Tax Calculation Steps

Tax calculation steps for a tax code must be entered in Tax Table Maintenance in the order in which they must be performed. Up to nine steps can be entered. A step number cannot be repeated. Detailed information on tax steps can be found in your Federal and State Employer's Tax Guides (available from the US Internal Revenue Service and the appropriate state departments).

The following tax calculation steps are available.

Code	Description
1	Percent of Federal: If a table is assigned to this step (for example, step 1 is followed by step A, S, or 7), the appropriate table is based on the federal withholding tax. If a table is not assigned to this step, withholding tax is computed as a percentage of the federal withholding tax. This step does not apply to the federal tax code. If tax calculation step 1 is used, steps 3 and P are not available.
2	Annualize Wages: Annualize wages based on the employee pay cycle.
3	Subtract Federal W/H: Subtract federal withholding tax from the taxable wages. If tax calculation step 1 is used, steps 3 and P are not available.
4	Standard Deduction: Take the standard deduction.
5	Personal Exemption: Take the personal exemption.
6	Dependent Exemption: Take the dependent exemption.
7	Apply Tax Table: Calculate the withholding tax using the adjusted taxable income and the tax table for the employee's filing status. If step 7 is preceded by step 1 or P, the tax table will be based on the federal or state withholding tax.
8	Non Taxable: No withholding tax is computed for this tax code.
9	Low Income Limit: Check the low income limit and compute no withholding tax if the taxable wages are less than this amount.
F	Subtract FICA: Subtract FICA and Medicare tax from the taxable wages.
A	Add Adjustment: Add an adjustment to the taxable wages based on the Adjustment table. If step A is preceded by step 1 or P, the Adjustment table will be based on the federal or state withholding tax.
S	Add Surcharge: Add an amount to the withholding tax based on the Surcharge table. If step S is preceded by step 1 or P, the Surcharge table will be based on the federal or state withholding tax.
E	Apply Exemptions: Apply an exemption amount based on the total taxable wages using the Exemption table.
C	Apply Credit %: Apply a credit percentage to the withholding tax based on the total taxable wages using the Credit Percentage table.
P	Percent of State: If a table is assigned to this step (for example, step P is followed by step A, S, or 7), the appropriate table will be based on the state withholding tax. If a table is not assigned to this step, withholding tax is computed as a percentage of the state withholding tax. This step applies to local tax codes only, and is available only if the Require Local Tax Reporting check box is selected in the Payroll Options window. If step P is used, steps 1 and 3 are not available.
If tax calculation step 1 (Percent of Federal) is used, steps 3 (Subtract Federal W/H) and P (Percent of State) are not available. If step P is used, steps 1 and 3 are not available.