Federal Income Tax Overview

The Payroll – Tax section of Avionté Back Office houses all State & Federal tax information for employees. The tax data collected within this tax section is also directly tied to our payroll processing partner, Vertex. This section of Back Office is pivotal to maintaining payroll compliance and ensuring employees are paid/taxed correctly. The Payroll – Tax section has recently been overhauled beginning in 2020 to account for the revised Federal Withholding legislation and has also been enhanced with new features to assist with payroll compliance. The following article will explain in detail the new Payroll – Tax features.

CHAPTERS

Federal W-4: 2020 and beyond
IRS Lock-In
Is Tax Exempt
State Withholding / Tax Set Up Tab
Non-Resident Certifications (NR_Cert)
Fixed Amount Withholding
State Withholding Exemption

Federal W-4: 2020 and beyond

Beginning in 2020, the Payroll – Tax section of Back Office was redesigned to include a new tax tab titled “US Federal Tax”. This additional tab was created in response to the 2020 Federal W-4 released by the IRS. The most important distinction between the pre-2020 Federal W-4 and the 2020 version is the elimination of personal exemptions/allowances. Along with the standard deductions, all other deductions beginning in 2020 are reflected in dollar amounts on the form – such as dependents and child credits.

Qualifying Children & Other Dependents utilize drop-down dollar amount selections as outlined within the W-4 from instructions to use only multiples of $2,000 & $500 respectively. Other Income & Deductions allow for manual dollar amount entry based on employee calculations of those fields. Multiple Jobs is a checkbox that prompts the system to withhold at a higher rate based on the new 2020 withholding tables & the Extra WH field is a manual entry dollar amount based on a fixed payroll deduction request from the employee. In the event an employee claims a federal withholding tax exemption, enter 999999 into the Deductions field to prevent any federal withholding from the paycheck.

IRS Lock-In

The IRS Lock-In letter is sent to an employer to deduct federal income tax withholding at a higher rate for an employee. Any W-4 changes [marital status, exemptions [2019], etc., must not be changed by the employee. Currently, these fields reside on the EMPLOYEE > PAYROLL > TAX screen in the Back Office.

Employees with an IRS Lock-In Letter are not entitled to claim exempt from withholding or claim amount of deductions or tax credits. The IRS Lock-In letter will specify the employee’s filing status for purposes of calculating the required withholding amount.

Available in the ADMIN TOOLS > SYSTEM > CONFIG OPTION > CONFIG OPTION BY FKNAME tab, the field AllowChangeHasLockInLetter grants the ability to set up permissions for a user or group to be able to update employees with IRS Lock-In Letters.

Is Tax Exempt

The Is Tax Exempt field is most used with non-citizen employees, who based on their immigration status are exempt from federal taxable wages. This field should not be confused with citizen employees that select “Exempt” on their Federal W-4 because they still have a taxable wage. This field typically requires admin activation to view within the field chooser.

State Withholding / Tax Set Up Tab

Prior to 2020, all tax withholding information was housed within the Tax Set Up tab. Beginning January 1, 2020  - The US Federal Tax tab was created to solely house federal tax withholding data for 2020 and beyond, while the original Tax Set Up tab will continue to house federal withholding data prior to 2020 & all state withholding data. The familiar fields of Exemptions & Dependents remain within the Tax Set Up tab, as states still utilize allowances for withholding calculations.

Non-Resident Certifications (NR_Cert)

If you have employees living in a different state than they work in, these are considered non-resident employees. You may provide them a non-resident certificate for the work state.  In some states, the non-resident certificate allows the employee to declare that they are exempt from income taxes for the work state, and instead income taxes will be withheld for their home/resident state. To be compliant, it is the responsibility of the employer to set this value at an employee level for the jurisdiction after they have received the filled-out Certificate of Non-Residency form from their employee.

Fixed Amount Withholding

Prior to the 2020 Federal W-4 options existed for fixed amount withholding deductions & some states such as Missouri allow for fixed amount withholding via their W-4 form. With the need for a fixed amount withholding deduction, the Fixed Amount field is available to use in those instances. A dollar amount can be entered into the field and that specific amount will be deducted to the corresponding tax it was entered to.

State Withholding Exemption

Recent changes have been implemented in order to successfully exempt employees from state withholding who claim “Exempt” on their state W-4. It is now recommended to enter 999 into the exemptions to ensure no withholding is deducted for the state. The same SOP applies to the Federal Income Tax for employees with active federal taxation prior to 2020.

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