Tax information tasks

Important

This content is archived and is not being updated. For the latest documentation, see Microsoft Dynamics 365 product documentation. For the latest release plans, see Dynamics 365 and Microsoft Power Platform release plans.

Applies To: Microsoft Dynamics AX 2012 R3, Microsoft Dynamics AX 2012 R2

This topic describes how to specify organization-wide settings for payroll taxes.

Payroll taxes are set up in two parts. The first part, which is described in this topic, covers the settings that are used throughout the organization, such as the states where you have a nexus, or the rates for unemployment taxes. The second part, which is described in Worker and position payroll tasks, covers the additional tax information that must be provided for each worker.

The following illustration shows the steps that are required to set up payroll taxes. The numbers correspond to the procedures later in this topic.

For more information about payroll taxes, see Tax codes, tax groups, and posting definitions and Payroll data updates.

What do you want to do?

Understand the bigger process

Review the prerequisites

1. Set up tax data

2. Set up employer tax regions for nexus

3. Create tax regions

4. Set up tax codes

5. Optional: Set up tax groups

Next step

Technical information for system administrators

Find form help

Find related tasks

Understand the bigger process

The following illustration shows the relationship between this topic and the overall process of setting up Payroll for the first time.

For an overview of the process see Setting up payroll: Basic topics.

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Review the prerequisites

The following table shows the prerequisites that must be in place before you start.

Category	Prerequisite
Version	Microsoft Dynamics AX 2012 R2 Tax groups are not available prior to cumulative update 7 for AX 2012 R2.
Country/region	(USA) The primary address for the legal entity must be in the following countries/regions: United States

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1. Set up tax data

To set up tax data, update the tax data to make tax codes and system-defined tax groups available. (Click Payroll > Setup > Taxes > Update tax data.)

When you run the Update tax data process the first time, the full set of supported payroll taxes is loaded, and system-defined tax groups are automatically created. The supported taxes and system-defined tax groups are updated whenever you run the Update tax data process.

Each system-defined tax group contains tax codes of a particular type. For example, all tax codes for school districts are included in the SCHL tax group and all tax codes for state income tax are in the SIT tax group. If these system-defined tax groups meet your organization’s needs, you don’t have to create additional tax groups.

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2. Set up employer tax regions for nexus

One of the most important factors in determining whether a legal entity must pay and withhold taxes in a state is whether the legal entity has a nexus, or a significant business presence, in that state. In Microsoft Dynamics AX, each state or territory where a legal entity has a nexus is defined as an employer tax region. Every legal entity must have at least one employer tax region. Legal entities that have a nexus in more than one state have multiple employer tax regions. These employer tax regions are used together with multiple-state taxation and reciprocity rules to determine when and where to withhold and pay taxes.

Important

The question of whether a legal entity has a nexus in a particular state can be complex and difficult to answer. The determination is usually made by your legal advisors.

To set up employer tax regions for a nexus, follow these steps:

1. Click Payroll > Setup > Taxes > Employer tax regions.

2. Click New.

3. In the State column, select a state or territory where your organization has a nexus.

4. When you first create an employer tax region, it is not active. Payroll taxes for the state or territory are not withheld. Select the check box in the Active column to withhold and pay payroll taxes according to the multiple-state taxation and reciprocity rules that apply.

   Note

   Clearing the Active check box has the same effect as deleting the tax region.

Repeat these steps to add more states or territories where your organization has a nexus. When you are finished, close the form.

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3. Create tax regions

Tax regions are geographic areas in which a specific set of payroll taxes applies. Tax regions generally correspond to the cities or towns where your workers reside or work. A worker tax region is a tax region that has been assigned to a specific worker. A default tax region is a worker tax region that is used to generate earnings for a specific position that the worker holds.

Before you begin, it is helpful to determine the county, state, and ZIP/postal code for each city that you identify as a tax region.

To create tax regions, follow these steps:

1. Click Payroll > Setup > Taxes > Tax regions.

2. Click New to open the Tax region form.

   To save time when you create tax regions, you can enter any part of the location information. For example, you can enter only the state or only the ZIP/postal code. If more than one tax region matches the location information that you entered, the Multiple tax regions form opens and displays a list of cities from which you can select the correct region.

3. In the Name or description field, enter a name to use for this tax region. For example, you might enter CO Denver for Denver, Colorado.

   Tip

   If you include the name of the state as the first part of the tax region name, tax regions in the same state will be sorted together.

4. In the ZIP/postal code field, enter the ZIP code or postal code for this tax region. If you do not have the ZIP code, enter either the city or the county and the state in the appropriate fields.

5. Click OK.

   If more than one tax region matches the location information that you entered, the Multiple tax regions form opens. Select the location for this tax region from the list, and then click OK.

Repeat these steps to create additional tax regions. When you are finished, close the form.

For information about how to assign tax regions to workers, see Worker and position payroll tasks.

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4. Set up tax codes

You do not have to create tax codes. The codes for all payroll taxes that are supported by Microsoft Dynamics AX are provided for you. However, you must provide information about how your organization uses each tax code.

You can create as many versions of the data for each tax code as you need. Only one version can be in effect for a legal entity at any given time. The Tax codes form always displays the version that is currently in effect for the selected legal entity.

Tax codes are automatically assigned to workers based on their worker tax regions, position, and legal entity. You can then set up the worker tax code for each worker’s individual tax situation. For information about how to set up worker tax codes, see Worker and position payroll tasks.

Important

The following taxes are not supported by Microsoft Dynamics AX:

• Employer head taxes – Taxes that are not based on a payment, but that are calculated on the number of employees paid over a certain period of time.

• Employer percentage of payroll taxes – Taxes that are not calculated based on a payment, but that are calculated on the amount that is paid to employees over a certain period of time.

• RRTA taxes – The employee part of the Railroad Retirement tax.

• Employer RRTA taxes – The employer part of the Railroad Retirement tax.

• Employer RUIA taxes – Railroad unemployment taxes that are paid by the employer.

• SUTA surcharges – Although base state unemployment taxes are supported, individual surcharges aren’t calculated independently. You must increase the defined base SUTA rate to cover the calculation of any SUTA surcharges and list the amounts manually when you file.

• Ohio JEDD taxes – A type of local tax in the state of Ohio that is managed by the Joint Economic Development Districts.

There might be other taxes that are not supported by Microsoft Dynamics AX. To verify whether a tax is supported, see the tax codes that are delivered with the system or contact product support. Because legislative changes can also change which taxes are supported, changes are noted in the release documentation for each tax update.

To set up tax codes, follow these steps:

1. Create a list of the payroll taxes to configure. For each tax, determine the following:

   • The legal entities that the tax applies to.

   • The main account to use for the tax.

   • The wage base, account ID, or rate, if the taxing authority has specified them. For example, unemployment taxes usually have a specified rate.

   • The reporting requirements for the tax for Form W-2.

2. Click Payroll > Setup > Taxes > Tax codes.

3. Select a tax code to set up.

   The following information is built into the tax code and can’t be changed.

   Field	More information
   Tax code Description Country/region	The description is printed on pay statements and other reports. If this description should not be printed, enter a different description in the Report description field on the General tab.
   Lock pay statement	If this check box is selected, tax lines that are related to this tax code can’t be modified on pay statements.
   Employer tax	If this check box is selected, the tax is an employer tax that is paid by the employer. If this check box is cleared, the tax applies to the employee and is withheld from the employee’s gross pay.

4. On the Tax code details FastTab, set up and select settings for each tax code that your organization uses. If a tax code is used by more than one legal entity in your organization, you must set up the tax code for each legal entity.

   Note

   For many tax codes, the fields on the General tab are blank. We recommend that you review all settings, which includes those on the Accounting tab, to verify that a tax code has been set up for a legal entity.

   1. Select the legal entity that the tax code applies to.

   2. On the General tab, specify the following information.

      Field	Information
      Report description	Optional: To overwrite the description of the tax code that appears on reports, such as printed pay statements, enter the new description here. To use the default description, leave this field blank.
      Account ID	Enter the account number that the legal entity has with the taxing authority. State income taxes always have an account ID. If the taxing authority has not specified an account ID, leave this field blank.
      Wage base	Enter the value specified by the taxing authority. If the taxing authority does not specify a wage base, leave this field blank.
      Rate	Enter the rate that the legal entity pays. For example, if the rate is 2.5 percent, enter 0.025. Unemployment taxes always have a specified rate. For other taxes, if the taxing authority has not specified a rate, leave this field blank. Warning Although base state unemployment taxes are supported, individual surcharges aren’t calculated independently. You must increase the defined base SUTA rate to cover the calculation of any SUTA surcharges and list the amounts manually when you file.

   3. On the Accounting tab, specify the following information.

      Field	Information
      Vendor	To automatically create invoices for the calculated tax amounts, , enter the agency that the tax is paid to. If you prefer to create tax invoices manually, leave this field blank.
      Project category	If the tax code is used for employer tax transactions that are posted to a project instead of to the general ledger, select a project category. If a tax code must be posted to a project, you must specify a project category on the tax code line before you can generate a pay statement. Note This field is never used for taxes that are paid by the worker.
      Default financial dimensions	The default financial dimensions for the main account. When you select a financial dimension value, the Where the %1 dimension is used field group displays where the dimension is used in account structures and advanced rule structures.
      Main account	Enter the main account that this tax will be posted to. For employer taxes, employer tax transaction costs are posted to the main account. For employee taxes, the withholding liability is posted to the main account. This account is used for all transactions that are related to this tax code and legal entity.

   If the tax code is used by another legal entity, repeat this step for that legal entity.

5. On the Reporting FastTab, enter any information that is required for boxes 10, 11, 12, or 14 of Form W-2.

   If the Reporting FastTab isn’t available, you might have to close the Tax code details FastTab.

Repeat these steps to set up additional tax codes. When you are finished, close the form.

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5. Optional: Set up tax groups

You can use tax groups to help sort and select payroll taxes, and to update accounting data for all the tax codes in a tax group at the same time.

When you set up Payroll, a set of system-defined tax groups is automatically created the first time that you run the Update tax data process. System-defined tax groups are updated whenever you run that process. Each system-defined tax group contains tax codes of a particular type. For example, all tax codes for school districts are included in the SCHL tax group, and all tax codes for state income tax are in the SIT tax group. If these system-defined tax groups meet your organization’s needs, you don’t have to create additional tax groups.

However, if several tax codes share the same accounting data, you might want to put these tax codes in a single tax group. When you do this, if the vendor changes, you can use the tax group to change the vendor for all the tax codes in the group at the same time. This can save time and reduce the risk of errors.

To set up tax groups, follow these steps:

1. Create a list of the tax codes to include in each tax group.

   In most cases, you will include all the tax codes that share the same accounting information in a single tax group. In addition, if a set of tax codes shares the same posting requirements, you can include them in a single tax group that you enable for posting definitions. A tax code can be included in multiple tax groups, as long as only one of the tax groups is enabled for posting definitions. For more information, see Tax codes, tax groups, and posting definitions.

   Tip

   You can set up the transaction posting definitions so that some tax codes in the group use a different posting definition than the rest of the tax codes in the group. For more information, see Transaction posting definitions (form) or Tax codes, tax groups, and posting definitions.

2. Click Payroll > Setup > Taxes > Tax groups.

3. Click New, and then enter a name and description that identify the tax group.

4. Click Add to open the Add tax codes to a tax group form.

   Note

   You can’t add tax codes to a system-defined tax group.

5. Select the tax codes to include in the tax group, and then click Add.

   A tax code can be included in multiple tax groups. In the Tax codes form, you can view the list of tax groups that include a specific tax code.

6. Optional: If you plan to use this tax group in transaction posting definitions, select Enable posting definitions.

   Each tax code can be included in only one tax group that is enabled for posting definitions.

Repeat these steps to set up additional tax groups. When you are finished, close the form.

After you create tax groups that are enabled for posting definitions, you can assign those tax groups to transaction posting definitions. For more information, see Assign posting definitions to transaction posting types or Transaction posting definitions (form).

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Next step

The next step is to set up benefits and mandatory deductions. For more information, see Benefit setup tasks.

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Technical information for system administrators

If you don't have access to the pages that are used to complete this task, contact your system administrator and provide the information that is shown in the following table.

Category	Prerequisite
Configuration keys	Payroll - USA Note When you use Payroll, we highly recommend that you turn off the Payroll information configuration key under the Human resource I configuration key. The forms and tables that are enabled by that configuration key are not used by Payroll. If Payroll is installed and the configuration key is enabled, it might be difficult to make sure that your data is entered and tracked correctly.
Security roles and duties	To set up payroll taxes, you must be a member of a security role that includes these duties: Set up payroll master data (PayrollMasterDataMaintain) Inquire into payroll master data (PayrollMasterDataInquire) Maintain payroll worker tax setup (PayrollWorkerTaxSetupMaintian)
Security roles and privileges	To set up payroll taxes, you must be a member of a security role that includes these privileges: Maintain payroll tax code versions (PayrollTaxCodeDateManagerMaintain) Maintain payroll tax codes (PayrollTaxCodeMaintain) Maintain payroll tax codes using mass update (PayrollTaxCodeMassUpdateMaintain) Maintain payroll tax codes in a tax group (PayrollTaxCodeSelectionMaintain) Maintain payroll tax groups (PayrollTaxGroupMaintain) Maintain payroll tax regions (PayrollTaxRegionMaintain) Update tax data (PayrollUpdateTaxDatMaintain) Maintain resident worker tax regions (PayrollWorkerResidentTaxRegionMaintain) Maintain worker tax codes (PayrollWorkerTaxCodeMaintain) Maintain worker tax code parameter versions (PayrollWorkerTaxCodeParamValDateMaintain) Maintain worker tax regions (PayrollWorkerTaxRegionMaintain)

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Find form help

Transaction posting definitions (form)

Find related tasks

Worker and position payroll tasks

Assign posting definitions to transaction posting types