Tax Exemption and Residency #
Overview #
This article provides information on how to manage tax exemptions and residency status for employees using ProPay payroll software. Understanding these features is crucial for accurate payroll processing and tax reporting.
Key Features #
Tax Exemption #
ProPay allows you to set tax exemptions for employees by checking applicable boxes. This feature can be used for:
- Exempting employees from specific taxes
- Handling payments to subcontractors
- Managing 100% exempt status
Residency Status #
The residency status feature helps determine the applicable state and local tax tables for employees. It distinguishes between:
- Residents
- Non-residents
Additional State Withholding #
ProPay supports withholding taxes for two states on the same paycheck, which can be set up in the Employee Edit/Change screen.
Common User Queries #
Q1: When should I mark an employee as exempt? #
A1: Only mark an employee as exempt if they meet specific IRS criteria outlined in the Employer’s Tax Guide Circular “E”. Do not mark employees as exempt solely based on low annual income.
Q2: How do I handle subcontractor payments? #
A2: For subcontractors, check all exemption boxes to make the employee 100% exempt. This will generate a 1099 form instead of a W-2 at year-end.
Q3: How does residency status affect tax calculations? #
A3: Residency status determines which state and local tax tables apply to an employee. Some states have different rates for residents and non-residents.
Troubleshooting #
Issue: Incorrect Tax Withholding #
- Verify the employee’s exemption status is correctly set.
- Check the residency status and ensure it matches the employee’s actual residency.
- For low-income employees, use “99” exemptions instead of marking them exempt.
Issue: FUTA Tax Calculation Errors #
- Complete the 940 worksheet if wages are exempt from SUI but subject to FUTA.
- Enter the amount from line 7 of the worksheet in the appropriate field.
- Be aware of potential increased FUTA tax due to loss of state credits.
Technical Notes #
- The system accommodates various tax exemption scenarios as per IRS guidelines.
- Residency status options include “Resident” and “Non-resident”.
- Additional state withholding can be set as a percentage of gross pay, a fixed amount, or both.
Feedback #
We value your input on this documentation. If you have suggestions for improvement or encounter any issues not addressed here, please contact our support team through the help menu in ProPay software or visit our website at https://www.Paysoft.com.