Oracle Payroll delivers with all existing rules for the Federal and state-level taxability. These taxability rules are in place for a number of categories of supplemental and imputed earnings types and for three categories of pre-tax deductions. For Pre-Tax deductions, along with Federal and state levels, Oracle Payroll delivers tax withholding rules for county and city levels. Each release of Oracle Payroll updates these rules.
Oracle Payroll uses the default county or city rule, if the county or city specific tax withholding rules are not defined. These county or city specific tax withholding rules can be Oracle delivered or user-defined.
You can also alter the rules delivered by Oracle using the Taxability Rules window. The following sections explain how the tax withholding rules work at the county or city level for pre-tax deductions.
When you select a state, the default taxability rule appears for the state which is applicable to the county or city based on the level selected. When you modify the default rule, then the Overridden Specific Taxability Rule appears for the state which is applicable the county or city based on the level selected. The default taxability rule and the overridden default taxability rule is not applicable to those counties or cities in the state for which taxability rules have been defined for that specific county or city.
When you select a county or city after selecting the state, the taxability rule for the county or city appears for the county or city which is applicable only to the county or city in that state. If you modify the Oracle delivered taxability rules, then the Overridden Specific Taxability Rule appears for the county or city which is applicable only to the county or city in that state.
PAY: Override User Defined Local Taxability Rules Profile Option
This profile option impacts only the local taxability rules added for Pre-Tax Deductions. This profile option provides users an option to configure the local taxability rules in their system: either retain the user-defined data and Oracle delivered data with user-defined data being given precedence or use Oracle delivered data only. If this profile is not set or set as No, then the HRMS Legislative Data (hrglobal.drv) application will upload Oracle delivered data, but will not override the user-defined data. If the profile value is set as Yes, then the HRMS Legislative Data (hrglobal.drv) application clears the local taxability rules related to seeded pre-tax deduction categories only and loads Oracle delivered data. Note that the rules corresponding to custom pre-tax categories are not deleted. Once the data upload is completed, the 'PAY: Override User Defined Local Taxability Rules' profile option is set as No. This is to prevent any subsequent HRGlobal driver applications from clearing data again. It may be possible that you may want to change some data after the initial cleanup. In future, if it is necessary to clear the data and load Oracle data, set the profile "PAY: Override User Defined Local Taxability Rules" to Yes again and run HRMS Legislative Data (hrglobal.drv).
Important: The HRGlobal driver process migrates the Tax Withholding rules related to custom Pre-Tax categories from the State level to Default County, Default City, County and City levels. The Tax Withholding Rules form also migrates the changes made to tax withholding rules from the State level, Default County and Default City levels to subsequent levels as required. This eliminates the requirement to manually update custom Pre-Tax Tax Withholding Rules at the Local level.
The following rules apply when the Tax Withholding rules are migrated by the HRGlobal driver or Tax Withholding rules form:
If State level Custom Pre-Tax category-related Tax Withholding rules are updated, then they will be migrated to Default County and Default City level only if there are no manual changes made to Custom Pre-Tax category-related rules at these levels. If the State level rules are migrated to Default County/Default City level, then the rules will be migrated to Counties/Cities only for those where there are no manual changes made to Custom Pre-Tax category-related rules at these levels.
If Default County level Pre-Tax category-related Tax Withholding rules are updated, then they will be migrated to Counties for which there are no manual changes made to Custom Pre-Tax category-related rules. If any manual changes are found for a county, then rules will not be migrated to it. For other Counties the rules will be migrated.
If Default City level Pre-Tax category-related Tax Withholding rules are updated, then they will be migrated to Cities for which there are no manual changes made to Custom Pre-Tax category-related rules. If any manual changes are found for a City, then rules will not be migrated to it. For other Cities the rules will be migrated.
An employee moves to three different states, A, B, and C in a year. In state A, the employee works in two different counties, D and E. In State B, the employee works in city G (which is located in county F). In State C, the employee works in an unspecified area. The employee's percentage in each of these areas is expressed in the following table:
| Work Location | State A | State B | State C |
|---|---|---|---|
| County D | 30% | 0% | 0% |
| County E | 20% | 0% | 0% |
| County F | 0% | 0% | 0% |
| City G | 0% | 30% | 0% |
| Unspecified | 0% | 0% | 20% |
| Total in State this year | 50% | 30% | 20% |
Note: The state totals add up to 100% for the year.
Following are sample scenarios that illustrate typical uses of State and local tax exemptions.
This is the system default. Oracle Payroll withholds taxes from all fifty states and subordinate localities unless you specify otherwise.
In the Employer Identification screen, the State Tax Withholding Rule field must be set to States under State Tax Rules. In the State Tax rules screen, information should be entered and maintained only for the state that the company is doing business in.
The system default is for taxes to be withheld for all localities in the state in question. This means that on the State Tax Rules screen, the Exempt State Income Tax field is set to No, and the Local Income Tax Withholding Rule field is set to All Localities.
In the Employer Identification screen, the State Tax Withholding Rule field must be set to States under State Tax Rules. In the State Tax Rules screen, information should be entered and maintained only for the states that the company is doing business in. The Exempt State Income Tax field should be set to No.
In the State Tax Rules screen, the Local Income Tax Withholding Rule field should be set to Only Localities Under Local Tax Rules. In the Local Tax Rules screen, tax rules should be set up only for those localities that employees reside in. The Exempt Local Income Taxes field should be used to determine if you want to withhold taxes for this locality.
Note: If you have a business location in a certain locality, you have to withhold taxes for that locality.