Set Up a Local Payroll Tax
The payroll settings wizard will set up many local taxes for you. You should set them up there if you can, as it will save you a lot of work. Click the link for a list of supported local taxes.
The following example illustrates how to create a local formula and apply it to the Local employee payroll field. The example uses the local 1.2 % tax for Akron, Ohio. It duplicates the generic formula Sage 50 normally creates during the tax section of the Payroll Setup wizard.
Use these procedures to set up local payroll taxes for your company, adjusting the setup to match your company's location.
Note: You must subscribe to one of the Sage Business Care plans to have access to payroll formulas and to have payroll taxes calculated within Sage 50. If you have not subscribed, you can set up the local payroll field, but you will have to manually calculate and enter the amounts on payroll checks.
Step 1: Set up the local employee payroll field
If you do not already have a Local employee payroll field, follow these steps:
- From the Maintain menu, select Default Information, and choose Employees. Sage 50 displays the Employee Defaults window.
- Select the Employee Fields tab.
- On a blank line, enter Local as the name of the new payroll field.
- Enter or select a G/L account (liability) associated with the deduction. To display a list of existing accounts, type ? in this field or select the Lookup button. To add a new account, type + or double-click the field, which displays the Maintain Chart of Accounts window.
- Click OK to establish the payroll field.
- Go to Maintain, Payroll, Payroll Settings. In the left-hand menu, select Taxes, Assign Tax Fields.
- Select the button for W-2 Fields. Sage 50 displays the Assign Tax Fields For W-2s window.
- For the box labeled Local income tax (box 21), enter or select the Local payroll field.
- Click OK. Then, select Finish to close the Payroll Settings window.
Step 2: Set up the local formula
- From the File menu, select Payroll Formulas, then choose User-Maintained. Sage 50 displays the User-Maintained Payroll Formulas window.
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Enter a formula ID (OHLIT, for example).
If an OHLIT tax ID already exists and you need to create a second one, enter OHLIT2.
- Enter a tax name using the NAME[space]YEAR rule. For example, enter OHLIT11, where 11 is the current payroll year (2011).
- The effect on Gross Pay should be Subtracts from Gross.
- Leave Filing Status at All.
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Select Tax as the formula classification, and Locality as the tax agency. In this case, you would set All Localities to No, since this only applies to employees in Akron.
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Enter a Locality Name of LOCAL.
Whenever this formula is used, you must have, in the Maintain Employees/Sales Reps window, OH listed as the State/Locality for the State payroll field and Local listed as the State/Locality for the Local payroll field.
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In the Formula box, enter the following: (To create a new line in the formula, press CTRL+J.)
E=0.00; "E is Exemption Amount per Local Allowance (for EE and Spouse in Indiana)"
D=0.00; "D is the Allowance Amount per Dependent (applies for Indiana only)"
M=0.00; "Maximum Tax (0 if no maximum)"
PERCENT=1.20;
A=PRORATE((ANNUAL(ADJUSTED_GROSS)-(E*EMP_LOCAL_ALLOWANCES)-(D*EMP_LOCAL_NUMBER))*PERCENT%);
ANSWER=-IF(M=0,A,IF((ABS(YTD(Local)-Local)+A)>M,M-ABS(YTD(Local)-Local),A))
This formula first looks at the local percentage of 1.2% and prorates it based on the calculated annual adjusted gross. If your local tax has an exemption amount, enter the amount in place of the zero in the equation E=0. When you are entering employees, be sure to enter the correct number in the Local Allowances box in the Maintain Employees/Sales Reps window. If you have a maximum tax, enter the annual maximum in place of the zero in the equation M=0.
The sentence within quotes above the actual formula is meant as a comment or reminder of how the calculation is set up. Adding the comment is optional.
In some cases, your area may also have a set amount that is prorated over the course of the year. A good example of this is the Pennsylvania Occupational Privilege Tax. In this case, add the following line to the end of the above formula: (Remember to put a semicolon (;) at the end of the last line before creating the new line.)
ANSWER=ANSWER-PRORATE (0)
In this formula the tax is a fixed amount per year. Replace zero(0) with an amount (for example, (150.00). The PRORATE expression divides the amount of $150.00 by the number of pay periods in a calendar (payroll) year.
If we hadn't already set up the payroll field, we would have to click on the link at the bottom right, Add this formula to Employee Defaults, before we could save the formula.
Step 3: Enter the employee locality and apply the local tax
table
For each employee that uses this locality, follow these steps:
- From the Maintain menu, select Employees/Sales Reps. Sage 50 displays the Maintain Employees/Sales Reps window.
- Enter or select an employee ID. To display a list of existing employees, type ? in the Employee ID field, or select the Lookup button.
- Select the Withholding Info tab.
- Make sure OH is listed as the State/Locality for the State payroll field.
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For the Local payroll field, enter or select Local as the State/Locality.
The State/Locality values have to be exactly what was entered in the State and Local requirement box created in the formula. This field is case sensitive.
- Select the Employee Fields tab.
- For the Local payroll field, clear the Use Defaults check box and select the Calculated check box.
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Next, enter or select the tax name that was set up in the previous step.
In our example it would be the OHLIT formula.
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Select the Adjust button to set the Adjusted Gross for this field. Sage 50 displays the Calculate Adjusted Gross window.
In most cases, Gross is the only payroll field necessary for calculating local taxes. Check with your accountant if you are not sure about your situation.
- Make sure the Gross check box is selected, then click OK.
- Save the employee record, and close the window.