SAP US Payroll Tax Well Explained PDF

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 Tax Terminology

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

Process Overview
Tax Other Year-to-Date Previous

Infotypes Infotypes Payroll Payroll
SAP Tax Preparation

(schema UTX0)
BSI Tax BSI Tax

Calculation Formulas
SAP Special Processing

(schema UTX0)
Payroll Results
(RT, TCRT, TAX, TAXR,
XDFRT, UNB, BAL)
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Data Model
Infotypes
Infotype Title Description / Notes
207 Resident Tax 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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208 Work Tax This infotype stores the various tax areas the employee works in they can work in
multiple areas at once, and each is pro-rated by a certain %. The total % can not be
more than 100. If it is less than 100, the remainder is allocated to the resident tax area.
Payroll reads all the infotype 208s active during the pay period and pro-rates wages
according to each infotype 208 occurrence.
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209 Unemployment State This infotype contains the state and worksite the employee is taxed in for unemployment
taxes. For payroll calculations it is read as of the period-end date. If the worksite is filled
in then you can use SAPs Multiple Worksite Reports in Tax Reporter.
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210 Withholding Info This infotype stores the W-4 or state-equivalent information needed for calculating
withholding taxes. It is read as of the check date. Various tax authorities use different
fields on this infotype, and the available fields change depending on the tax authority
entered (which is also the subtype).
Tax Exempt Indicator

codes control which
wages & taxes get
calculated: X = no
taxable wages or
taxes; R = dont take
taxes but do report
taxable wages; Y =
dont take taxes and
dont calculate
reportable or taxable
wages.
Def. Form.No. is the

default formula
number SAP will use
for the tax and that
can be overridden
with the Assign
Form.No. field.
For other fields,

select them and
press F1 for the SAP
help text.
This screen layout

will change from one
tax authority to
another.
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234 Tax Overrides This infotype contains various overrides for calculating withholding taxes, and is read as
of the check date.
Supplemental
method: Many
withholding taxes
have an optional flat-
rate method that can
be used. Some have
more than one
supplemental
method here we
can override the
supplemental
method for an
employees
paychecks.
Override amount:
This amount will
override any
withholding tax
amount calculated by
the system.
Empl. Override
group: This is a code
created in BSI that
defines a custom tax
calculation, such as
a custom flat-rate for
certain bonus
payments. The
override group has to
be created in BSI
and then applied
here.
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235 Other Taxes This infotype contains overrides for all other taxes than withholding, and is read into
payroll as of the period-end date.
The formula numbers

and Exe.
(exemption
indicators) used here
serve the same
purpose as they do
on infotype 210, but
for everything except
withholding taxes.
Infotype 210 is
withholding taxes-
only, and 235 is for
all other tax types.
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Configuration of Taxes
IMG Implementation Guide Steps
Transaction SPRO is used to access the SAP Implementation Guide. The transaction will first display various
project IMGs, press F5 or the Enterprise IMG button to get to the complete IMG structure. Open the Payroll
Accounting -> Payroll: USA -> Tax section.
If you do not have access to transaction SPRO, you can view the corresponding tables with transaction SE16 (Data
Browser).
To get more documentation, double-click on a lines text. For example, double-click on the Tax text line and you get
this documentation:
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Tax Companies
This is the step where Tax Companies are defined and then assigned to each personnel area/subarea combination.
The tax company is not the same as the Company Code (or accounting company) that is seen on infotype 1. In
fact, Tax Company does not display on infotype 1. The information entered in the Define tax companies (table
t5utl) step is used for regulatory tax reporting (Tax Reporter). The screen below shows where Tax Company is
assigned to the personnel area/subarea (table t5u0p):
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The Tax Company is where taxes & taxable wages are reported for regulatory purposes. The accounting debits &
credits go to the Company Code on infotype 1, which may or may not correspond to the Tax Company. For
example, this screen shows that taxes and taxable wage are reported to the government under Overseas, and the
description on the personnel area says the accounting goes to Company Code 001.
Each tax company is identified by an employer ID number for every tax authority it reports to. Those employer ID
numbers (EINs) are entered in the Define tax identification numbers by BSI tax company step (t5uth), and then
assigned to a tax type within the tax authority in the Define federal/state/local employer ID number step (table
t5uti). SAP Payroll will not calculate a tax if the corresponding EIN does not exist in these tables.
Load Tax Data
This section is primarily for the first-time system setup, where we copy some data from the BSI Tax Calculation
system into SAP tables. It is normally maintained by periodic updates to the system that come from SAP.
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Tax Data Maintenance Tax Authorities
The Check tax authorities step (table t5utz) is used to configure certain options for each tax authority. This data is
delivered by SAP and normally it is also updated by them as new tax authorities come into existence. You might
want to customize some options here to tailor the system to your needs.
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The Sort no. controls the sequence in which the tax authorities will be displayed in select lists. The W4 indicator
controls whether of not you want to require an infotype 210 for the tax authority, make it optional, or not allow one to
exist. The IRS column is to indicate whther of not you want to apply the IRS 10-exemption limit rule to the authority.
The NoUS column is used to indicate US Territories & Possesions, such as Puerto Rico and the US Virgin Islands.
The next IMG steps - Check sort number for authority, Check W-4 and exemption limit indicators, and Check
status of territories are just different views on this same information.
Check tax authority mapping (table BTXTAXC) is where we map the SAP Tax Authority code to the BSI Tax
Authority code. This is normally maintained by SAP and does not require customer maintenance. BSI has its own
codes for each tax authority, but lets the customer create whatever codes they want to use. Those customer-
defined codes are mapped to the BSI codes here.
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Each tax authority can have its own set of valid filing status codes, and these are controlled in the Define valid
filings statuses step (table t5utk). This data is generally maintained and updated by SAP.
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Tax Data Maintenance Tax Types

Each tax authority can have one of more different types of tax they collect. All the various tax types are defined in
this step.
Check tax types (table t5utt) is a list of all valid tax types, and Maintain tax types per tax authority (table t5utd) is
where we define which tax types are valid for each authority.
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Tax Data Maintenance Tax Areas

A Tax Area is simply a collection of tax authorities that are applicable to a given location. For example, if you live
inside Cincinnati, your tax area would include Cincinnati, Ohio and Federal. SAP assigns tax areas to resident and
work locations.
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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.
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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). So here we see that work tax area AL0H includes tax authorities Alabama and Jefferson.
Resident tax areas are setup in a similar manner, but stored in table t5uta. Likewise, resident tax areas are stored
in table t5utr. Resident tax areas have additional functionality that enables the system to suggest a list of tax areas
that may be valid for the employee, based on the employees zip code. The Maintain zip code ranges per
residence tax area (table t5utf) specifies a range of zip codes for each tax authority. When a new infotype 207 is
created, the system will search this table with the employees zip code to get a list of tax areas that might be
appropriate for the employee. Although a zip code range exists for work tax areas, there is no other system
functionality to support that process (i.e it doesnt work).
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Tax Data Maintenance Tax Models
Page 20
The Tax Model is where we define the taxability of wages in SAP Payroll. 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. The model number is just an arbitrary two digit number that was chosen at the time
the system was first setup. If a tax authority changes the way it taxes earnings or deductions, then you would create
a new tax model for it, using the effective dates in t5ute.
The second step is Define taxability model, or table t5utm. In this table we link each taxable wagetype to a tax
model. There are four aspects to this link the resident, work and unemployment taxation of the wagetype, and the
taxation for different groups of employees (the tax modifier). The link to the wagetype is via processing class 71
called the taxability class. For each taxability class we specify if the wagetype is taxable for the tax authority an
employee lives in, works in, and for unemployment taxes. These three settings can be customized per tax modifier.
For example, we may tax wages for every tax authority for regular employees, but only tax wages for Federal for
expatriates. In that case, we put expatriates and regular employees in different tax modifiers, and control the
assignment of wagetypes to tax authorities via table t5utm.
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The tax modifier is determined in payroll in rule ZUDG (tax schema ZUA2).
Tax Modifiers
Tax Modifier Employee Group
U1 Domestic employees & other retiree payments
U2 No longer used (was Sundor)
U3 US Expatriates
U4 Retiree stock options (pay types L and S)
U5 No longer used (was Outbound expats)
U6 Never used
U7 Any employee (expat or regular) whose resident tax

infotype (208) is set to Puerto Rico
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Table t5utm is where we link the tax authority and tax types to the wagetype:
Tax model: The code for a tax authority, from t5ute
Res/wrk/UI: R = resident tax, 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
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The third step is where we tell SAP which types of tax to use for each row in t5utm. Table t5uty (define tax type
combinations) is where we define codes to represent a set of tax types. In t5utm, if a tax class is taxable for a
particular combination of resident, work, unemployment and tax modifier, the system then gets the tax type combo
value and looks it up in t5uty to see which types of tax to use. This is how SAP knows which /3xx wagetypes it
needs to build. For example, tax type combo 06 would tell the system to build wagetypes /303, /304, /305 and /306.
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The Tax Model Diagram shows how the tables, infotypes and wagetypes come together to tell the system which
/3xx taxable wagetypes to create:
Tax Model Diagram
Employee tax Wagetype, processing

Tax type combinations
infotypes class 71
(t5utm)
(207, 208, 209) (t512w)
Tax authority model Taxability model Tax modifiers

(t5ute) (t5utm) (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. There is also a standard report that displays all the tax authorities in the
system (Display tax authorities on the Tax Utilities menu, or program RPUAUTU1, or view table t5utz via
transaction se16).
Tax Data Maintenance Unemployment Insurance

Every state in the US collects an unemployment tax to fund unemployment insurance claims. This is an employer-
paid tax, so there is not effect on the employee. However, each state has its own tax rate and that tax rate can vary
from one company to another in the state. The company-specific tax rate is call the experience rate because its
based on the states experience in paying out unemployment claims for employees laid-off from a company. The
more people a company lays-off, the higher the experience rate. This experience rate can change every quarter.
Client XXX does not pay unemployment taxes based on what is calculated in SAP. Instead, the total taxable
unemployment wages are multiplied by the experience rate outside of SAP when the quarterly unemployment tax
returns are filed.
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. Again, Client XXX does
not use SAP for its worksite reporting so that part of the system is not used.
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Tax Data Maintenance Tax Overrides

SAP and BSI allow companies to override certain parts of the tax calculation. Most of the configuration is done is
BSI; the one piece of it done in SAP is to define employee override groups. These groups also need to be setup in
BSI (Tax Factory). The employee override group can then be entered into infotype 234 or set dynamically in a rule
in payroll.
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. This is currently used for some stock option and relocation
payments.
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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, state, local) it belongs to. For example, Federal taxes are posted to one account, 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. At Client XXX there are three tax-posting wagetypes 9TAF
(Federal), 9TAS (state) and 9TAL (local), generated in rule ZUHF in the tax schema ZUA2.
Priority of Tax Wagetypes

When deducting tax, the system follows a certain order or priority, This is defined in the Maintain priority of tax
wagetypes step, or table t5us0. Generally there is no need to maintain this table, since it is delivered by SAP to
take Federal taxes first, then state, then local. There are other settings in this table to control how taxes are
deducted when not enough money is present, and whether or not the tax wagetype is from regular income or tip
income.
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Tax Wagetypes
Descriptions of tax wagetypes
These wagetypes store the results of tax calculations; other than the wagetypes for employee taxes, they are not
really linked to the amount of cash the employee receives.
Wagetype Description Explanation Notes
/3xx Taxable earnings This is the amount of earnings Some tax authorities require the
(payments) that is taxable for each company top report these wages.
authority and tax type. It does not Other than that, they are not used in
include pre-tax deductions. the tax calculation process.
/6xx Reportable wages These amounts are the /3xx earnings States require companies to report
minus the pre-tax deductions. These their /610 unemployment wages every
amounts are sent to BSI for taxation. quarter.
/7xx Taxable wages These are the amounts that are taxed These amounts are the ones reported
for each authority & tax type. These on the W-2.
wages reflect tax caps (i.e. for FICA
and unemployment) and reciprocity.
The /7xx wagetypes are returned to
SAP from BSI.
/4xx Taxes These amounts are for employee and Contains employee-paid and
employer taxes, based on the /7xx employer-paid taxes (processing class
wages, as calculated by BSI. 72 determines this)
/Qxx Taxable not taxed Certain wages can be reported as Imputed income on group-term life
wages taxable, but no tax is required to be insurance is a good example of a
taken from them. taxable-not-taxed earning.
/Nxx Uncollected taxes There are cases where an employee Uncollected FICA and Medicare taxes
has taxable income, but not enough will try to balance out in future
money to pay for the taxes on it. payrolls, and others do not.
Instead of /4xx taxes, SAP records the
amount of uncollected tax in /Nxx
wagetypes. (Taxable wages are not
always cash wages).
/Ixx Not reduced wages In some cases the system is able to The system will try to reduce wages in
deduct a pre-tax deduction but does the next payroll by these amounts. If
not have enough taxable income to an employee has /Ixx wagetypes, then
offset it. The amount of taxable their FICA/Medicare and other flat-rate
income that could not be offset (i.e. taxes wont tie back to their /7xx wages
reduced) is stored in the /Ixx (i.e /703 * 6.2% <> /403).
wagetypes.
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Linking tax wagetypes to other tax data
Each tax wagetype also has a split indicator set, and this links it to the tax authority it is reportable to. For example,
we could have two or three /401 wagetypes in a payroll, and the split links us to the TAX table in the payroll result
that tells us the tax authority it is reportable to. In the following case we see that a split of 01 links us to Federal in
the TAX table, and split 02 links us to OH (this is from the Display Payroll Results tool, 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. So when the C1 split
is 01, we know that wagetype is linked to tax authority FED. When C1 is 02, then the wagetype is linked to tax
authority OH.
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The TAX table also shows us the data used to calculate taxes in that payroll result. For Federal, we see that this
person had 13 tax exemptions, filed Married, and this was used for his resident and unemployment tax calculations.
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.
TAX Table
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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. They simply keep track of how much money to
pay the employee.
Wagetype Description Explanation Notes
/101 Total Gross This contains all the cash payments to

an employee whether those payments
are taxable or not.
/110 Total EE All employee deductions that were taken

Deductions from the employees pay for the current
pay period.
/5U0 Total EE Taxes All employee taxes taken from the pay
this pay period
/560 Net Pay The total amount of net pay for the If the employee deposits their
employee. pay into multiple accounts, then
there will be a /559 for each
account. The sum of /559 equals
/560.
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Gross-Ups
Cash or Regular Gross-ups
A gross-up is a guaranteed net payment of a taxable wage to the employee. For example, the company wants to
pay a $100 award to an employee, and since that is taxable income, the employee owes taxes on it. So we know
that is the employee is to get $100 in net pay, we need to have a higher gross, or taxable, amount. This amount is
added to taxable income, and when taxes are deducted from it we get back to the original $100 net payment.
In SAP there are two wagetypes for a gross-up the net wagetype and the gross wagetype. The net wagetype
does not really pay anything it is not cumulated to /101 (Total Gross), so it does not add any cash income to the
payroll. And although it is not taxable, it has processing classes 68, 69 and 71 set so that we know what to include
in the gross-up. The link between the net and gross wagetype is stored in the 1st der. WT field in table t512w; the
gross wagetype will be coded into the 1st derived wagetype field on the net wagetype.
The gross wagetype does cumulate to /101, and it does add to taxable wages. Once taxes are deducted from the
gross, we end up back to the net amount. For example, a $100 net might gross-up to $160. Then SAP would
deduct $60 in tax from that, leaving a net pay of $100.
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Page 33
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No-pay Gross-ups
Sometimes employees are paid some sort of taxable income outside the system relocation expenses for
example. In that case, we want to increase their taxable income to record that net payment that was made to
them, but we dont want to pay them any cash money. In these cases SAP can process non-cash, or no-pay
gross-ups. The net and the gross do not generate any cash payments to the employee, but the gross-up does add
to taxable wages.
$100 in the net wagetype. SAP then grosses-up that amount to $160, but the gross-wagetype does not cumulate to
/101, so it does not pay anything to the employee. However, we still have $60 in taxes to deduct, so SAP generates
a third wagetype, a cash payment, to exactly offset the amount of tax. For a no-pay net it generates $160 in gross,
and $60 in a cash payment that equals the $60 in tax. There is a zero net effect on the employee.
In the wagetype table t512w, we see the tax payment wagetype in the 2nd der. WT field. In this case, the net is
270E, the gross is 270F and the tax payment is 270G.
Page 35
For a $100 no-pay gross-up, we enter the net wagetype and then the system generates the gross and the tax
payment when payroll runs.
Period 1 in 1
Wagetype Description Amount Notes
/101 Total gross $60 Since 270G is a cash payment, it is cumulated into /101
/5U0 Total EE Tax $60 Actual employee tax deducted from employee
/560 Net Pay $0
270E Tax Equal Net $100 No-pay net
270F Tax Equal Gross $160 No-pay gross no cumulation to /101
270G Tax Equal Tax $60 Cash payment to cover $60 in expected employee tax
Problems with Gross-ups

If the employee has a claim when a no-pay gross-up is processed, the cash payment for taxes will first go to satisfy
the claim, instead of offsetting taxes. Claims always come before taxes. In the $100 no-pay gross-up example, we
would then have $100 net, $160 gross, zero net payment, and uncollected taxes.
Period 1 in 1
/101 Total gross $60
/5U0 Total EE Tax $0
/Nxx Uncoll EE tax $60 The $60 in 270G was used to pay off the existing claim first, so
there was no money leftover to pay for taxes. Now the
employees taxes are not in balance with their wages.
/560 Net Pay $0
/561 Claim $60
/563 Claim paid $60
270F Tax Equal Gross $160 No-pay gross
270G Tax Equal Tax $60 Cash payment to cover $60 in expected employee tax
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Reconciling Taxable Wages No Retrocalculation

Many times we have to reconcile the taxable wages back to the wages paid to the employee. To do this, 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. You can use the ZP_TAXMODEL program to determine which wagetypes are taxable for the
various tax authorities, tax types, and tax modifiers.
When reconciling the wages, be sure to keep in mind which ones are taxable vs. taxable-not-taxed. Wagetypes that
are taxable will go into /3xx, /6xx and /7xx. Taxable-not-taxed wagetypes will cumulate into /Qxx. The W-2 adds the
/7xx and /Qxx wagetypes together for reporting.
When balancing taxes to the taxable wages, also be aware of any uncollected taxes that may be present.
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Retrocalculations
Cash vs Tax Perspective
In both current-period and retro-period calculations, there really is no direct link between cash wages and taxable
wages. It is best to think of them as two separate processes.
Gross to Net Equation
For every payroll period the net pay can be calculated with this equation:
/101 - /110 - /5U0 + /552 + /561 - /563 = /560
Or in friendlier terms:
Total cash payments total employee deductions total employee taxes + retro differences + claim claims paid =
net pay.
Forming Retro Differences

Using the gross-to-net equation as a guide, an abbreviated payroll result could look like the table below. One
exception is that we dont put accounts on /101, /110 and /5U0 instead we account for their individual components
such as base pay, overtime, cafeteria deduction, withholding tax and so on.
Period 1
Wagetype Amount Debit Credit
/101 $1000 $1000
/110 $200 $300
/5U0 $300 $300
/560 $500 $500
Wagetype amounts can change retroactively. For example, if an employee was underpaid by 8 hours of overtime in
a previous period, the amount of the overtime wagetype would increase retroactively. Since overtime is a cash
payment, it would cause /101 to increase retroactively, showing that we now need to pay the employee $100 more
in this case. But, in a retrocalculated period we can not change the amount of net pay, since that pay was already
transferred to the bank (or paid via check). The difference between what was paid originally vs what should now be
paid is put into a wagetype called retro differences, or /551. This keeps the retro payroll period in balance (i.e.
debits equal credits).
Period 1 in 2
/101 $1100 $1100
/110 $200 $200
/5U0 $300 $300
/560 $500 $500
/551 $-100 $100
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Then in the current period, the system sums all the /551 wagetypes from the retro periods, multiplies by negative 1
and places that amount in /552. If positive, this adds to the amount of net pay, if negative then it will reduce net pay.
/551 and /552 should always exactly offset each other.
Period 2 in 2
/101 $1000 $1000
/110 $200 $200
/5U0 $310 $310
/560 $590 $590
/552 $100 $100
Claims
Retro differences (wagetype /552) is added to total net pay (wagetype /560) in the current period. If /552 is
negative, it could reduce /560 to a negative amount, which is not allowed (cant have negative net pay). The amount
it would go negative is the amount that can not be recovered in the current period, and that amount is stored in /561
a Claim. The claim is the amount of money the employee still owes the company because they dont have enough
to pay it back.
For example, assume the employee was really on leave of absence beginning in period 1, so they would have had
a total gross of zero, but they were originally paid $1000. In that case, the results would look like:
Period 1 in 2
/101 $0 $0
/110 $200 $200
/5U0 $300 $300
/560 $500 $500
/551 $1000 $1000
In period 2, the employee is still on leave of absence, so no payments, deductions or taxes are taken. The $1000
overpayment from period 1 in 2 is stored as a claim, since there is no net-pay to offset it.
Period 2 in 2
/101 $0 $0
/110 $0 $0
/5U0 $0 $0
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/560 $0 $0
/552 $-1000 $1000
/561 $1000 $1000
The claim (/561) is the amount the employee owes the company. In every subsequent payroll the system will apply
money towards paying off the claim, before it uses the money for any deductions or taxes. For example, in period 3
the employee gets paid $600, and all of that gets allocated to reduce the claim.
Period 3 in 3
/101 $600 $600
/110 $0 $0
/5U0 $0 $0
/560 $0 $0
/561 $400 $400
/563 $1000 $1000
Page 40
Taxation of Retrocalculations
Tax When Paid (TWP) vs Tax When Earned (TWE)
Since SAPs payroll system has retrocalculation functionality, it can happen that we change payments in the past
that affect taxable wages. This is something that tax authorities never expect, and dont really recognize. Tax
authorities want companies to tax payments based on when the employee has constructive receipt of the wages.
Constructive receipt in SAP terms means that we tax the wages when they are paid, not when they are earned. The
tax when paid date corresponds to the check date and/or period end date depending on the infotype.
So when SAP does retroactively change wages in the past, those changes are rolled forward to the current period
and taxed there. However, the taxable wagetypes change in the retro periods. For example, in the first
retrocalculation case /101 increase in period 1 in 2, because the overtime wagetype increased. But that increase
was not taxed in period 1 in 2, it was rolled forward to period 2 in 2 and taxed there (which is why taxes are higher
there).
There are some cases where wages are taxed when earned gross-ups/gross-downs, retroactive changes in tax
areas, and NAMCs
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). In the current period, the payroll program sums together all
the XDFRT entries and then one by one sums them to the current periods 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. The wages it can clear go to the BAL table (BAL for balanced offsets). The
entries it can not clear go to the UNB (unbalanced offsets) table. Every subsequent payroll will read in the previous
periods UNB entries and try to clear them against current taxable income.
SAP creates in each pay period a wagetype called Good money, wagetype /5PY. It contains the total amount of
taxable wages that can be worked with. So if /5PY is zero or negative then no wages can be cleared, as is the case
with employees who have claims.
When trying to reconcile regular wagetypes to taxable wages in the current period, the equation to be used is
current period taxable wages + differences in BAL table = taxable wages.
Tax Priority & Caps
Function UTPRI controls two things the priority of taking taxes, and the creation of uncollected taxes. It behaves
one way in current period calculations and another way in retro periods. In a retro period, the function will let payroll
take additional payroll taxes up to the amount of total gross (/101) in the original period. For example, if an
employee retroactively went from residing and working in Blue Ash to residing in Blue Ash and working in
Cincinnati, the system would retroactively take an additional 1.1% in Cincinnati tax, as long as the amount of total
tax in the retro period was not greater than the amount of /101 in the original period. If it was greater than /101, then
the difference gets placed into uncollected taxes. The documentation for this function can be viewed with
transactions PDSY or PE04.
Page 41
Retroactive changes to gross-ups
Client XXX use of no-pay gross-ups presents problems for the UTPRI function in retro calculations. For example, if
a no-pay gross-up retroactively increases, and the employee has no other cash money (i.e. 3121L expats) then its
likely you will get uncollected taxes: the gross goes up retroactively since gross-ups are tax-when-earned, and the
cash payment for taxes increases to cover the additional amount of tax. However, 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, and it
reduces the employee taxes (creating uncollected tax). However, the amount of the cash payment to cover taxes
does not go down, and the difference between that and total tax results in a net payment to the employee. For
example:
Period 1 in 1
/560 Net Pay $0
270G Tax Equal Tax $1000 Cash payment to cover $1000 in employee
tax
Then in period 2 we retroactively increase 270E to $30000:
Period 1 in 2
/5U0 Total EE Tax $1000 Capped at $1000; the value of /101 in the
original period
/Nxx Uncoll Tax $500 The amount of taxes it could not take
/551 Retro differences $-500 /101 - /110 - /5U0 + /551 has to equal /560,
so /551 is set to balance this equation
/560 Net Pay $0
270G Tax Equal Tax $1500 Cash payment to cover $1500 in expected
employee tax
Page 42
And assuming the employee had no other transaction in period 2, he gets paid $500:
Period 2 in 2
/101 Total gross $0
/552 Retro differences $500 The sum of /551 times -1
/560 Net Pay $500 /101 - /110 - /5U0 + /552 = net pay
To minimize the problems with retroactive changes to gross-ups affecting net pay or creating claims, we wrote a
new payroll function ($RGUF) that tricks the system so that if gross-ups change retroactively it always has enough
money to cover taxes, so no retro differences are created. The example listed above should not happen in Client
XXX system because of this enhancement.
Crossing Years
When a payroll retro crosses from the current year into a previous year then special processing takes place for
taxes. SAP will not allow taxes in the previous year to change from their original values. For example, if you
process a January correction check that retros back into the previous year and something causes taxes to change,
SAP will reset those tax amounts back to their original value. This is done by the payroll function UOTX0 keep old
taxes in retro. This exception to this function is that it does let you change tax amounts via NAMCs (infotype 221).
In this example, well show what happens when a no-pay gross-up changes retroactively in the previous year. In the
original period 12 a no-pay gross-up of $30,000 was processed:
Period 12 in 12
/560 Net Pay $0
employee tax
Page 43
Then in period 1, someone changed period 12s 270E to $20,000 from $30,000. Total cash payments go down but
the taxes remain the same. Wagetype 270G the cash payment to cover employee taxes on the gross-up is now
$1,000. But, the system keeps the total tax amount at $1,500 because we are crossing years. To balance out the
payroll, we get a /551 wagetype for $500.
Period 12 in 1
/5U0 Total EE Tax $1500 Kept at $1,500 the amount of tax in the
original period (12 in 12)
/551 Retro differences $500 /101 - /110 - /5U0 + /551 has to equal /560,
so /551 is set to balance this equation.
/560 Net Pay $0
employee tax
In period 1, the employee had no other pay, and they receive a claim for the difference in tax from period 12 in 12
and 12 in 1. The employee owes $500 because we reduced their tax payment but did not reduce their actual taxes
in period 12 in 1.
Period 1 in 1
/101 Total gross $0
/552 Retro differences $-500 The sum of /551 times -1
/560 Net Pay $0
/561 Claim $500
Page 44
W-2 Corrections (W-2C)
Once W-2s are run and finalized, any change to taxable wages or taxes in the previous year will cause a W-2C (W-
2 correction) form to be produced. The finalized date for W-2s is stored in the system, 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). You can
also view the filing date by using the Data Browser (SE16) on v_t5xy_a, enter the tax company and use tax form
z_w2_01.
Page 45

SAP US Payroll Tax Well Explained PDF

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SAP US Payroll Tax Class

SAP Tax Terminology............................................................................................................................................. ...2

SAP Tax Terminology

Formula Formula Instructions for how to calculate a tax amount

Tax Calculation Process

Tax Other Year-to-Date Previous

SAP Tax Preparation

BSI Tax BSI Tax

SAP Special Processing

Infotype Title Description / Notes

Infotype Title Description / Notes

Infotype Title Description / Notes

Infotype Title Description / Notes

Infotype Title Description / Notes

Tax Exempt Indicator

Def. Form.No. is the

For other fields,

This screen layout

Infotype Title Description / Notes

Infotype Title Description / Notes

The formula numbers

Tax Data Maintenance Tax Types

Tax Data Maintenance Tax Areas

Tax Data Maintenance Tax Models

Tax Modifier Employee Group

U1 Domestic employees & other retiree payments

U2 No longer used (was Sundor)

U4 Retiree stock options (pay types L and S)

U5 No longer used (was Outbound expats)

U7 Any employee (expat or regular) whose resident tax

Employee tax Wagetype, processing

Tax authority model Taxability model Tax modifiers

Tax Data Maintenance Unemployment Insurance

Tax Data Maintenance Tax Overrides

Priority of Tax Wagetypes

Gross to Net Wagetypes

Wagetype Description Explanation Notes

/101 Total Gross This contains all the cash payments to

/110 Total EE All employee deductions that were taken

Wagetype Description Amount Notes

/560 Net Pay $0

270E Tax Equal Net $100 No-pay net

270F Tax Equal Gross $160 No-pay gross no cumulation to /101

Problems with Gross-ups

Wagetype Description Amount Notes

/101 Total gross $60

/5U0 Total EE Tax $0

/560 Net Pay $0

/561 Claim $60

/563 Claim paid $60

270E Tax Equal Net $100 No-pay net

270F Tax Equal Gross $160 No-pay gross

Reconciling Taxable Wages No Retrocalculation

/101 - /110 - /5U0 + /552 + /561 - /563 = /560

Forming Retro Differences

Wagetype Amount Debit Credit

/101 $1000 $1000

/110 $200 $300

/5U0 $300 $300

/560 $500 $500

Wagetype Amount Debit Credit

/101 $1100 $1100

/110 $200 $200