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This article applies to:

  • Product: Accounting CS Client Access
  • Subject: Payroll checks,Setup

Multi-state withholding calculation examples

Set up multi-state income tax withholding by following examples for handling different scenarios, including configuring reciprocal state agreements and selecting calculation methods.
You can refer to the following examples for handling different multi-state income tax situations and how to modify the default calculations.

Set up examples: Use automatic multi-state calculations

Example 1: Same client location and employee residence
  • The client's work location is Ann Arbor, MI.
  • Their employee lives in Ann Arbor and works at the Ann Arbor location.
    • Set up an Ann Arbor, MI work location for the client in the Main tab of the Clients screen, if it doesn't yet exist, and mark the
      Taxing address
       checkbox.
    • Add the employee's information, including the address of their primary residence. Make sure that the Resident address checkbox is marked for that address.
    • If the client has more than 1 work location, make sure that the employee has the correct Ann Arbor location and department marked as the primary work location. This is in the Locations and Departments grid on the
      Main
       tab.
When processing payroll checks for the employee, Accounting CS uses Michigan as the jurisdiction to calculate both the unemployment insurance and the state withholding amounts for this employee.
Example 2: Different work location and employee residence (with reciprocal state agreement)
To set up the payroll system correctly for an employee living in Toledo, Ohio, and working in Ann Arbor, Michigan, follow these steps:
  • The client's work location is Ann Arbor, MI.
  • Their employee lives in Toledo, Ohio, and works at the Ann Arbor location.
  • The employee has requested that you withhold Ohio income tax.
  1. Set up work location:
    • In the Main tab of the Clients screen, ensure there is an Ann Arbor, MI work location address. If not, add it.
    • Make sure the
      Taxing address
       checkbox is selected for this address.
  2. Add employee information:
    • Enter the employee's details, including their Toledo, Ohio street address.
    • Ensure the
      Resident address
       checkbox is selected for this address.
  3. Primary work location:
    • If there are multiple work locations, verify that the correct Ann Arbor location and department are marked as the primary work location.
    • Located on main tab of the
      Employees
       screen, then on the Locations and Departments grid.
  4. Nonresident exemption certificate:
    • After receiving the Michigan Certificate of Nonresidency from the employee, mark the
      Nonresident exemption certificate
       checkbox.
    • Located in the
      Payroll Taxes
       tab of the
      Employees
       screen.
  5. Set up Ohio tax withholding:
    • In the
      Payroll Taxes
       tab of the
      Clients
       screen, select
      OH
       from the
      State
       dropdown list.
    • Enter the Withholding ID and check the
      Client has nexus in this state
       checkbox.
When you process payroll checks for this employee, the system will use Michigan for calculating unemployment insurance and Ohio for state withholding amounts. This is due to the reciprocal agreement between Michigan and Ohio. Don't mark the
Wage Exempt
 checkbox for Michigan state withholding items, as the application will automatically apply the correct tax calculations.

Calculation options: Use alternate multi-state calculations

When setting up multi-state withholding for an employee, you can select from several methods in the
Multi-state withholding
 dropdown list. This is found on the Taxes section of the
Payroll Taxes
 tab on the
Employees
 screen. Here are the options you can select:
  1. Automatic:
     The state income tax calculation follows the application's default multi-state withholding algorithm, which is based on the specific multi-state withholding rules for each state.
  2. Work only:
     The application calculates only the state income tax for the employee's work states.
  3. Work and resident - Allow credit:
     The application calculates income tax for both the employee's resident and work states. The SIT amount calculated for each work state reduces the resident state income tax (SIT) amount by the SIT amount calculated for each work state, providing a credit.
  4. Work and resident - Full:
     The application calculates income tax for both the employee's resident and the states they work in. No credit is applied for the work state SIT.
  5. Resident only:
     The application calculates only the state income tax for the employee's resident state.
Calculation example
This example explains how each of the alternate calculation options affects the SIT calculations for an employee.
note
The following tax amounts shown are for illustrative purposes only and may not reflect current tax tables.
An employee works in Des Moines, Iowa, and is a resident of Chicago, Illinois. The employee's gross pay is $1,000.00.
  • Automatic
    • Iowa SIT (nonresident): Gross taxable/taxable wages = $1,000.00. Tax = $49.23.
    • Illinois SIT (resident): Gross taxable/taxable wages = $0.00. Tax = $0.00.
  • Work only
    • Iowa SIT (nonresident): Gross taxable/taxable wages = $1,000.00. Tax = $49.23.
    • Illinois SIT (resident): Gross taxable/taxable wages = $0.00. Tax = $0.00.
  • Work and resident - Allow credit
    • Iowa SIT (nonresident): Gross taxable/taxable wages = $1,000.00. Tax = $49.23.
    • Illinois SIT (resident): Gross taxable/taxable wages = $1,000.00. Tax = $0.77.
  • Work and resident - Full
    • Iowa SIT (nonresident): Gross taxable/taxable wages = $1,000.00. Tax = $49.23.
    • Illinois SIT (resident): Gross taxable/taxable wages = $0.00. Tax = $50.00.
  • Resident only
    • Iowa SIT (nonresident): Gross taxable/taxable wages = $0.00. Tax = $0.00.
    • Illinois SIT (resident): Gross taxable/taxable wages = $1,000.00. Tax = $50.00.

States and their reciprocal partners

Refer to the following table for a list of states with their reciprocal partners:
State
Reciprocal with
District of Columbia
MD, VA
Illinois
IA, IN, KY, MI, WI
Indiana
KY, MI, OH, PA, WI
Iowa
IL
Kentucky
IL, IN, MI, OH, VA, WI, WV
Maryland
DC, PA, VA, WV
Michigan
IL, IN, KY, MN, OH, WI
Minnesota
MI, ND
Montana
ND
New Jersey
PA
North Dakota
MN, MT
Ohio
IN, KY, MI, PA, WV
Pennsylvania
IN, MD, NJ, OH, VA, WV
Virginia
DC, KY, MD, PA, WV
West Virginia
KY, MD, OH, PA, VA
Wisconsin
IL, IN, KY, MI