The tax adjustment methods

Use adjustment methods to specify whether a tax calculation needs adjustment for an employee and how to adjust the tax (Setup, Employees, Taxes). Review the list of tax adjustment methods below:

• No adjustment
  This is the default adjustment method. The tax calculates as specified in Taxes, Tax Rates and no adjustments are made. Earnings accumulate in the taxable and subject-to columns, and taxes accumulate in the tax columns.
• No tax
  No tax calculates or is withheld. Earnings accumulate in the taxable and subject-to columns, but no taxes accumulate. Tax information still appears on the W-2 form.
• Exempt
  Employee is exempt from the tax. No earnings accumulate in the taxable and subject-to columns, and no taxes accumulate. If an employee marks exempt on the W-4 form, use No tax rather than Exempt. If Exempt, tax information does not appear on the W-2 form. You might use this option for a member of the clergy.
• Addon
  The normally calculated tax amount is taken, as well as the additional amount entered in Adj Amount. Earnings accumulate in the taxable and subject-to columns, and taxes (including the addon amounts) accumulate in the tax columns. You might use this option for an employee who requests to have an additional flat amount taken in taxes.
• Addon percent
  The normally calculated tax amount is taken, as well as an additional percentage of that calculated tax amount according to the percentage entered in Adj Amount. Earnings accumulate in the taxable and subject-to columns, and taxes (including the addon percentage) accumulate in the tax columns. You might use these options for an employee who asks to have an additional 5% of the federal and state withholding taxes taken in taxes. Enter the percentage in the Adj Amount column (Enter 30% as 30.00).
• Replace
  The amount entered in Adj Amount is used as the tax amount instead of the normally calculated tax amount. Earnings accumulate in the taxable and subject-to columns, and taxes accumulate at the replacement rate in the tax columns. You might use this method if an employee asks to have a flat amount taken in taxes instead of the normally calculated federal and state taxes.
• Replace percent
  Instead of the normally calculated tax amount, the tax calculates by multiplying the taxable amount by the percentage entered in Adj Amount. Earnings accumulate in the taxable and subject-to columns, and taxes calculate at the entered percentage accumulate in the tax columns. Enter the percentage in the Adj Amount column (Enter 30% as 30.00).
• Formula
  The tax calculates using the formula entered in Formula. Use this method if none of the above adjustment methods can accommodate the tax requirements.

Note: When you setup a workers' compensation tax, No adjustment is the only adjustment method you can select.

How do I withhold an additional tax amount in Payroll?
What is the difference between Exempt and No Tax Adjustment Methods?