End of year Payroll (not general year end procedures, although is recommended) must be run before entering payroll records for the new year. The government calculates all taxes based on the date the payroll check is written.
In January, before you enter any January payroll, you must pay ALL outstanding taxes for the previous year. Check to see if any taxes are owed: go to Payroll > Reports >Taxes and Liabilities > Payroll Taxes Report. This report should show nothing.
Go to Payroll > Maintenance, Mnt > Year End Reset. This will set all the Year to Date fields in the employees file to zero. This is very important, as some taxes are calculated based on this amount.
Go to Payroll > Maintenance, Mnt > Federal Tax Rates (Enter Federal first and then State taxes.) Click “Set 2xxx” (the year will reflect the current year) to change the TAX YEAR and the tax rates and the cutoff. DO NOT click INSERT, as that is for adding another STATE to the payroll system. When you hit TAB the starndard rates and cutoffs will e filled out automatically.
Enter Mnt > State Tax Rates. Click Edit, and then TAB. Most rates will be filled out automatically. There may be some numbers that are specific to your company. These will need to be entered manually. (unemployment insurance (UI) Rates for one)
After the above steps are complete, you can enter new payroll records.
Version Upgrades: The Tax Tables that are stored in the PERFECT FIT library are the Income Tax Withholding Rates. All other taxes are set via user entry as described above. On the Payroll Record window this is designated as PIT, Personal Income Tax. These can be over written during data entry.
The Tax Tables that we sell in January are the defaults that are used for these PIT fields. If you do not wish to purchase these tables, or if you want to enter payroll records before upgrading the payroll library, you can use the published tax tables and enter the amounts by hand. In some cases this will not work, as in 2011 the structure of Social Security has changed.
After upgrading to a new version, please examine the tax calcualtions for the first pay period. You can compare them to the government’s published tables, or compare to last year to make sure they “make sense”.
The income tax withholding calculation uses a mathematical formula, and thus will not match the pre-printed tax tables exactly, but they should be close.