Pre/After Tax Processing

When the Pre/After Tax Processing check box on Deduction Plan (BENP), Employee Fringe Benefit Plan (BENP), or Employer Fringe Benefit Plan (EFBP) is selected, special processing is enabled to process the deduction as pre-tax or after-tax. If an employee does not have enough taxable earnings to process the full amount for the deduction, Gross-To-Net (GTN) attempts to process the leftover amount using non-taxable earnings using the after-tax deduction type and after-tax deduction plan. The after-tax deduction type and after-tax deduction plan are identified in the Cafeteria After-Tax Deduction Type and Cafeteria After-Tax Deduction Plan fields on the deduction plan. The FEDERAL TAX DEDUCTION Site Specific Parameter (SPAR) is used to identify the Deduction Type that determines non-taxable earnings for the employee. The SPAR only allows one deduction to be entered and only supports Federal Tax.  Non-taxable earnings are configured on Include/Exclude Pay Categories (DPPC) by entering the Federal Tax Deduction Type and Federal Tax Deduction Plan and a Pay Category where the Pay Include/Exclude ID is Exclude Specified. All pay events with categories that are not excluded from the Federal Tax Deduction are considered taxable earnings. For this special processing, deductions that have a Deduction Processing Order Number that is less than the Deduction Processing Order Number for the Federal Tax deduction is considered ‘pre-tax’ deductions. Deductions that have a Deduction Processing Order Number that is greater than the Deduction Processing Order Number for the Federal Tax deduction is considered ‘after-tax’ deductions. 

In the case of a negative net situation where a pre-tax or after-tax deduction is reversed to create a positive net pay amount, the corresponding pre-tax or after-tax deduction will also be backed out. In other words, either both deductions are processed or neither of them are processed.

Note: This functionality is only available when utilizing the Next Generation Payroll service.

Example Scenario:

  1. Scenario Information

  1. FEDERAL TAX DEDUCTION SPAR: FEDTX

  2. Employee Pay Parameters:

  • REGLR: $100

  • NONTX: $1000

  1. Employee Deduction Parameters:

  • Deduction Type/Plan: PTMED/EMP

  • Deduction Processing Order Number: 10

  • Employee Override Amount: $250

  • Pre/After Tax Processing: Checked

  • Cafeteria After-Tax Deduction Type/Plan: ATMED/EMP

  • Deduction Type/Plan: FEDTX/FEDTX

  • Deduction Processing Order Number: 25

  • Deduction Rate: 10%

  • Include/Exclude Pay ID: Exclude Specified

  • Deduction Type/Plan: ATMED/EMP

  • Deduction Processing Order Number: 50

  • Note: The employee is not enrolled in this deduction. It is only used if there are not enough pre-tax earnings to process the full amount for PTMED/EMP.

  1. Include/Exclude Pay Categories (DPPC)

  • Deduction Type/Plan: FEDTX/FEDTX

  • Pay Category: NONTX

  • Include/Exclude: Exclude Specified

  1. Processing Steps when Pre/After Tax Processing flag is checked:

  1. Determine Non-Taxable Earnings

  • Find value in Federal Tax Deduction SPAR: FEDTX

  • Look for records on DPPC for FEDTX that match a pay event for the employee

  • All pay events for the employee that are excluded from FEDTX are Non-Taxable Earnings

  • NONTX is excluded from FEDTX so it is Non-Taxable Earnings (NTE)

  • NTE = $1000

  1. Determine Remaining Taxable Earnings

  • Store all earnings from taxable events as Remaining Taxable Earnings (RTE)

  • RTE = $100

  1. Determine Pre-Tax Deductions

  • PTMED/EMP is a pre-tax deduction because the priority number is less than FEDTX

  • Process Pre-Tax Deductions

  • RTE: $100

  • PTMED/EMP: $250

  • RTE is less than the balance of PTMED/EMP, so the full amount cannot be processed for the pre-tax deduction

  • $100 will be taken for PTMED/EMP

  • The remaining balance of $150 will be processed for ATMED/EMP if there are enough Non-Taxable Earnings

  1. Process After-Tax Deductions

  • NTE: $500

  • ATMED/EMP: $150

  • There are enough Non-Taxable earnings so $150 is processed for ATMED/EMP

  1. Check Details

  1. Net Pay: $850

  2. Pay Details:

  • REGLR: $100

  • NONTX: $1000

  1. Deduction Details: 

  • PTMED/EMP: $100

  • FEDTX: $0

  • AFMED/EMP: $150