SAP US Payroll Tax Class

more than you ever wanted to know about SAP Payroll taxes SAP Tax Terminology............................................................................................................................................. ...2 Tax Calculation Process...................................................................................................................... .....................3 Process Overview................................................................................................................................... ..........3 Data Model............................................................................................................................................... ................4 Infotypes......................................................................................................................................... ..................4 Configuration of Taxes................................................................................................................................ ............10 IMG – Implementation Guide Steps..................................................................................................... ...........10 Tax Companies......................................................................................................................... ......................11 Load Tax Data........................................................................................................................................... ......12 Tax Data Maintenance – Tax Authorities........................................................................................... ..............13 Tax Data Maintenance – Tax Types............................................................................................ ....................16 Tax Data Maintenance – Tax Areas............................................................................................................... ..17 Tax Data Maintenance – Tax Models........................................................................................... ...................20 Useful Reports................................................................................................................................. ...............25 Tax Data Maintenance – Unemployment Insurance............................................................ ...........................25 Tax Data Maintenance – Tax Overrides...................................................................................... ....................26 Tax Data Maintenance – Symbolic Account Split............................................................................. ...............27 Priority of Tax Wagetypes...................................................................................................... .........................27 Tax Wagetypes...................................................................................................................................... .................28 Descriptions of tax wagetypes................................................................................................... .....................28 Linking tax wagetypes to other tax data................................................................................................... .......29 Gross to Net Wagetypes...................................................................................................................................... ...31 Gross-Ups........................................................................................................................................ ......................32 Cash or Regular Gross-ups......................................................................................................... ...................32 No-pay Gross-ups...................................................................................................................................... .....35 Problems with Gross-ups......................................................................................................................... .......36 Reconciling Taxable Wages – No Retrocalculation............................................................................................... ..37 Retrocalculations....................................................................................................................................... .............38 Cash vs Tax Perspective............................................................................................................................. ....38 Gross to Net Equation.................................................................................................................................... .38 Forming Retro Differences.................................................................................................................... ..........38 Claims....................................................................................................................................................... ......39 Taxation of Retrocalculations............................................................................................................................ ......41 Tax When Paid (TWP) vs Tax When Earned (TWE).................................................................... ...................41 Balanced & Unbalanced Offsets.................................................................................................... .................41 Tax Priority & Caps................................................................................................................... ......................41 Retroactive changes to gross-ups....................................................................................... ...........................42 Crossing Years............................................................................................................................................ ....43 W-2 Corrections (W-2C)..................................................................................................... ............................45

SAP US Payroll Tax Class SAP Tax Terminology
Business Term Federal Employer ID Number (FEIN) Tax Formula Wage Base SAP Term Tax Company Tax Type Formula Tax Model Definition A legal entity for tax reporting purposes The type of tax levied (required to be paid) by a tax authority Instructions for how to calculate a tax amount A definition of which wages and deductions are considered taxable for specific tax authority and type of tax

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SAP US Payroll Tax Class Tax Calculation Process
Process Overview

Tax Infotypes

Other Infotypes

Year-to-Date Payroll

Previous Payroll

SAP Tax Preparation (schema UTX0)

BSI Tax Calculation

BSI Tax Formulas

SAP Special Processing (schema UTX0)

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

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SAP US Payroll Tax Class Data Model
Infotypes Infotype 207 Title Resident Tax Description / Notes 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.

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The total % can not be more than 100. and each is pro-rated by a certain %.SAP US Payroll Tax Class Infotype Infotype 208 Title Title Work Tax Description / Notes Description / Notes This infotype stores the various tax areas the employee works in – they can work in multiple areas at once. 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. If it is less than 100. Page 5 .

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 6 .SAP US Payroll Tax Class Infotype 209 Title Description / Notes Unemployment State This infotype contains the state and worksite the employee is taxed in for unemployment taxes.

is the default formula number SAP will use for the tax – and that can be overridden with the ‘Assign Form.No.No. Y = don’t take taxes and don’t calculate reportable or taxable wages.’ field. select them and press F1 for the SAP help text. Form. It is read as of the check date. Various tax authorities use different fields on this infotype. R = don’t take taxes but do report taxable wages. This screen layout will change from one tax authority to another. Def. For other fields. Page 7 . Tax Exempt Indicator codes control which wages & taxes get calculated: X = no taxable wages or taxes.SAP US Payroll Tax Class Infotype 210 Title Withholding Info Description / Notes This infotype stores the W-4 or state-equivalent information needed for calculating withholding taxes. and the available fields change depending on the tax authority entered (which is also the subtype).

and is read as of the check date. Override group: This is a code created in BSI that defines a custom tax calculation. The override group has to be created in BSI and then applied here.SAP US Payroll Tax Class Infotype 234 Title Tax Overrides Supplemental method: Many withholding taxes have an optional flatrate method that can be used. such as a custom flat-rate for certain bonus payments. Description / Notes This infotype contains various overrides for calculating withholding taxes. 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. Page 8 .

Infotype 210 is withholding taxesonly. Description / Notes This infotype contains overrides for all other taxes than withholding. but for everything except withholding taxes. and 235 is for all other tax types. and is read into payroll as of the period-end date.’ (exemption indicators) used here serve the same purpose as they do on infotype 210. Page 9 .SAP US Payroll Tax Class Infotype 235 Title Other Taxes The formula numbers and ‘Exe.

The transaction will first display various ‘project IMGs’. double-click on a line’s text. If you do not have access to transaction SPRO. double-click on the ‘Tax’ text line and you get this documentation: Page 10 . press F5 or the Enterprise IMG button to get to the complete IMG structure. Open the Payroll Accounting -> Payroll: USA -> Tax section.SAP US Payroll Tax Class Configuration of Taxes IMG – Implementation Guide Steps Transaction SPRO is used to access the SAP Implementation Guide. For example. To get more documentation. you can view the corresponding tables with transaction SE16 (Data Browser).

Tax Company does not display on infotype 1. The tax company is not the same as the Company Code (or accounting company) that is seen on infotype 1. The information entered in the ‘Define tax companies’ (table t5utl) step is used for regulatory tax reporting (Tax Reporter). In fact. The screen below shows where Tax Company is assigned to the personnel area/subarea (table t5u0p): Page 11 .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.

and then assigned to a tax type within the tax authority in the ‘Define federal/state/local employer ID number’ step (table t5uti). Each tax company is identified by an employer ID number for every tax authority it reports to.SAP US Payroll Tax Class The Tax Company is where taxes & taxable wages are reported for regulatory purposes. and the description on the personnel area says the accounting goes to Company Code 001. It is normally maintained by periodic updates to the system that come from SAP. Page 12 . Those employer ID numbers (EIN’s) are entered in the ‘Define tax identification numbers by BSI tax company’ step (t5uth). SAP Payroll will not calculate a tax if the corresponding EIN does not exist in these tables. where we copy some data from the BSI Tax Calculation system into SAP tables. Load Tax Data This section is primarily for the first-time system setup. For example. The accounting debits & credits go to the Company Code on infotype 1. this screen shows that taxes and taxable wage are reported to the government under ‘Overseas’. which may or may not correspond to the Tax Company.

This data is delivered by SAP and normally it is also updated by them as new tax authorities come into existence.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. Page 13 . You might want to customize some options here to tailor the system to your needs.

Those customerdefined codes are mapped to the BSI codes here.SAP US Payroll Tax Class The ‘Sort no. and ‘Check status of territories’ are just different views on this same information. This is normally maintained by SAP and does not require customer maintenance. The ‘W4’ indicator controls whether of not you want to require an infotype 210 for the tax authority. or not allow one to exist.‘Check sort number for authority’. The IRS column is to indicate whther of not you want to apply the IRS 10-exemption limit rule to the authority. ‘Check W-4 and exemption limit indicators’. The ‘NoUS’ column is used to indicate US Territories & Possesions. make it optional. such as Puerto Rico and the US Virgin Islands. The next IMG steps . BSI has its own codes for each tax authority. but lets the customer create whatever codes they want to use.’ controls the sequence in which the tax authorities will be displayed in select lists. ‘Check tax authority mapping’ (table BTXTAXC) is where we map the SAP Tax Authority code to the BSI Tax Authority code. Page 14 .

and these are controlled in the ‘Define valid filings statuses’ step (table t5utk).SAP US Payroll Tax Class Each tax authority can have its own set of valid filing status codes. This data is generally maintained and updated by SAP. Page 15 .

All the various tax types are defined in this step. and ‘Maintain tax types per tax authority’ (table t5utd) is where we define which tax types are valid for each authority. Page 16 . ‘Check tax types’ (table t5utt) is a list of all valid tax types.SAP US Payroll Tax Class Tax Data Maintenance – Tax Types Each tax authority can have one of more different types of tax they collect.

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. SAP assigns tax areas to resident and work locations. your tax area would include Cincinnati. For example. if you live inside Cincinnati. Ohio and Federal. Page 17 .

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 18 .

Resident tax areas have additional functionality that enables the system to suggest a list of tax areas that may be valid for the employee. Likewise. 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. Resident tax areas are setup in a similar manner. So here we see that work tax area AL0H includes tax authorities Alabama and Jefferson. but stored in table t5uta. there is no other system functionality to support that process (i. 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.e it doesn’t work).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). Although a zip code range exists for work tax areas. When a new infotype 207 is created. Page 19 . resident tax areas are stored in table t5utr.

SAP US Payroll Tax Class Tax Data Maintenance – Tax Models Page 20 .

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. There are four aspects to this link – the resident. works in.SAP US Payroll Tax Class The Tax Model is where we define the taxability of wages in SAP Payroll. we may tax wages for every tax authority for regular employees. The model number is just an arbitrary two digit number that was chosen at the time the system was first setup. For each taxability class we specify if the wagetype is taxable for the tax authority an employee lives in. If a tax authority changes the way it taxes earnings or deductions. The second step is ‘Define taxability model’. In this table we link each taxable wagetype to a tax model. we put expatriates and regular employees in different tax modifiers. and control the assignment of wagetypes to tax authorities via table t5utm. Page 21 . using the effective dates in t5ute. In that case. and the taxation for different groups of employees (the tax modifier). but only tax wages for Federal for expatriates. These three settings can be customized per tax modifier. For example. then you would create a new tax model for it. or table t5utm. work and unemployment taxation of the wagetype. and for unemployment taxes. The link to the wagetype is via processing class 71 – called the taxability class.

SAP US Payroll Tax Class The tax modifier is determined in payroll in rule ZUDG (tax schema ZUA2). Tax Modifiers Tax Modifier U1 U2 U3 U4 U5 U6 U7 Employee Group Domestic employees & other retiree payments No longer used (was Sundor) US Expatriates Retiree stock options (pay types L and S) No longer used (was Outbound expats) Never used Any employee (expat or regular) whose resident tax infotype (208) is set to Puerto Rico Page 22 .

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. 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 23 . from t5ute Res/wrk/UI: R = resident tax.

For example. unemployment and tax modifier. In t5utm. the system then gets the tax type combo value and looks it up in t5uty to see which types of tax to use. tax type combo 06 would tell the system to build wagetypes /303. /304. This is how SAP knows which /3xx wagetypes it needs to build. work. if a tax class is taxable for a particular combination of resident. /305 and /306.SAP US Payroll Tax Class The third step is where we tell SAP which types of tax to use for each row in t5utm. Page 24 . Table t5uty (define tax type combinations) is where we define codes to represent a set of tax types.

Client XXX does not use SAP for its worksite reporting so that part of the system is not used. This experience rate can change every quarter. the higher the experience rate. processing class 71 (t512w) Tax type combinations (t5utm) Tax authority model (t5ute) Taxability model (t5utm) Tax modifiers (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. Again. the total taxable unemployment wages are multiplied by the experience rate outside of SAP when the quarterly unemployment tax returns are filed. This is an employerpaid tax. However. or program RPUAUTU1. so there is not effect on the employee. Page 25 . 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. Tax Data Maintenance – Unemployment Insurance Every state in the US collects an unemployment tax to fund unemployment insurance claims. There is also a standard report that displays all the tax authorities in the system (Display tax authorities on the Tax Utilities menu. infotypes and wagetypes come together to tell the system which /3xx taxable wagetypes to create: Tax Model Diagram Employee tax infotypes (207. 208. 209) Wagetype.SAP US Payroll Tax Class The Tax Model Diagram shows how the tables. Client XXX does not pay unemployment taxes based on what is calculated in SAP. each state has its own tax rate and that tax rate can vary from one company to another in the state. The more people a company lays-off. or view table t5utz via transaction se16). 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. Instead.

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. The employee override group can then be entered into infotype 234 or set dynamically in a rule in payroll. Page 26 . the one piece of it done in SAP is to define employee override groups. Most of the configuration is done is BSI. This is currently used for some stock option and relocation payments. These groups also need to be setup in BSI (Tax Factory).SAP US Payroll Tax Class Tax Data Maintenance – Tax Overrides SAP and BSI allow companies to override certain parts of the tax calculation.

the system follows a certain order or priority. then local. and whether or not the tax wagetype is from regular income or tip income. This is defined in the ‘Maintain priority of tax wagetypes’ step. state. For example. At Client XXX there are three tax-posting wagetypes – 9TAF (Federal). Priority of Tax Wagetypes When deducting tax.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. since it is delivered by SAP to take Federal taxes first. Federal taxes are posted to one account. Generally there is no need to maintain this table. then state. Page 27 . There are other settings in this table to control how taxes are deducted when not enough money is present. 9TAS (state) and 9TAL (local). generated in rule ZUHF in the tax schema ZUA2. or table t5us0. local) it belongs to. 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.

and others do not.e /703 * 6. Instead of /4xx taxes. then their FICA/Medicare and other flat-rate taxes wont tie back to their /7xx wages (i. The system will try to reduce wages in the next payroll by these amounts. based on the /7xx wages. Other than that. other than the wagetypes for employee taxes. as calculated by BSI. but not enough will try to balance out in future money to pay for the taxes on it. These amounts are for employee and employer taxes. The /7xx wagetypes are returned to SAP from BSI. reduced) is stored in the /Ixx wagetypes. In some cases the system is able to deduct a pre-tax deduction but does not have enough taxable income to offset it. If an employee has /Ixx wagetypes. payrolls. These amounts are the ones reported on the W-2. These amounts are sent to BSI for taxation.e.2% <> /403). Notes Some tax authorities require the company top report these wages. /Qxx Taxable not taxed wages Uncollected taxes /Nxx There are cases where an employee Uncollected FICA and Medicare taxes has taxable income. /Ixx Not reduced wages Page 28 . The amount of taxable income that could not be offset (i. /6xx Reportable wages /7xx Taxable wages /4xx Taxes Contains employee-paid and employer-paid taxes (processing class 72 determines this) Imputed income on group-term life insurance is a good example of a taxable-not-taxed earning. (Taxable wages are not always cash wages). but no tax is required to be taken from them. they are not used in the tax calculation process. States require companies to report their /610 unemployment wages every quarter. Certain wages can be reported as taxable. they are not really linked to the amount of cash the employee receives. Wagetype /3xx Description Taxable earnings Explanation This is the amount of earnings (payments) that is taxable for each authority and tax type. SAP records the amount of uncollected tax in /Nxx wagetypes. for FICA and unemployment) and reciprocity.e. These amounts are the /3xx earnings minus the pre-tax deductions. These wages reflect tax caps (i.SAP US Payroll Tax Class Tax Wagetypes Descriptions of tax wagetypes These wagetypes store the results of tax calculations. It does not include pre-tax deductions. These are the amounts that are taxed for each authority & tax type.

In the following case we see that a split of ‘01’ links us to Federal in the TAX table.SAP US Payroll Tax Class Linking tax wagetypes to other tax data Each tax wagetype also has a split indicator set. 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. we know that wagetype is linked to tax authority FED. So when the C1 split is 01. When C1 is 02. then the wagetype is linked to tax authority OH. and the split links us to the TAX table in the payroll result that tells us the tax authority it is reportable to. and this links it to the tax authority it is reportable to. For example. and split ‘02’ links us to OH (this is from the Display Payroll Results tool. we could have two or three /401 wagetypes in a payroll. Page 29 .

TAX Table Page 30 . 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. For Federal. and this was used for his resident and unemployment tax calculations. we see that this person had 13 tax exemptions. filed Married.SAP US Payroll Tax Class The TAX table also shows us the data used to calculate taxes in that payroll result.

If the employee deposits their pay into multiple accounts. The sum of /559 equals /560. All employee deductions that were taken from the employee’s pay for the current pay period. All employee taxes taken from the pay this pay period The total amount of net pay for the employee.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. Wagetype /101 Description Total Gross Explanation This contains all the cash payments to an employee – whether those payments are taxable or not. They simply keep track of how much money to pay the employee. then there will be a /559 for each account. Notes /110 Total EE Deductions Total EE Taxes Net Pay /5U0 /560 Page 31 .

The link between the net and gross wagetype is stored in the ‘1st der. leaving a net pay of $100. the company wants to pay a $100 award to an employee. For example. so it does not add any cash income to the payroll. 69 and 71 set so that we know what to include in the gross-up. The net wagetype does not really pay anything – it is not cumulated to /101 (Total Gross). This amount is added to taxable income. a $100 net might gross-up to $160. For example. The gross wagetype does cumulate to /101. the employee owes taxes on it. amount. Then SAP would deduct $60 in tax from that.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. Page 32 . and when taxes are deducted from it we get back to the original $100 net payment. we need to have a higher gross. the gross wagetype will be coded into the ‘1st derived wagetype’ field on the net wagetype. and since that is taxable income. So we know that is the employee is to get $100 in net pay. Once taxes are deducted from the gross. and it does add to taxable wages. we end up back to the net amount. or taxable. it has processing classes 68. And although it is not taxable. In SAP there are two wagetypes for a gross-up – the net wagetype and the gross wagetype. WT’ field in table t512w.

SAP US Payroll Tax Class Page 33 .

SAP US Payroll Tax Class Page 34 .

SAP then grosses-up that amount to $160. a cash payment. we want to increase their taxable income to record that ‘net’ payment that was made to them. In these cases SAP can process non-cash. Page 35 . the net is 270E. the gross is 270F and the tax payment is 270G. WT’ field. There is a zero net effect on the employee. we see the tax payment wagetype in the ‘2nd der. so it does not pay anything to the employee. and $60 in a cash payment that equals the $60 in tax. to exactly offset the amount of tax. but the gross-wagetype does not cumulate to /101. In the wagetype table t512w. In that case. or ‘no-pay’ gross-ups. but we don’t want to pay them any ‘cash’ money. For a no-pay net it generates $160 in gross. but the gross-up does add to taxable wages. we still have $60 in taxes to deduct. In this case. The net and the gross do not generate any cash payments to the employee. so SAP generates a third wagetype.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. $100 in the net wagetype. However.

Now the employee’s taxes are not in balance with their wages. we enter the net wagetype and then the system generates the gross and the tax payment when payroll runs. Period 1 in 1 Wagetype /101 /5U0 /Nxx Description Total gross Total EE Tax Uncoll EE tax Amount $60 $0 $60 The $60 in 270G was used to pay off the existing claim first. zero net payment. In the $100 no-pay gross-up example. we would then have $100 net. Claims always come before taxes. the cash payment for taxes will first go to satisfy the claim. instead of offsetting taxes. $160 gross. Notes /560 /561 /563 270E 270F 270G Net Pay Claim Claim paid Tax Equal Net Tax Equal Gross Tax Equal Tax $0 $60 $60 $100 $160 $60 No-pay net No-pay gross Cash payment to cover $60 in expected employee tax Page 36 .SAP US Payroll Tax Class For a $100 no-pay gross-up. so there was no money leftover to pay for taxes. it is cumulated into /101 Actual employee tax deducted from employee Problems with Gross-ups If the employee has a claim when a no-pay gross-up is processed. and uncollected taxes. Period 1 in 1 Wagetype /101 /5U0 /560 270E 270F 270G Description Total gross Total EE Tax Net Pay Tax Equal Net Tax Equal Gross Tax Equal Tax Amount $60 $60 $0 $100 $160 $60 No-pay net No-pay gross – no cumulation to /101 Cash payment to cover $60 in expected employee tax Notes Since 270G is a cash payment.

Taxable-not-taxed wagetypes will cumulate into /Qxx. You can use the ZP_TAXMODEL program to determine which wagetypes are taxable for the various tax authorities. taxable-not-taxed. be sure to keep in mind which ones are taxable vs. When balancing taxes to the taxable wages. The W-2 adds the /7xx and /Qxx wagetypes together for reporting. and tax modifiers. tax types. 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. Wagetypes that are ‘taxable’ will go into /3xx. When reconciling the wages. Page 37 .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. /6xx and /7xx. To do this. also be aware of any uncollected taxes that may be present.

The difference between what was paid originally vs what should now be paid is put into a wagetype called ‘retro differences’. Forming Retro Differences Using the gross-to-net equation as a guide./110 . For example. But. showing that we now need to pay the employee $100 more in this case. debits equal credits). if an employee was underpaid by 8 hours of overtime in a previous period. cafeteria deduction. an abbreviated payroll result could look like the table below. Since overtime is a cash payment. in a retrocalculated period we can not change the amount of net pay./563 = /560 Or in friendlier terms: Total cash payments – total employee deductions – total employee taxes + retro differences + claim – claims paid = net pay. Period 1 in 2 Wagetype /101 /110 /5U0 /560 /551 Amount $1100 $200 $300 $500 $-100 Debit $1100 $200 $300 $500 $100 Page 38 Credit . One exception is that we don’t put accounts on /101. the amount of the overtime wagetype would increase retroactively. It is best to think of them as two separate processes. This keeps the retro payroll period in balance (i.SAP US Payroll Tax Class Retrocalculations Cash vs Tax Perspective In both current-period and retro-period calculations./5U0 + /552 + /561 . /110 and /5U0 – instead we account for their individual components such as base pay. Gross to Net Equation For every payroll period the net pay can be calculated with this equation: /101 . since that pay was already transferred to the bank (or paid via check). it would cause /101 to increase retroactively. Period 1 Wagetype /101 /110 /5U0 /560 Amount $1000 $200 $300 $500 Debit $1000 $300 $300 $500 Credit Wagetype amounts can change retroactively. or /551. overtime. there really is no direct link between cash wages and taxable wages.e. withholding tax and so on.

The $1000 overpayment from period 1 in 2 is stored as a claim. if negative then it will reduce net pay. If /552 is negative. so they would have had a total gross of zero. deductions or taxes are taken. the employee is still on leave of absence. but they were originally paid $1000. multiplies by negative 1 and places that amount in /552. Period 2 in 2 Wagetype /101 /110 /5U0 Amount $0 $0 $0 Debit $0 $0 $0 Page 39 Credit . the system sums all the /551 wagetypes from the retro periods. it could reduce /560 to a negative amount. the results would look like: Period 1 in 2 Wagetype /101 /110 /5U0 /560 /551 Amount $0 $200 $300 $500 $1000 $1000 Debit $0 $200 $300 $500 Credit In period 2. If positive. The claim is the amount of money the employee still owes the company because they don’t have enough to pay it back. /551 and /552 should always exactly offset each other. Period 2 in 2 Wagetype /101 /110 /5U0 /560 /552 Amount $1000 $200 $310 $590 $100 $100 Debit $1000 $200 $310 $590 Credit Claims Retro differences (wagetype /552) is added to total net pay (wagetype /560) in the current period. assume the employee was really on leave of absence beginning in period 1. For example. which is not allowed (can’t have negative net pay). and that amount is stored in /561 – a Claim. so no payments. In that case.SAP US Payroll Tax Class Then in the current period. this adds to the amount of net pay. since there is no net-pay to offset it. The amount it would go negative is the amount that can not be recovered in the current period.

For example. and all of that gets allocated to reduce the claim. in period 3 the employee gets paid $600. In every subsequent payroll the system will apply money towards paying off the claim. Period 3 in 3 Wagetype /101 /110 /5U0 /560 /561 /563 Amount $600 $0 $0 $0 $400 $1000 $400 $1000 Debit $600 $0 $0 $0 Credit Page 40 .SAP US Payroll Tax Class /560 /552 /561 $0 $-1000 $1000 $1000 $0 $1000 The claim (/561) is the amount the employee owes the company. before it uses the money for any deductions or taxes.

SAP creates in each pay period a wagetype called ‘Good money’. because the overtime wagetype increased. the function will let payroll take additional payroll taxes up to the amount of total gross (/101) in the original period. The tax when paid date corresponds to the check date and/or period end date depending on the infotype. Constructive receipt in SAP terms means that we tax the wages when they are paid. However. and the creation of uncollected taxes. as long as the amount of total tax in the retro period was not greater than the amount of /101 in the original period.1% in Cincinnati tax. 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. as is the case with employees who have claims. it can happen that we change payments in the past that affect taxable wages. For example. When trying to reconcile regular wagetypes to taxable wages in the current period. In a retro period. the equation to be used is ‘current period taxable wages’ + differences in BAL table = taxable wages. Every subsequent payroll will read in the previous period’s UNB entries and try to clear them against current taxable income. and don’t really recognize. it was rolled forward to period 2 in 2 and taxed there (which is why taxes are higher there). 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). The wages it can clear go to the BAL table (BAL for balanced offsets). Page 41 . So if /5PY is zero or negative then no wages can be cleared. This is something that tax authorities never expect. The documentation for this function can be viewed with transactions PDSY or PE04. So when SAP does retroactively change wages in the past. the taxable wagetypes change in the retro periods. retroactive changes in tax areas. If it was greater than /101. Tax Priority & Caps Function UTPRI controls two things – the priority of taking taxes. if an employee retroactively went from residing and working in Blue Ash to residing in Blue Ash and working in Cincinnati. Tax authorities want companies to tax payments based on when the employee has ‘constructive receipt’ of the wages. then the difference gets placed into uncollected taxes. In the current period. not when they are earned. the system would retroactively take an additional 1. For example. It contains the total amount of taxable wages that can be worked with. those changes are rolled forward to the current period and taxed there. in the first retrocalculation case /101 increase in period 1 in 2. But that increase was not taxed in period 1 in 2. wagetype /5PY. It behaves one way in current period calculations and another way in retro periods. The entries it can not clear go to the UNB (unbalanced offsets) table. There are some cases where wages are taxed when earned – gross-ups/gross-downs.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.

For example. and it reduces the employee taxes (creating uncollected tax). However.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./110 .e. the value of /101 in the original period The amount of taxes it could not take /101 . 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. so /551 is set to balance this equation Notes Page 42 ./5U0 + /551 has to equal /560. and the cash payment for taxes increases to cover the additional amount of tax. if a no-pay gross-up retroactively increases. For example: Period 1 in 1 Wagetype /101 /5U0 /560 270E 270F 270G Description Total gross Total EE Tax Net Pay Tax Equal Net Tax Equal Gross Tax Equal Tax Amount $1000 $1000 $0 $20000 $21000 $1000 No-pay net No-pay gross Cash payment to cover $1000 in employee tax Notes Then in period 2 we retroactively increase 270E to $30000: Period 1 in 2 Wagetype /101 /5U0 /Nxx /551 /560 270E 270F 270G Description Total gross Total EE Tax Uncoll Tax Retro differences Net Pay Tax Equal Net Tax Equal Gross Tax Equal Tax Amount $1500 $1000 $500 $-500 $0 $30000 $31500 $1500 No-pay net No-pay gross Cash payment to cover $1500 in expected employee tax Capped at $1000. and the employee has no other cash money (i. and the difference between that and total tax results in a net payment to the employee. However. 3121L expats) then it’s likely you will get uncollected taxes: the gross goes up retroactively since gross-ups are tax-when-earned. the amount of the cash payment to cover taxes does not go down.

Crossing Years When a payroll retro crosses from the current year into a previous year then special processing takes place for taxes./5U0 + /552 = net pay Notes To minimize the problems with retroactive changes to gross-ups affecting net pay or creating claims. so no retro differences are created.000 was processed: Period 12 in 12 Wagetype /101 /5U0 /560 270E 270F 270G Description Total gross Total EE Tax Net Pay Tax Equal Net Tax Equal Gross Tax Equal Tax Amount $1500 $1500 $0 $30000 $31500 $1500 No-pay net No-pay gross Cash payment to cover $1500 in expected employee tax Notes Page 43 . SAP will reset those tax amounts back to their original value. SAP will not allow taxes in the previous year to change from their original values. he gets paid $500: Period 2 in 2 Wagetype /101 /5U0 /552 /560 Description Total gross Total EE Tax Retro differences Net Pay Amount $0 $0 $500 $500 The sum of /551 times -1 /101 . if you process a January correction check that retro’s back into the previous year and something causes taxes to change./110 . This is done by the payroll function UOTX0 – keep old taxes in retro. we wrote a new payroll function ($RGUF) that ‘tricks’ the system so that if gross-ups change retroactively it always has enough money to cover taxes.SAP US Payroll Tax Class And assuming the employee had no other transaction in period 2. For example. In this example. In the original period 12 a no-pay gross-up of $30. The example listed above should not happen in Client XXX system because of this enhancement. This exception to this function is that it does let you change tax amounts via NAMC’s (infotype 221). we’ll show what happens when a no-pay gross-up changes retroactively in the previous year.

The employee ‘owes’ $500 because we reduced their tax payment but did not reduce their actual taxes in period 12 in 1. the system keeps the total tax amount at $1. Notes In period 1.SAP US Payroll Tax Class Then in period 1. Period 1 in 1 Wagetype /101 /5U0 /552 /560 /561 Description Total gross Total EE Tax Retro differences Net Pay Claim Amount $0 $0 $-500 $0 $500 The sum of /551 times -1 Notes Page 44 .000.000./5U0 + /551 has to equal /560. Wagetype 270G – the cash payment to cover employee taxes on the gross-up – is now $1. Total cash payments go down but the taxes remain the same./110 . the employee had no other pay. someone changed period 12’s 270E to $20.500 because we are crossing years. so /551 is set to balance this equation. To balance out the payroll.500 – the amount of tax in the original period (12 in 12) /101 . we get a /551 wagetype for $500. and they receive a claim for the difference in tax from period 12 in 12 and 12 in 1. But. Period 12 in 1 Wagetype /101 /5U0 /551 /560 270E 270F 270G Description Total gross Total EE Tax Retro differences Net Pay Tax Equal Net Tax Equal Gross Tax Equal Tax Amount $1000 $1500 $500 $0 $20000 $21000 $1000 No-pay net No-pay gross Cash payment to cover $1500 in expected employee tax Kept at $1.000 from $30.

any change to taxable wages or taxes in the previous year will cause a W-2C (W2 correction) form to be produced. Page 45 .SAP US Payroll Tax Class W-2 Corrections (W-2C) Once W-2’s are run and finalized. 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). enter the tax company and use tax form ‘z_w2_01’. You can also view the filing date by using the Data Browser (SE16) on v_t5xy_a. The ‘finalized’ date for W-2’s is stored in the system.