What is the difference between Exempt and No Tax Adjustment Methods?
Description
Cause
Use adjustment methods to specify whether a tax calculation needs adjustment for an employee, and select how to adjust the tax (in Setup, Employees, Taxes).
Resolution
[BCB:5:Third-party support:ECB]
No Tax:
Instead of calculating the tax (specified in Setup, Taxes, Tax Rates), no tax is calculated or withheld. Earnings accumulate in the taxable and subject-to columns, but no taxes accumulate. Tax information still appears on the W-2 form or T4 form. You might use this method for a student who does not earn enough to pay taxes.
Exempt:
Employee is exempt from the tax. No earnings accumulate in the taxable and subject-to columns, and no taxes accumulate. Tax information does not appear on the W-2 form for exempt employees. You might use this option for a member of the clergy.
Note: If an employee selects exempt on the W-4 form, verify with them if you should select No tax rather than Exempt. Typically, the No Tax adjustment method is used.
If an employee has had earnings calculate with the incorrect setting you will need to run recalculate subject-to, see the appropriate article linked below for your scenario.