t512w; the
                                               st
   gross wagetype will be coded into the ‘1 derived wagetype’ field on the net wagetype.
   The gross wagetype does cumulate to /101, and it does add to taxable wages. Once taxes are deducted from the
   gross, we end up back to the net amount. For example, a $100 net might gross-up to $160. Then SAP would
   deduct $60 in tax from that, leaving a net pay of $100.




             Page 31
          SAP US Payroll Tax Class




Page 32
          SAP US Payroll Tax Class




Page 33
                                       SAP US Payroll Tax Class
No-pay Gross-ups
 Sometimes employees are paid some sort of taxable income outside the system – relocation expenses for
 example. In that case, we want to increase their taxable income to record that ‘net’ payment that was made to
 them, but we don’t want to pay them any ‘cash’ money. In these cases SAP can process non-cash, or ‘no-pay’
 gross-ups. The net and the gross do not generate any cash payments to the employee, but the gross-up does add
 to taxable wages.

 $100 in the net wagetype. SAP then grosses-up that amount to $160, but the gross-wagetype does not cumulate to
 /101, so it does not pay anything to the employee. However, we still have $60 in taxes to deduct, so SAP generates
 a third wagetype, a cash payment, to exactly offset the amount of tax. For a no-pay net it generates $160 in gross,
 and $60 in a cash payment that equals the $60 in tax. There is a zero net effect on the employee.
                                                                          nd
 In the wagetype table t512w, we see the tax payment wagetype in the ‘2 der. WT’ field. In this case, the net is
 270E, the gross is 270F and the tax payment is 270G.




          Page 34
                                         SAP US Payroll Tax Class
  For a $100 no-pay gross-up, we enter the net wagetype and then the system generates the gross and the tax
  payment when payroll runs.


                                                  Period 1 in 1

Wagetype    Description           Amount        Notes

/101        Total gross           $60           Since 270G is a cash payment, it is cumulated into /101

/5U0        Total EE Tax          $60           Actual employee tax deducted from employee

/560        Net Pay               $0

270E        Tax Equal Net         $100          No-pay net

270F        Tax Equal Gross       $160          No-pay gross – no cumulation to /101

270G        Tax Equal Tax         $60           Cash payment to cover $60 in expected employee tax


Problems with Gross-ups
 If the employee has a claim when a no-pay gross-up is processed, the cash payment for taxes will first go to satisfy
 the claim, instead of offsetting taxes. Claims always come before taxes. In the $100 no-pay gross-up example, we
 would then have $100 net, $160 gross, zero net payment, and uncollected taxes.
                                                  Period 1 in 1

Wagetype    Description           Amount        Notes

/101        Total gross           $60

/5U0        Total EE Tax          $0

/Nxx        Uncoll EE tax         $60           The $60 in 270G was used to pay off the existing claim first, so
                                                there was no money leftover to pay for taxes. Now the
                                                employee’s taxes are not in balance with their wages.

/560        Net Pay               $0

/561        Claim                 $60

/563        Claim paid            $60

270E        Tax Equal Net         $100          No-pay net

270F        Tax Equal Gross       $160          No-pay gross

270G        Tax Equal Tax         $60           Cash payment to cover $60 in expected employee tax




           Page 35
                                         SAP US Payroll Tax Class

Reconciling Taxable Wages – No Retrocalculation
    Many times we have to reconcile the taxable wages back to the wages paid to the employee. To do this, identify all
    the taxable wagetypes in the RT and add them together. Taxation may be different from one authority and one tax
    type to another. You can use the ZP_TAXMODEL program to determine which wagetypes are taxable for the
    various tax authorities, tax types, and tax modifiers.
    When reconciling the wages, be sure to keep in mind which ones are taxable vs. taxable-not-taxed. Wagetypes that
    are ‘taxable’ will go into /3xx, /6xx and /7xx. Taxable-not-taxed wagetypes will cumulate into /Qxx. The W-2 adds
    the /7xx and /Qxx wagetypes together for reporting.
    When balancing taxes to the taxable wages, also be aware of any uncollected taxes that may be present.




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                                            SAP US Payroll Tax Class

Retrocalculations
   Cash vs Tax Perspective
    In both current-period and retro-period calculations, there really is no direct link between cash wages and taxable
    wages. It is best to think of them as two separate processes.
   Gross to Net Equation
    For every payroll period the net pay can be calculated with this equation:

                                         /101 - /110 - /5U0 + /552 + /561 - /563 = /560

    Or in friendlier terms:

    Total cash payments – total employee deductions – total employee taxes + retro differences + claim – claims paid =
                                                        net pay.

   Forming Retro Differences
    Using the gross-to-net equation as a guide, an abbreviated payroll result could look like the table below. One
    exception is that we don’t put accounts on /101, /110 and /5U0 – instead we account for their individual
    components such as base pay, overtime, cafeteria deduction, withholding tax and so on.


                                                        Period 1

                              Wagetype       Amount        Debit            Credit

                              /101           $1000         $1000

                              /110           $200                           $300

                              /5U0           $300                           $300

                              /560           $500                           $500


    Wagetype amounts can change retroactively. For example, if an employee was underpaid by 8 hours of overtime in
    a previous period, the amount of the overtime wagetype would increase retroactively. Since overtime is a cash
    payment, it would cause /101 to increase retroactively, showing that we now need to pay the employee $100 more
    in this case. But, in a retrocalculated period we can not change the amount of net pay, since that pay was already
    transferred to the bank (or paid via check). The difference between what was paid originally vs what should now be
    paid is put into a wagetype called ‘retro differences’, or /551. This keeps the retro payroll period in balance (i.e.
    debits equal credits).


                                                      Period 1 in 2

                              Wagetype      Amount          Debit            Credit

                              /101          $1100           $1100

                              /110          $200                             $200

                              /5U0          $300                             $300

                              /560          $500                             $500

                              /551          $-100                            $100

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                                         SAP US Payroll Tax Class
 Then in the current period, the system sums all the /551 wagetypes from the retro periods, multiplies by negative 1
 and places that amount in /552. If positive, this adds to the amount of net pay, if negative then it will reduce net pay.
 /551 and /552 should always exactly offset each other.


                                                   Period 2 in 2

                         Wagetype        Amount           Debit            Credit

                         /101            $1000            $1000

                         /110            $200                              $200

                         /5U0            $310                              $310

                         /560            $590                              $590

                         /552            $100             $100


Claims
 Retro differences (wagetype /552) is added to total net pay (wagetype /560) in the current period. If /552 is
 negative, it could reduce /560 to a negative amount, which is not allowed (can’t have negative net pay). The
 amount it would go negative is the amount that can not be recovered in the current period, and that amount is
 stored in /561 – a Claim. The claim is the amount of money the employee still owes the company because they
 don’t have enough to pay it back.
 For example, assume the employee was really on leave of absence beginning in period 1, so they would have had
 a total gross of zero, but they were originally paid $1000. In that case, the results would look like:


                                                   Period 1 in 2

                         Wagetype        Amount           Debit            Credit

                         /101            $0               $0

                         /110            $200                              $200

                         /5U0            $300                              $300

                         /560            $500                              $500

                         /551            $1000            $1000


 In period 2, the employee is still on leave of absence, so no payments, deductions or taxes are taken. The $1000
 overpayment from period 1 in 2 is stored as a claim, since there is no net-pay to offset it.


                                                   Period 2 in 2

                         Wagetype        Amount           Debit            Credit

                         /101            $0               $0

                         /110            $0                                $0

                         /5U0            $0                                $0


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                                      SAP US Payroll Tax Class
                       /560           $0                              $0

                       /552           $-1000                          $1000

                       /561           $1000           $1000


The claim (/561) is the amount the employee owes the company. In every subsequent payroll the system will apply
money towards paying off the claim, before it uses the money for any deductions or taxes. For example, in period 3
the employee gets paid $600, and all of that gets allocated to reduce the claim.


                                               Period 3 in 3

                       Wagetype       Amount          Debit           Credit

                       /101           $600            $600

                       /110           $0                              $0

                       /5U0           $0                              $0

                       /560           $0                              $0

                       /561           $400            $400

                       /563           $1000                           $1000




         Page 39
                                            SAP US Payroll Tax Class

Taxation of Retrocalculations
   Tax When Paid (TWP) vs Tax When Earned (TWE)
    Since SAP’s payroll system has retrocalculation functionality, it can happen that we change payments in the past
    that affect taxable wages. This is something that tax authorities never expect, and don’t really recognize. Tax
    authorities want companies to tax payments based on when the employee has ‘constructive receipt’ of the wages.
    Constructive receipt in SAP terms means that we tax the wages when they are paid, not when they are earned. The
    tax when paid date corresponds to the check date and/or period end date depending on the infotype.
    So when SAP does retroactively change wages in the past, those changes are rolled forward to the current period
    and taxed there. However, the taxable wagetypes change in the retro periods. For example, in the first
    retrocalculation case /101 increase in period 1 in 2, because the overtime wagetype increased. But that increase
    was not taxed in period 1 in 2, it was rolled forward to period 2 in 2 and taxed there (which is why taxes are higher
    there).
    There are some cases where wages are taxed when earned – gross-ups/gross-downs, retroactive changes in tax
    areas, and NAMC’s
   Balanced & Unbalanced Offsets
    The changes in taxable wagetypes are carried forward from retro period to the current period in table XDFRT (you
    can view that table in the payroll clusters display report). In the current period, the payroll program sums together
    all the XDFRT entries and then one by one sums them to the current period’s taxable wages – either increasing or
    decreasing taxable wages in the current period. It will continue doing this as long as the taxable wages in the
    current period do not go below zero. The wages it can clear go to the BAL table (BAL for balanced offsets). The
    entries it can not clear go to the UNB (unbalanced offsets) table. Every subsequent payroll will read in the previous
    period’s UNB entries and try to clear them against current taxable income.
    SAP creates in each pay period a wagetype called ‘Good money’, wagetype /5PY. It contains the total amount of
    taxable wages that can be worked with. So if /5PY is zero or negative then no wages can be cleared, as is the case
    with employees who have claims.
    When trying to reconcile regular wagetypes to taxable wages in the current period, the equation to be used is
    ‘current period taxable wages’ + differences in BAL table = taxable wages.
   Tax Priority & Caps
    Function UTPRI controls two things – the priority of taking taxes, and the creation of uncollected taxes. It behaves
    one way in current period calculations and another way in retro periods. In a retro period, the function will let payroll
    take additional payroll taxes up to the amount of total gross (/101) in the original period. For example, if an
    employee retroactively went from residing and working in Blue Ash to residing in Blue Ash and working in
    Cincinnati, the system would retroactively take an additional 1.1% in Cincinnati tax, as long as the amount of total
    tax in the retro period was not greater than the amount of /101 in the original period. If it was greater than /101, then
    the difference gets placed into uncollected taxes. The documentation for this function can be viewed with
    transactions PDSY or PE04.




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                                         SAP US Payroll Tax Class
Retroactive changes to gross-ups
 Client XXX use of no-pay gross-ups presents problems for the UTPRI function in retro calculations. For example, if
 a no-pay gross-up retroactively increases, and the employee has no other cash money (i.e. 3121L expats) then it’s
 likely you will get uncollected taxes: the gross goes up retroactively since gross-ups are tax-when-earned, and the
 cash payment for taxes increases to cover the additional amount of tax. However, the UTPRI function compares
 total tax to the original total gross and finds that the amount of tax now exceeds the amount of total gross, and it
 reduces the employee taxes (creating uncollected tax). However, the amount of the cash payment to cover taxes
 does not go down, and the difference between that and total tax results in a net payment to the employee. For
 example:
                                                   Period 1 in 1

       Wagetype      Description           Amount           Notes

       /101          Total gross           $1000

       /5U0          Total EE Tax          $1000

       /560          Net Pay               $0

       270E          Tax Equal Net         $20000           No-pay net

       270F          Tax Equal Gross       $21000           No-pay gross

       270G          Tax Equal Tax         $1000            Cash payment to cover $1000 in employee
                                                            tax


 Then in period 2 we retroactively increase 270E to $30000:


                                                   Period 1 in 2

       Wagetype      Description           Amount           Notes

       /101          Total gross           $1500

       /5U0          Total EE Tax          $1000            Capped at $1000; the value of /101 in the
                                                            original period

       /Nxx          Uncoll Tax            $500             The amount of taxes it could not take

       /551          Retro differences     $-500            /101 - /110 - /5U0 + /551 has to equal /560,
                                                            so /551 is set to balance this equation

       /560          Net Pay               $0

       270E          Tax Equal Net         $30000           No-pay net

       270F          Tax Equal Gross       $31500           No-pay gross

       270G          Tax Equal Tax         $1500            Cash payment to cover $1500 in expected
                                                            employee tax




           Page 41
                                        SAP US Payroll Tax Class
 And assuming the employee had no other transaction in period 2, he gets paid $500:


                                                   Period 2 in 2

         Wagetype      Description           Amount           Notes

         /101          Total gross           $0

         /5U0          Total EE Tax          $0

         /552          Retro differences     $500             The sum of /551 times -1

         /560          Net Pay               $500             /101 - /110 - /5U0 + /552 = net pay


 To minimize the problems with retroactive changes to gross-ups affecting net pay or creating claims, we wrote a
 new payroll function ($RGUF) that ‘tricks’ the system so that if gross-ups change retroactively it always has enough
 money to cover taxes, so no retro differences are created. The example listed above should not happen in Client
 XXX system because of this enhancement.

Crossing Years
 When a payroll retro crosses from the current year into a previous year then special processing takes place for
 taxes. SAP will not allow taxes in the previous year to change from their original values. For example, if you
 process a January correction check that retro’s back into the previous year and something causes taxes to change,
 SAP will reset those tax amounts back to their original value. This is done by the payroll function UOTX0 – keep old
 taxes in retro. This exception to this function is that it does let you change tax amounts via NAMC’s (infotype 221).

 In this example, we’ll show what happens when a no-pay gross-up changes retroactively in the previous year. In
 the original period 12 a no-pay gross-up of $30,000 was processed:


                                                  Period 12 in 12

       Wagetype      Description           Amount           Notes

       /101          Total gross           $1500

       /5U0          Total EE Tax          $1500

       /560          Net Pay               $0

       270E          Tax Equal Net         $30000           No-pay net

       270F          Tax Equal Gross       $31500           No-pay gross

       270G          Tax Equal Tax         $1500            Cash payment to cover $1500 in expected
                                                            employee tax




           Page 42
                                       SAP US Payroll Tax Class
Then in period 1, someone changed period 12’s 270E to $20,000 from $30,000. Total cash payments go down but
the taxes remain the same. Wagetype 270G – the cash payment to cover employee taxes on the gross-up – is now
$1,000. But, the system keeps the total tax amount at $1,500 because we are crossing years. To balance out the
payroll, we get a /551 wagetype for $500.


                                                 Period 12 in 1

     Wagetype      Description           Amount           Notes

     /101          Total gross           $1000

     /5U0          Total EE Tax          $1500            Kept at $1,500 – the amount of tax in the
                                                          original period (12 in 12)

     /551          Retro differences     $500             /101 - /110 - /5U0 + /551 has to equal /560,
                                                          so /551 is set to balance this equation.

     /560          Net Pay               $0

     270E          Tax Equal Net         $20000           No-pay net

     270F          Tax Equal Gross       $21000           No-pay gross

     270G          Tax Equal Tax         $1000            Cash payment to cover $1500 in expected
                                                          employee tax


In period 1, the employee had no other pay, and they receive a claim for the difference in tax from period 12 in 12
and 12 in 1. The employee ‘owes’ $500 because we reduced their tax payment but did not reduce their actual taxes
in period 12 in 1.


                                                 Period 1 in 1

     Wagetype      Description           Amount           Notes

     /101          Total gross           $0

     /5U0          Total EE Tax          $0

     /552          Retro differences     $-500            The sum of /551 times -1

     /560          Net Pay               $0

     /561          Claim                 $500




         Page 43
                                       SAP US Payroll Tax Class
W-2 Corrections (W-2C)
 Once W-2’s are run and finalized, any change to taxable wages or taxes in the previous year will cause a W-2C (W-
 2 correction) form to be produced. The ‘finalized’ date for W-2’s is stored in the system, and can be viewed via the
 Tax Reporter (PU19) menu path Tools -> Set filing date (after selecting the tax company and tax form W-2). You
 can also view the filing date by using the Data Browser (SE16) on v_t5xy_a, enter the tax company and use tax
 form ‘z_w2_01’.




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