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Zero wages returned for a tax where EE filed exempt on W-4

How do you report the quarterly/annual taxable wages that are the basis for the tax calculation when the tax engine does not return gross wages, subject wages nor gross subject wages in the instances where an EE W-4 (Fed or State) claims an exempt status? Do you go back and calculate what the subject wages should have been for those EEs? How do you keep track of the pretax benefits for each State tax to make that calculation?

STE 2019-R3 no longer returns any wages for SIT taxes where there is an "EXEMPT" W-4. I have been told that this was done at the request of a majority of clients.

Comments

  • I am missing something here. If we are talking W-4 Box 1 FIT taxable wages (or the SIT/LIT equivalents), then filing an Exempt W-4 does NOTHING to the wages reporting on the W-2. The employee does not get to turn off taxable wage reporting to IRS/SSA via the W-4. The only thing the W-4 does is turn of the withholding, which is still accurately reported on the W2 Box 2 (or corresponding boxes for SIT/LIT withholding).

    The employer accurately reports taxable wages as required by law and the employee gets to tell IRS why THEY turned off the withholding. The employer does not hide taxable wages from IRS no matter what the employee wants.

  • acl1118acl1118 ✭✭✭

    The wages should be reported for federal, state and local. The wages themselves are not exempt for taxation, the employee is claiming exemption. Having to calculate the wages would be a nightmare for each state and/or local.

  • @David Warren I concur with with you and @acl1118 that the exemption only means that the wages are exempt from taxation. Our system has been relying on the STE to return the gross wages, subject wages and gross subject wages regardless of the EXEMPT status. My issue now is that our system must go through that calculation to derive what the subject wages should be. Since each tax has it's own rules for what is pretax and what is not, I am wondering what do other systems using the STE use to determine the subject wages for their quarterly and W-2 reporting. According to Symmetry, they are considering no longer returning gross, subject and gross subject wages for LITs as well.

  • rrupertrrupert ✭✭✭

    Honestly your payroll system is royally messed up if it is using an exempt election to determine wages rather than just the taxes owed. Your system should be accumulating those wages over time (paycheck, month, quarter, year end). How have you been paying Unemployment taxes quarterly?

    Yes each type of tax has to be reviewed, but a good payroll setup will know this.

    Who is your payroll provider? Symmetry? But then you say "our system" -- what is "STE 2019-R3 "? SIT has nothing to do with what an employee chooses on their W-4......You need to be speaking to them directly because in all honesty, your question itself makes no sense...of course you need to be accumulating wages and of course you will need to do a calculation somewhere -- you need to be working with them to see how that can be done in your system. Why an exempt W-4 would be tied into any wages EVER is beyond me.

  • Agreed. Payroll systems 30 years ago had no problem doing this correctly. I am having a lot of problem believing that a modern payroll system is having problems with this. W2 Box 1 et al reporting is a VERY old requirement which has not substantially changed in a very long time. If your payroll system/provider is truly that incompetent, replace them with any modern system. Even a bad system should get this right.

  • @rrupert, @David Warren, I have probably poorly worded my issue based on your feedback. Our payroll system uses Symmetry to calculate taxes for each payroll run. We record the values returned from the Symmetry Tax Engine (STE) so that we can report the accumulated values on the appropriate quarterly return and W-2 form. The problem we are experiencing is that we have been relying on Symmetry to not only calculate the tax, but calculate the gross, subject and gross subject wages. Symmetry does some determination of the wage types, where earned, imputed income, pretax deductions, etc. to determine the correct amount of wages to be taxed (subject wages) in each jurisdiction. They also apply any wage limits where required.

    The STE 2019-R3 is a designation by Symmetry as a Release number. As of this release, Symmetry has decided to no longer return wage values for those taxes that have an exempt status claimed. Therefore, we are in a bit of a quandary of how to tackle this situation of calculating and accumulating the subject wage for reporting purposes. We have many situations of multi-state taxation, with and without reciprocity - something Symmetry generally handles well.

  • I am not familiar with STE, but this is VERY simple stuff. Any payroll system which cannot handle it needs to be replaced NOW. I used several truly awful bank systems in the early 1980s which handle this stuff just fine.

  • Thank you @David Warren. I was hoping to elicit some responses from other Symmetry clients that use the tax engine. I'm not sure that I agree on how simple this stuff is. Pennsylvania and Ohio have some pretty complicated stuff when employees work in multiple jurisdictions. With over 7,000 taxes spread across the US, each with their own rules, politicians are very creative in creating the rules.

  • I used ADP DOS in the mid 1980s and it used something called a tax grid. IBM's software on their mid range computers did much the same thing. Both systems handled DIY taxes such as the ones you mentioned. I am in agreement that PA and OH LIT are on the far end of tax handling but systems 30 years ago could handle this.

  • rrupertrrupert ✭✭✭
    edited February 26

    Was Symmetry ever supposed to do what you stated you relied on? Or was their contract just to calculate taxes? "The problem we are experiencing is that we have been relying on Symmetry to not only calculate the tax, but calculate the gross, subject and gross subject wages" One would think someone would either have to feed it to them OR they would have to calculate it to know what income to tax...... Honestly I can't imagine using a payroll system that requires a third party tax calculation in this day and age.

  • @rrupert I'm not sure what is in the contract. It was something that was established when I started working with their product. The contract stuff would be above my pay grade anyway. Symmetry does perform some calculations to come up with the numbers as we only pass gross wages to them for wages, any imputed income amounts, deductions that could qualify as pretax, along with employee and work location address info and Fed and State W4 info. From that, they determine which taxes apply and do the calculations. What puzzles me is why they would not stand by their subject wage calculation as being the reportible wages to the taxing entities - if that is truly what they are basing their tax calculation on.

    As far as requiring a third party doing the tax calculations, this is not the first company that I have worked for that used a third party for tax calcs. One of the other companies I have worked for had about 80,000 employees across a majority of the lower 48, and the software they used was done by a separate vendor. I can remember applying tax changes from the other vendor separately from the HR/PR software.

  • rrupertrrupert ✭✭✭

    Interesting.....

    All you really can do is ask Symmetry directly. As with any software producing company, they are going to do what the majority of their clients need or want to pay for.

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