How to set up a local tax

To set up a local tax in Sage 50, start by configuring the local tax in the employee defaults. Then, create and assign the necessary formula. Assign the tax field for tax forms, and finally, update employee records to use the new local tax.

1. Setting Up Local Tax in Employee Defaults

Open Employee Defaults:

1. Go to Maintain Default Information, Employees.

Add Local Tax Field:

1. Open the Employee Fields tab.
2. On the first available line, type Local_Tax for the Name.
3. Skip to the next section if there's an existing field.

Select Account and Formula:

1. Choose a General Ledger (G/L) account, usually a liability account.
2. Check the Calc box and enter **LIT in the Formula field.
3. Click the Adjust button.
4. Check Use next to Gross under Employee Fields.
    NOTE: Also check any taxable payroll addition fields (like tips) or pre-tax deduction fields (like insurance or retirement plans).
5. Click OK, then click OK again.

2. Creating the Formula

Check for Existing Formula:

• Sage Payroll has many local income tax (LIT) formulas included with your payroll subscription. To check, go to File, Payroll Formulas, and select Sage-Maintained.
• Use the formula provided by Sage if one exists.

Create a Basic Formula:

If the tax is a simple percentage of gross pay, follow these steps:

1. Go to File, Payroll Formulas, and select User-Maintained.
2. Enter XXLIT for Formula ID, where XX is the two-letter state abbreviation like GALIT.
3. Enter XXLIT YY for Name, where YY is the two-digit payroll year like GALIT 13.
4. Set Effect on Gross Pay to Subtracts from Gross.
5. Set Filing Status to All.
6. Select Tax for How do you classify this formula?
7. Select Locality for Tax Agency.
8. If the tax applies to all localities, select Yes and skip to Step 10. If each locality has its own rate, select No and continue.
9. Enter a Locality Name (up to eight characters).
10. Enter the formula:

PERCENT=X.XX;
ANSWER=-ADJUSTED_GROSS*PERCENT%

11.  Update the X.XX to the rate and click Save.

 TIP: If you have multiple localities, change the Formula ID slightly like GALITa, and update the Locality Name and Percent for each locality, then click Save. 

Create an Advanced Formula:

If your local tax includes allowances or limits, follow these steps:

1. Go to File, Payroll Formulas, and select User-Maintained.
2. Enter XXLIT for Formula ID, where XX is the two-letter state abbreviation like GALIT.
3. Enter XXLIT YY for Name, where YY is the two-digit payroll year like GALIT 13.
4. Set Effect on Gross Pay to Subtracts from Gross.
5. Set Filing Status to All.
6. Select Tax for How do you classify this formula?
7. Select Locality for Tax Agency.
8. If the tax applies to all localities, select Yes and skip to Step 10. If each locality has its own rate, select No and continue.
9. Enter a Locality Name (up to eight characters).
10. Enter the formula:

E=0.00; "E is Exemption Amount per Local Allowance" 
D=0.00; "D is the Allowance Amount per Dependent" 
M=0.00; "Maximum Tax (0 if no maximum)" 
PERCENT=0.00000; "The value user entered for Locality 
%" A=PRORATE((ANNUAL(ADJUSTED_GROSS)-(EEMP_LOCAL_ALLOWANCES)
-(DEMP_LOCAL_NUMBER))*PERCENT%); 
ANSWER=-IF(M=0,A,IF((ABS(YTD(Local_Tax)-
Local_Tax)+A)>M,M-ABS(YTD(Local_Tax)-Local_Tax),A))

11.  Update the E, D, M and Percent values then click Save.

 TIP: If you have multiple localities, change the Formula ID slightly like GALITa, and update the Locality Name and Percent for each locality, then click Save. 

3. Adding to Tax Forms

1. Go to Maintain, Payroll, and select Payroll Settings.
2. Select Taxes, then Assign Tax Fields.
3. Select W-2 Fields.
4. For the Local Income Tax line, select Local_Tax.
5. Click OK, then Finish.

Setting Employees to Use the Local Tax

Update Employee Records:

1. Go to Maintain, Employees/Sales Reps and select an employee.
2. Select Withholding Info.
3. Enter the employee's locality on the Local line.
4. Click Save.
5. Repeat for each employee.

For employees who don't pay local income tax:

1. Select the Employee Fields tab.
2. Uncheck Use Defaults on the Local_Tax line.
3. Uncheck Calc.
4. Click Save.

Sage Expert Services (SES)

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