Withholding Tax Determination screen

Use the Withholding Tax Determination screen to designate rules for withholding payroll tax for employees that live in a different state or province from where they work. If both the state or province where an employee lives and the state or province where the employee works require payroll tax, you may need to designate a primary payroll tax authority.

To open the Withholding Tax Determination screen, click Employees > Setup > Taxes & Insurance > Withholding Tax Determination in the All Tasks pane.

Some states and provinces have reciprocal agreements to credit amounts paid to each other. In this case, you can use the grids on this screen to apportion the payroll taxes between the two states or provinces. Similarly, you can apportion payroll taxes between two local payroll tax authorities.

Here are just a few examples of what you can do with the Withholding Tax Determination screen:

Example 1:
Employee lives in "Homestate" (with a 3% payroll tax), works in "Workstate" (with a 2% payroll tax), and those states have a reciprocal agreement to credit amounts paid to each other.

Enter details in the header fields as follows:

Resides in State/Province = HS: Homestate

Works in State/Province = WS: Workstate

Enter details in the Primary Tax Authority(ies) to Calculate grid as follows:

Payroll Tax Authority

Name

Calculation Rules

HS

Homestate

Always Calculate

WS

Workstate

Always Calculate

Enter details in the Reduce Primary Tax Using Tax Amount from Tax Authority(ies) grid for the Homestate row as follows:

Payroll Tax Authority

Name

WS

Workstate

In this example, payroll taxes will be withheld/calculated and reported for both states. Workstate is paid the 2% payroll taxes. Homestate credits the employee with the 2% already paid to Workstate, and the remaining 1% is paid to Homestate.

If the percentages are reversed (that is, Homestate requires 2% and Workstate requires 3%), then enter the details as follows:

  • Enter Workstate in the Primary Tax Authority(ies) to Calculate grid and select Always Calculate.
  • Enter a line for Homestate in the Reduce Primary Tax Using Tax Amount from Tax Authority(ies) grid.

If an employee lives and works in different localities and taxes are apportioned between the localities, you would set up the determination in a similar manner by entering values in the Resides in Local and Works in Local fields instead of the Resides in State and Works in State fields.

Example 2:
Employee lives in "Homestate" and works in "Workstate", and those states have a reciprocal agreement that all payroll taxes will be paid to the state where the employee lives (and no taxes are paid to the state where the employee works).

Enter details in the header fields as follows:

Resides in State/Province = HS: Homestate

Works in State/Province = WS: Workstate

Enter details in the Primary Tax Authority(ies) to Calculate grid as follows:

Payroll Tax Authority

Name

Calculation Rules

HS

Homestate

Always Calculate

Since there is only one value in the Primary Tax Authority(ies) To Calculate grid, taxes are withheld/calculated and reported to that state alone.

If an employee lives and works in different localities and taxes are not apportioned between the localities, you would set up the determination in a similar manner by entering values in the Resides in Local and Works in State fields.

Example 3:
Employee lives in "Homestate" (with a 3% payroll tax), works in "Workstate" in "Work Locale" (with a 1% payroll tax), and those states have a reciprocal agreement that the taxes need to apportioned between the home state and the work locality.

Enter details in the header fields as follows:

Resides in State/Province = HS: Homestate

Works in State/Province = WS: Workstate

Works in Local = WL: Work Locale

Enter details in the Primary Tax Authority(ies) to Calculate grid as follows:

Payroll Tax Authority

Name

Calculation Rules

HS

Homestate

Always Calculate

WL

Work Locale

Always Calculate

Enter details in the Reduce Primary Tax Using Tax Amount from Tax Authority(ies) grid for the Homestate row as follows:

Payroll Tax Authority

Name

WL

Work Locale

In this example, payroll taxes will be withheld/calculated and reported for both Homestate and Work Locale. Work Locale is paid the 1% payroll taxes. Homestate credits the employee with the 1% already paid to Work Locale, and the remaining 2% is paid to Homestate.

Example 4:
Employee lives and works in the same state in different localities, and taxes need to be paid to the locality with the higher of the two rates. If you don’t designate a primary tax authority, you will be prompted to select one each time you enter a time card for the employee.

Enter details in the header fields as follows:

Resides in Local = HL: Home Locale

Works in Local = WL: Work Locale

Enter details in the Primary Tax Authority(ies) to Calculate grid as follows:

Payroll Tax Authority

Name

Calculation Rules

WL

Work Locale

Compare to other Payroll Tax Authority rates and use only when this is the highest rate

HL

Home Locale

Compare to other Payroll Tax Authority rates and use only when this is the highest rate

In this example, taxes are withheld for locale with the highest rate. For example, if the home locality rate is 1% and the work locality rate is 1½%, the employee would pay 1½%. If the home locality raises its rate to 2%, you would need to update the Income Tax Table screen for the home locality, but ProContractor will use this withhold tax determination setup to withhold 2% from the employee as of the effective date of the new rate.

For more information about working with withholding tax determinations, see the following topics:
Note: The Withholding Tax Determination screen is a step in the employee setup process. The Project screen is the next step.