SAP HCM US Payroll Tax Calculation Illustration
Sometimes, while implementing SAP or supporting it, we are faced with questions as to whether the tax that is getting calculated by the standard is actually correct. It becomes even more difficult when we know that the taxable amounts go into BSI and come back all calculated into SAP. So, how do we make sense of it all?
Disclaimer: The illustration presented here is only for a troubleshooting perspective while performing SAP implementations on US Payroll. This document should be in no way considered to be a source of truth as far as IRS Payroll Tax Rules are concerned. The tax rates presented here are those of 2014/2015.
In the US, payroll tax calculation for SAP is done by BSI, a third-party tool to which SAP sends data.
An illustration of how tax calculation is done follows fr an employee who is paid semi-monthly (twice every month, so 24 times in a year).
Basic Pay of the employee is as shown in the Infotype 8 screenshot shown below.
There are no other wage types assigned to the employee in Infotype 14 or 15.
When you run simulation payroll, you can open up the log as follows:
Then double-click on ‘Processing’ as below:
This ‘Processing’ node under USTAX function is the exact point where amounts are sent to BSI.
In the payroll log, it shows the applicable tax types for the Employee as below
After BSI calculates the tax, the tax amounts are displayed in the log as follows:
The Information regarding Tax Filing Status (Single/Married) and No. of Withholiding Allowances, can be obtained from Infotype 210 of the employee as shown below. This information is used by BSI TaxFactory to calculate withholding tax.
Let us perform a sanity check of the tax amounts that appear.
For Federal Taxes
Rate of Taxation for Social Security Tax, for Employee & Employer is 6.2% each
- 6.2% of 1729.17 = 107.21
Rate of Taxation for Medicare Tax, for Employee & Employer is 1.45% each
- 1.45% of 1729.17 = 25.07
Rate of Taxation for Employer Unemployment Tax is 0.6%
- 0.6% of 1729.17 = 10.38
For Federal Withholding Taxes, please check the tables on Page44 of the attached PDF file.
https://www.irs.gov/pub/irs-pdf/p15.pdf
This employee has wages as $1608.13
Period wages X No. of payroll periods in a year = 1608.13 X 24 = 38595.12
Now, reduce this by number of withholding allowances = 38595.12 – 1 X (3950) = 34645.12
Now, yearly tax = $1815 + 15% of excess over $26600
= 1815 + 15% of (34645.12 – 26600)
= 1815 + 15 % of 8045.12
= 1815 + 1206.768
Yearly Tax = 3021.768
Divide Yearly Tax by Number of Payroll Periods = 3021.768 / 24 = 125.907 rounded up to $125.91.
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233,025 |
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TABLE 7—ANNUAL Payroll Period |
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(a) SINGLE person (including head of household)— |
(b) MARRIED person— |
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If the amount of wages (after subtracting withholding allowances) is: |
The amount of income taxto withhold is: |
If the amount of wages (after subtracting withholding allowances) is: |
The amount of income taxto withhold is: |
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|
Not over $2,250…….. |
$0 |
Not over $8,450…….. |
$0 |
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|
Over— |
But not over— |
of excess over— |
Over— |
But not over— |
of excess over— |
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|
$2,250 |
—$11,325 |
.. |
$0.00 plus 10% |
—$2,250 |
$8,450 |
—$26,600 |
.. |
$0.00 plus 10% |
—$8,450 |
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|
$11,325 |
—$39,150 |
.. |
$907.50 plus 15% |
—$11,325 |
$26,600 |
—$82,250 |
.. |
$1,815.00 plus 15% |
—$26,600 |
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|
$39,150 |
—$91,600 |
.. |
$5,081.25 plus 25% |
—$39,150 |
$82,250 |
—$157,300 |
.. |
$10,162.50 plus 25% |
—$82,250 |
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|
$91,600 |
—$188,600 |
.. |
$18,193.75 plus 28% |
—$91,600 |
$157,300 |
—$235,300 |
.. |
$28,925.00 plus 28% |
—$157,300 |
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|
$188,600 |
—$407,350 |
.. |
$45,353.75 plus 33% |
—$188,600 |
$235,300 |
—$413,550 |
.. |
$50,765.00 plus 33% |
—$235,300 |
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|
$407,350 |
—$409,000 |
.. |
$117,541.25 plus 35% |
—$407,350 |
$413,550 |
—$466,050 |
.. |
$109,587.50 plus 35% |
—$413,550 |
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|
$409,000 |
………… |
$118,118.75 plus 39.6% |
—$409,000 |
$466,050 |
………… |
$127,962.50 plus 39.6% |
—$466,050 |
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|
TABLE |
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For State Taxes (Colorado)
Rate of Taxation for Employer Unemployment Tax is 1.7%
- 1.7% of 1729.17 is 29.4
For Colorado State Withholding Taxes, the rate is 4.63% as per the latest rates
TAX TABLE(S)
SINGLE / MARRIED BUT WITHHOLD AT SINGLE RATE TABLE:
|
If Adjusted Wages Are: |
|||
|
At Least |
But Not Over |
Computed Tax Is: |
Of Excess Over |
|
$ 0. |
$ 2,200. |
$ .00 |
$ 0. |
|
2,200. |
And Over |
.00 plus 4.63% |
2,200. |
MARRIED TABLE:
|
If Adjusted Wages Are: |
|||
|
At Least |
But Not Over |
Computed Tax Is: |
Of Excess Over |
|
$ 0. |
$ 8,300. |
$ .00 |
$ 0. |
|
8,300. |
And Over |
.00 plus 4.63% |
8,300. |
It is a similar procedure to the Federal Withholding calculation.
This employee has wages as $1608.13
Period wages X No. of payroll periods in a year = 1608.13 X 24 = 38595.12
Now, reduce this by number of withholding allowances = 38595.12 – 1 X (3950) = 34645.12
Now, yearly tax = 4.63% of excess over $8300.
= 4.63% of (34645.12 -8300)
= 4.63% of 26345.12
Yearly Tax = 1219.779
Divide Yearly Tax by Number of Payroll Periods = 1219.779 /24 = 50.82413 rounded up to $51.
Thus, the taxation amounts appear correctly.
Excellent Explanation. Thanks.