After you create one or more earning groupings, you need to configure the various state thresholds for states where your employees work. You do this using the Multi-State Tax Thresholds feature.
Before You Begin: The Payroll Setup > Multi-State Tax Thresholds feature isn’t available by default. Support must add it to your instance, at which point you must manually add and manage state tax thresholds in Payroll Setup > Multi-State Tax Thresholds. State tax thresholds aren’t preconfigured.
After Support adds this feature for your instance, you need to assign it to your role. To assign it to your role, open System Admin > Roles, select a role, click the Features tab, and select the checkbox for the Payroll Setup > Multi-State Tax Thresholds role feature.
Multi-State Tax Threshold Columns
The following is a description of the column settings in the Multi-State Tax Thresholds feature:
Country
A read-only column that shows United States of America.
State/Province
Select the US state or possession for which you want to set the tax threshold.
Start Date and End Date
Select the start date and, optionally, the end date during which the threshold is effective for use. You must keep the following in mind when entering start and end dates:
- Dayforce uses effective dates to determine whether to apply threshold criteria during the payroll calculation.
- The threshold must be effective during the pay period you're calculating.
- It isn’t possible to set a start date in the past to check whether the threshold was met in prior committed pay periods.
Threshold Value
Enter the earnings or the number of hours that must be accrued in that state for employees to be liable for income tax for that state. This value can be earnings or days, depending on the option that you select in the Threshold Type setting, which is described below. For example, if you need to set a threshold of 14 days, enter 14, and if you need to enter a threshold of $1,000 enter 1000.
Threshold Type
Select the option for the type of threshold that the state uses, either Days or Earnings. The option that you select must match the configuration of the Is Hours Based setting for the earning grouping. See Add Eligible Earnings to Earning Groupings.
Standard Hours In Day
Enter a value to define the minimum number of work hours that qualify as a business day. This field is only available if you select the Days option in the Threshold Type drop-down list, in which case it's a required field.
Jurisdictions might have different requirements for what counts as a day. For example, a state might require that a business day is 6 hours of work. So, if an employee only works 2 hours in a day, it wouldn’t count toward the number of days worked in the lookback period.
If the hours an employee works in a day are below those that you set in the Standard Hours In Day field, these hours are still taxed in the threshold state after the threshold is met. If the hours occur in the current pay period where the threshold was met, they’re taxed immediately based on the threshold state. If they occurred in a pay run where the threshold was active but not met, they’re included in the calculation when you run the retroactive adjustment wizard after the threshold is met. See Wizard for Retroactive State Tax Threshold Adjustments.
For example, in the current pay period, an employee works 2 hours of a day in a state where the standard hours in a day is 6. Say that, in this pay period, the employee works additional 8-hour days in the state so that the employee meets the threshold. In this case, because the 2 hours worked didn’t count toward the threshold, they’re still taxed based on the threshold state.
Earning Grouping
Select an earning grouping that you created for multi-state taxation. See Add Eligible Earnings to Earning Groupings. The earning grouping contains the individual earnings that you want counted towards the threshold.
Look Back Period
The default is set to Annual, but you can also select the Quarter option. You need to select the look-back period based on the state's threshold requirements.
The Look Back Period setting determines the point at which Dayforce resets the threshold count. For example, you create a 5-day threshold with a yearly lookback, and in the whole of 2017, an employee only works 4 days in the threshold state. In 2018, the counter resets, so that the employee is back to zero days worked in that state. For a quarterly lookback, Dayforce resets the threshold each quarter.
The Look Back Period setting also determines the set of pay periods, including regular and off-cycle pay periods, that Dayforce checks when you run the wizard to adjust retroactive taxes after an employee meets the threshold. See Wizard for Retroactive State Tax Threshold Adjustments.
If you select a yearly lookback period, and you run the retroactive adjustment wizard, Dayforce checks all of the pay periods of the current year. For the quarterly look-back period, Dayforce checks all of the pay periods in the current quarter.
For example, you create a threshold with a quarterly lookback period and the employee meets the threshold on April 17. When you run the retroactive adjustment wizard during the same quarter, the application checks back to April 1 (the start of the quarter) for taxes to adjust. However, if you run it in the next quarter, the application checks back to the start of that quarter (July 1) and it can't look back to the previous quarter.
The Look Back Period setting doesn’t determine a starting point for accumulating earnings or days toward a threshold. Instead, the threshold accumulates earnings or days from the point that you create it. The threshold doesn’t count earnings or days from pay runs that were already committed before you created it.
For example, say that in the middle of the current year, you create a 14-day threshold with a yearly lookback period. Now say that, that in pay runs that were committed earlier this year, the employee worked 14 days in the threshold state. Because this payroll data was already committed before you created the threshold, these days aren’t counted toward the threshold.
When there are earnings or days that should have been counted from pay runs that were already committed, you need to update the accumulation balance manually. See Update the Threshold Balance for Past Amounts.
Prior Year Qualified
This column is intended for jurisdictions where the threshold can be considered met in the current year if the employee met the threshold in the previous year.
Set this column to True for a threshold and when an employee meets the threshold in the previous year, they immediately meet the threshold in the current year.
The Prior Year Qualified column is supported for annual thresholds that measure earnings or days. If a state has a threshold defined for both earnings and days, then meeting either threshold qualifies the employee for meeting the threshold in the next year.
For example, say that a state has a threshold of 14 days and a yearly lookback period. In 2018, the employee met the threshold, and so Dayforce taxes them in that state. When Prior Year Qualified is set to True, the application immediately taxes the employee in the threshold state in 2019. Conversely, if you leave it at False, the employee needs to work 14 days in that state before they start being taxed there in 2019.
Moreover, if, in 2019, the employee doesn't meet the 14-day threshold, the application considers them as not meeting the threshold for the following year, 2020. So, even though they were considered to have met the threshold for 2019 based on 2018 work, their actual work in 2019 no longer qualifies them to meet the threshold in 2020.
Multiple Thresholds
Dayforce allows only one threshold of each threshold type (days or earnings) to be effective at any given time for each state. It allows a threshold of each type because some states have both a day and an earning requirement, and the employee is liable for taxation when one of the thresholds is met.
If a state has a threshold of each type configured, and a configured employee has eligible earnings in the state, the earnings are counted toward both thresholds.
Editing Thresholds
Once a threshold has been used in a pay run calculation, you cannot delete it or update any of its settings except for the End Date setting.
Create State Tax Thresholds
To create a state threshold:
- Go to Payroll Setup > Multi-State Tax Thresholds.
- Click Add.
- Select an option in the State / Province drop-down list.
- Set a start and end date.
- Select either Days or Earnings in the Threshold Type setting.
- Enter a number of days or earnings in the Threshold Value setting, depending on the threshold type you selected.
- (Only if you selected the Days threshold type) Enter a number of hours in the Standard Hours In Day field.
- If required for the jurisdiction, change the value in the Look Back Period setting from the default Annual option to the Quarter option.
- Click Save.
Filtering and Favorites
You can click Filter in the toolstrip to expand a panel where you can filter the list by one or more states. You can also click Favorites to save your filter settings as a favorite. You can set your favorite to load by default each time that you open the Multi-State Tax Thresholds tab. You can also load different favorites while you are working in the tab.