Before You Begin: To use this functionality, you need to enable gross up functionality for the earning code. See Gross Up for Earning Codes.
Note: This functionality is only available at the earning definition level and not at the check template level. In check templates that have gross up configured, all earnings (100%) included in the check are gross up earnings, so no prorating is required.
You can define how pre-tax deductions impact the taxable wages of a gross up earning in the case where a payment contains gross up and non-gross up earnings. You do this for individual earnings using the Prorate Pre-Tax Deduction checkbox in the General sub-tab of the Earnings tab in Payroll Setup > Earnings and Deductions.
By default, this checkbox is cleared so that, in the case where a payment includes non-gross up earnings, plus this gross up earning, the pre-tax deduction only impacts the taxable wages of the non-gross up earnings.
When you select this checkbox, the pre-tax deduction is split between the taxable wages of the non-gross up earnings and this earning. The impact of this that the application generates less gross up award for the gross up earnings and more tax for the non-gross up earnings.
For example, on a single payment in the current pay run, an employee has the following earnings:
- A non-gross up earning for $1,000 (their regular pay)
- A gross up earning for $1,000 (a bonus)
On this payment, the employee has a pre-tax deduction of $100.
When the Prorate Pre-Tax Deduction checkbox is cleared (the default behavior) for the gross-up earning, the application reduces the amount of the $100 deduction from the taxable wages of the non-gross up earning only. The $100 deduction does not impact the gross up amount that the application generates.
As a result, the application calculates tax on the non-gross up earning based on taxable wages of $900. Meanwhile, the application calculates the award amount for the gross up based on taxable wages of $1,000.
When you select the Prorate Pre-Tax Deduction checkbox for the gross-up earning, the application reduces the taxable wages of the gross up earning by $50 and the non-gross up earning by $50.
As a result, the application calculates tax on the non-gross up earning based on taxable wages of $950 (so the employee pays more tax here). Meanwhile the application calculates the award amount for the gross up based on taxable wages of $ 950 (so that the employee receives less gross up award).
Notes:
- The Prorate Pre-Tax Deduction checkbox does not have to be the same for all earnings entered in a check. The application respects the individual settings for each earning definition.
- When the check template has gross up defined, the template gross up settings override the individual earning gross up settings. In check templates that have gross up configured, the application prorates pre-tax deductions by default.