Canadian and US Payroll Tax Information

Tax information about employees working for organizations in Canada and the US are available in the Payroll > Tax Definitions screen in People.

Dayforce uses an employee's tax definitions to determine which taxes to withhold from the employee and, in some cases, what values to use to calculate the amounts. Payroll administrators, HR administrators, or other users with access usually perform this review when employees are hired, although you can edit tax definitions at any time.

For each employee, the application displays the taxes being applied to an employee's income in the Employee Payroll Tax section of the Payroll > Tax Definitions screen.

This list of tax authorities is automatically generated based on the employee's work address. An employee's work address is based on the location of their primary work assignment. For US employees, the list of tax authorities is also based on the employee's primary residence address.

So, for an employee whose primary work assignment has a location in the province of Ontario, the application applies Canadian federal taxes and Ontario provincial taxes. They are displayed in the Employee Payroll Tax section.

For the taxes applied, the application uses default personal claim amounts that are applicable for the majority of the employees to determine how much tax to withhold. For example, Dayforce uses the federal claim amount when determining federal income tax for Canadian employees unless it is overridden.

Dayforce applies tax parameters in the following order:

1. Legal entity overrides: Each legal entity can be configured as tax exempt for a tax; if it is, all employees who work at locations assigned to that legal entity are exempted from paying the tax. This overrides any tax information displayed on the employee's records in People.
2. Federal Tax Info, Provincial or State Tax Info sections: Each group of taxes (federal and state or provincial) has a separate section in the Payroll > Tax Definitions screen of the People feature. These sections contain a variety of parameters that are used to override the default values for all taxes of their type.
3. For example, you can define a total claim amount that is used for all federal taxes instead of the application's default values.
3. Specific tax parameters: Some taxes have specific parameters that override any default values or any values in the tax info section of their type. Defining parameters for specific state taxes overrides any values specified in the State Tax Info section, while defining parameters for federal taxes overrides the values in the Federal Tax Info section.

Dayforce always uses a specific tax's parameter values for an employee. If no parameters specific to that tax have been configured in the Employee Payroll Tax section, Dayforce uses the values in either the Federal Tax Info section or the State/Provincial Tax Info section, depending on whether the tax is federal or state or provincial. If no parameters are configured for the employee in the tax info sections, the Dayforce uses the system default values.

For example, for the federal income tax, the application first checks the Total Claim Amount in the Federal Tax Info section and uses any value supplied there, instead of the default claim amount. Next, it checks the Total Claim Amount field in the Employee Payroll Tax section and uses any value supplied there instead. If both override fields are blank, the application does not override the employee's claim amount and instead uses the default claim amount.

When you update tax information for an employee, Dayforce displays informative messages about the changes. For example, an employee is transferred to a location in another city. When that happens, an HR administrator must update the employee’s address information in that employee’s record in People. When the administrator saves the changes, the application’s tax locator (which performs tax calculations based on where employees reside) updates the tax information for the employee and displays an informational message.

In the Employee Payroll Tax section, new taxes are marked with a green checkmark icon, as shown here:

Hover the cursor over a green checkmark icon for more information about the new tax.

US Taxes

For employees in the United States, the amount of tax being withheld is determined by:

• Filing status, which determines the tax rate that applies to an employee and the deduction amounts that apply to that employee’s tax return.
• An employee’s filing status is based on that employee’s marital status on the last day of the year. If, for example, an employee gets divorced or separated in June, they’re considered unmarried for the full year. Conversely, an employee who is married on December 30 is considered to have been married for the full year.
• A married employee who files a tax return with their spouse can, for example, potentially pay less tax than an unmarried employee.
• Allowances, which apply to taxes that have been withheld on such income as bonuses and commissions.
• Employees can get an allowance for each exemption that they claim on their tax returns. These exemptions can include the employees themselves, their spouses, and their dependents; as well as certain deductions and credits. Each allowance that an employee claims reduces the amount of tax being withheld.

The Tax Definitions screen for US Employees can have the following sections:

Sections available in the Tax Definitions screen for US employees

Section	Description
Federal Tax Info	View and update federal tax exemptions that are specific to the employee.
State Tax Info	View and update state tax exemptions that are specific to the employee.
Quarterly/Annual Reporting Parameters	View and update employee-specific tax reporting parameters for federal and certain state jurisdictions.
Special Taxation	View and update special taxation parameters for the employee. Select from the following Special Taxation Types: Air Carrier Taxation Configure Visa Exemption Taxation for US Employees
Flat Tax	View and update flat tax overrides for federal or state taxes for the employee.
Employee Payroll Tax	View and update employee-level tax overrides for the employee.

Address Requirements for US Local Taxes

When addresses for employees who live in states with local taxes are specified without a road type in the Address field or a value in the County field, the application displays a message reminding you that local taxes cannot be applied without more information. If the address is saved without this information, the application does not apply local taxes to that employee.

This validation is performed for the following states: AL, AR, CA, CO, DE, IN, KY, MD, MI, MO, NJ, NY, OH, OR, PA, TX, and WV. The validation for counties is only performed for OH, PA, and IN.

Canadian Taxes

For employees in Canada, the amount of tax being withheld is determined by:

• The number of claims that the employees have made on their TD1 personal tax credits return forms.
• Any additional amounts that the employee has requested to be withheld.
• Various deduction and contribution amounts, both at the federal and provincial levels.

See Payroll Tax Definitions for Canadian Employees.

Entering Tax Overrides for Canada and US

The following steps describe how to review the taxes being applied to an employee and, if necessary, provide overrides at either the specific tax or group of taxes level.

You can review tax information in People. First, load the appropriate employee's records.

To review employee tax information:

1. Go to People, open the employee profile, and click Payroll > Tax Definitions.
2. The application displays the taxes that are applied to the employee's income in the Employee Payroll Tax section.
2. You can filter this list by selecting values in the Tax Type parameter, Show Only drop-down list, or Legal Entity parameter and clicking the Apply filter. You can also filter based on a description provided in the Description field.
3. For example, you can display just the federal and employee taxes by selecting Federal in the Tax Type parameter and Employee Tax in the Show Only drop-down list.
4. Note: Click Clear Filter to display all applicable taxes.
3. To override a specific tax's parameters:
1. Select the appropriate tax.
2. Click Add below the list of taxes.
3. Click the Start Date calendar icon and select when the override values take effect.
4. For example, to override an employee's claim amount for federal income tax for the 2024 tax season, select January 1, 2024 from the calendar.
4. Click the End Date calendar icon and select the effective end date of the override.
5. For some taxes, you can select the Exempt Tax And Taxable Wages checkbox to apply the exemption and disregard the taxable wages.
6. Note: You can select either the Exempt Tax Only, Update Wages checkbox, or the Exempt Tax and Taxable Wages checkbox, not both.
6. If the tax has reached a limit and must be disabled, select the Exempt Tax and Taxable Wages checkbox.
7. In cases where the tax locator assigns incorrect local taxes that cannot be deleted, select the Inactivate Tax checkbox to mark the tax as inactivated.
8. Provide values in the tax parameters that you want to the application to use for the employee. These parameters vary depending on the tax.
9. For US taxes, the following tax parameters might apply:
• Alternate Calculation Code: If the employer uses an alternative method for calculating federal withholding tax, select that method from the drop-down list.
• Exemption Amount: Type the number of dependent family members that the employee has claimed on the Form W-4. 
• Filing Status: Select an option that describes the employee's status, such as single or married, in the drop-down list. This is used for federal withholding tax.
• Tax Additional Amount: Enter the additional dollar amount to withhold. This amount is withheld from each pay check at the employee’s request. Withholding this amount is intended to reduce or eliminate the possibility of the employee underpaying tax and incurring a tax bill. You can find the amount to withhold in the employee's Form W-4, Employee's Withholding Allowance Certificate.
• Tax Additional Percent: Enter the percentage of the employee's wages to withhold. This amount is withheld from each pay check at the employee’s request. Withholding this amount is intended to reduce or eliminate the possibility of the employee underpaying tax and incurring a tax bill. You can find the amount to withhold on the employee's Form W-4, Employee's Withholding Allowance Certificate.
• State Exemption Code: Select an exemption code in the drop-down list. This option only applies to federal withholding tax and withholding tax for certain states.
• Resident Code: Select one of the following options from this drop-down list:
  • Live/Work: The employee either lives at the work location or works from their home.
  • Live/Work 1/1: The employee either lives at the work location or works from their home. This option only applies to employees in Indiana.
  • Non-Resident: The employee works in one jurisdiction, but lives in another. For example, the employee works in New York but lives in New Jersey.
  • Resident: The employee lives and works in the same jurisdiction.
  • Resident on 1/1: The employee lives and works in the same jurisdiction. This option only applies to employees in Indiana.
  • Work on 1/1: For employees in Indiana, works in the state but lives elsewhere.
• Self Adjust Code: Select this checkbox to have Dayforce attempt to make up any shortfalls if too little tax is withheld for the current pay period.
• Reciprocity: Select this checkbox to indicate that the state in which the employee resides has a reciprocal tax agreement with the state in which the employee works. The employee only pays the tax that applies to the state or city in which they live.
• Certificate Code: Select an option from this drop-down list to indicate one of several reciprocity configurations:
  • 0 - No Certificate on File: The employee does not have a Certificate of Non-Residence on file (also called an exemption form). The application applies only the work location's local withholding taxes.
  • Note: When the Advance Local Courtesy Withholding checkbox is selected to enable residential and work location withholding taxes at the legal entity level, administrators use this option to override the configuration for an individual employee.
  • 1 - Certificate of Non-Residency on File: The employee has filed a Certificate of Non-Residency with their employer in the District of Columbia, which indicates that they reside outside of the state in which they work. The application applies the employee's residential local withholding, in addition the work location's local withholding taxes.
  • Note: This option applies only when the nonresident state is the District of Columbia.
  • 3 - State Courtesy Withholding: The application applies the employee's residential local withholding, in addition to the work location's local withholding taxes. Generally, this option is only selected when the Advanced Local Courtesy Withholding checkbox is cleared at the legal entity level.
• Note: The Certificate Code option isn’t required by all states. However, for states that require an exemption form, an administrator must select this option to enable reciprocity. Further, any configuration at the employee level overrides the legal entity settings. All of the parameters listed above are available for both state and federal withholding tax. For other federal, state, and local taxes only the Self Adjust Code and Residence Code parameters are available.
10. For Canadian taxes, see Configure Canadian Federal Tax Information and Define Canadian Provincial Tax Information.
9. Click Save.

You can also provide values for all taxes of a type (either US or Canadian federal or state/provincial). These overrides are applied to all taxes of their type that do not have specific parameters defined for the employee.