Both Medicare-Only and Regular employers each have separate validation rules for creating legal entities and employee records, committing payroll, and creating reports. The following tax types are affected:
- Fed MWT EE: Federal - Employee Medicare Tax
- Fed MWT ER: Federal - Employer Medicare Tax
- FICA EE: Federal - Employee Social Security Tax
- FICA ER: Federal - Employer Social Security Tax
Regular filers must either be exempt from all of FICA EE, FICA ER, Fed MWT EE, and Fed MWT ER, or exempt from none of these. It isn’t possible to exempt a legal entity or employee from one or more of these taxes unless they are exempt from all of them. If you try, Dayforce returns the following error message:
Invalid tax exemption attempted. Please ensure that Medicare ER, Medicare EE, SocSec ER and SocSec EE are all marked as exempt.Medicare-only filers must be exempt from FICA EE and FICA ER, but must not be exempt from Fed MWT EE or Fed MWT ER. If you try, Dayforce returns the following error message:
Invalid tax exemption attempted. Please ensure that SocSec ER and SocSec EE are marked as exempt and that Medicare ER, Medicare EE are not marked as exempt for a Medicare Qualified Government Employer.The validations described for Medicare-only legal entities and employees apply when the employment code for the legal entity is configured for Medicare qualified government employment – Form 941 in Org Setup > Org Payroll Setup. You can find this by going to Org Setup > Org Payroll Setup > Legal Entity, selecting a legal entity and clicking the Quarterly/Annual Reporting Parameters tab.
If you are setting up the tax authorities for a legal entity that is exempt from Federal Medicare and Social Security Taxes, or if you are setting up employees of a regular filing legal entity who are exempt from Federal Medicare and Social Security taxes, you must select Exempt Tax And Taxable Wages for each of the following tax types:
- Fed MWT EE: Federal - Employee Medicare Tax
- Fed MWT ER: Federal - Employer Medicare Tax
- FICA EE: Federal - Employee Social Security Tax
- FICA ER: Federal - Employer Social Security Tax
If all four aren’t set, Dayforce returns the following error message:
Invalid tax exemption attempted. Please ensure that Medicare ER, Medicare EE, SocSec ER and SocSec EE are all marked as exempt.If you are setting up the tax authorities for a Medicare-only legal entity, you must select the option Exempt Tax And Taxable Wages for each of the following tax types:
- FICA EE: Federal - Employee Social Security Tax
- FICA ER: Federal - Employer Social Security Tax
Additional Information
When you run the US Wage and Tax report in Payroll > Overview or Payroll > Pay Run Management, Dayforce verifies that the tax definitions are set up correctly for Medicare-only employees. If the exempt tax and taxable wages aren’t set up correctly, the Validations page displays the following error messages for employee and employer taxes:
{Legal Entity} EE tax is wage exempt but has YTD wages.
{Legal Entity} ER tax is wage exempt but has YTD wages.Also, the US Wage and Tax report displays the following message on the Validations page:
Employees must either be exempt from all FICA taxes (FICA EE, FICA ER, Fed MWT EE, and Fed MWT ER), or none.