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Process documentation The Tax Calculation Process Locate the document in its SAP Library structure

Purpose

Before the SAP Payroll component sends any data to the BSI TaxFactory for tax calculation, the payroll driver goes through a number of steps to determine exactly which taxes will be applied for each payment or deduction wage type. These steps depend largely on how you configure wage types, tax types, tax authorities, and taxability models in the Tax section of the Payroll: USA IMG. This topic illustrates the process by which the payroll driver determines which tax calculations will be performed by the BSI tax calculation engine.

Prerequisites

Process Flow

The following graphic illustrates the SAP tax calculation process.

 

This graphic is explained in the accompanying text

The tax calculation process follows these steps:

  1. The payroll driver determines which tax authorities apply to the employee, such as residence area FED, by looking at the employee's master data.
  2. The payroll driver reads a wage type and its tax class (processing class 71 specification). For example, M003 Salary of $1000.00 with processing class 71 specification 0 (Regular wages).
  1. Based on the applicable tax area and tax authority, the payroll driver selects a taxability model for this combination of tax class, tax area and tax authority. In this case, the taxability model would look like this:

Tax Authority

Tax Model

R/W/U

Tax Class

Tax Type Combo

FED

01

R

0

08

  1. Based on the tax type combination included in the taxability model, the payroll driver determines which tax types must be applied to the wage type amount. The payroll driver sends BSI the wage type amount and the relevant tax types. In this case, the following data would be sent to BSI for tax calculation:

Amount

Tax Type

$1000

01 Withholding tax

$1000

02 EIC payment

$1000

03 EE Social Security

$1000

04 ER Social Security

$1000

05 EE Medicare

$1000

06 ER Medicare

  1. The BSI tax engine calculates the tax on the wage type amount. The tax types passed to BSI determine which calculation formulas it uses.
  2. BSI returns the results of the tax calculations to the SAP Payroll system, including the tax amounts calculated for each wage type amount and tax type. This information appears in the payroll log.

Result

The tax wage types determined in this process are stored in the payroll results cluster for the employee. These tax wage types can also be copied to the tax interface tables where they form the basis for various tax reports generated by the SAP Tax Reporter component.

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