Payroll Taxes

Setting Up Payroll Taxes - Choose the Right Method

There are two methods of calculating the employer responsibility for payroll taxes. You want to use one of these methods to avoid doubling the payroll tax.

1. Config tab - Use the settings on the Config tab for the FICA Rate and FICA Account, along with the Tax Type settings on pay types and positions, to automatically calculate taxes.
2. Pay Types: Create pay types for Social Security and Medicare. Assign these pay types to each position to be taxed.

You can use the Config tab for calculating payroll taxes if both of these are true:

• You use a single GL account for both Social Security and Medicare.
• You have no employees whose compensation is high enough to be affected by the Social Security tax cap, or if the difference that this would make in your budget is minimal enough that you wish to disregard it. (The Social Security tax cap is set by the IRS each year.)  

You must use Pay Types for calculating payroll taxes if either of these are true:

• You use separate GL accounts for Social Security and Medicare.
• You have employees affected by the Social Security tax cap and you want to budget more precisely for the effect on employer payroll tax.

Note: This document is written from the perspective of US payroll tax requirements. Martus also supports payroll tax methods in other countries. The Config method is of limited usefulness outside the US, but the pay type method is very flexible and supports a wide variety of payroll tax requirements. Martus Support can help to configure pay types for payroll tax needs in countries outside the US.

Using the Config Tab for Payroll Taxes

Taxable pay types use the Config settings to calculate payroll taxes.

• The Config tab defines the FICA rate and FICA account for each fiscal year.

•  The Tax setting on each pay type indicates the pay type is Taxable, and the Config settings will apply to that pay type.

Using Pay Types for Payroll Taxes

Separate pay types for Social Security and Medicare are assigned to taxable positions in a scenario.

Each tax pay type is associated with source pay types (such as Salary, Wages, Bonus, etc.)  When you assign a payroll tax pay type to a position in a scenario with any or all of these source pay types, the tax amount is calculated automatically. If you change the rate for any of the source pay types on that position, the payroll tax amounts are updated automatically.  

Below is an example pay type for calculating Social Security taxes, using the cap. Additional information on Pay Types can be found in the knowledge base.

Notes:

• When you use the Config tab, payroll taxes are not shown on the Position screen or on the Detail screen.  
• View payroll taxes on the Summary screen. Use the Show Taxes flag to hide/show taxes.
• When you post a scenario to a budget, payroll taxes are always included.
• When you use pay types for payroll taxes, the Taxable flag on positions is ignored.
• Whether you use the Config tab or pay types, be sure to review the accounts, rates and limits each year, in preparation for budget season.