As mentioned in our previous post, Oregon is enacting a new Transit Tax, beginning July 1st, 2018. A new update is available to handle this. You can download this update by using the Tools->Check for Updates option within the program. For more information about the tax itself see the official Oregon website or our previous post.
The update can be downloaded at any time. It is best to have the update installed and everything set up before you enter batch payroll checks for the third quarter or create checks from Daily Payroll.
What do I need to do?
In order for the program to handle the OTT tax properly, there are a few things that you need to set up first. You need to do the following:
- Download the update using the Tools->Check for Updates option.
- After installing the program, the first time you start it up the program will tell you that updated rates are available. Click on the Ok button to install the new Oregon rates.
- Create a G/L account for the OTT tax using the Chart of Accounts. (General Ledger->Chart of Accounts)
- Enter that G/L number on the G/L Numbers tab found on the State Tax Rates window. (Payroll->Setup->State Tax Rate Tables)
- After closing the quarter, run the Payroll Audit. (Payroll->Utilities->Payroll Audit)
Installing the New Rates
When the 2018 Install State Tax Rates window appears, Oregon will automatically be checked and should show “Updated Rates”. Simply click on the Ok button at the bottom of the window to install the new rates.
The description, rate, and starting date for the new tax are included in the updated rates.
Creating and Assigning a G/L Account
A G/L account will need to be added to your chart of accounts for the OTT tax. Use the Chart of Accounts window found at General Ledger->Chart of Accounts. The easiest way to set up a new G/L account for the transit tax is to clone an existing account:
- Bring up an existing tax liability account (for example, your Oregon state withholding liability account.
- Press the [F5] key to clear the account number and description
- Enter the new account number and description for the Oregon transit tax
- Click on the Save button or press [F2] to save the new account.
The program will also need to be told that this is the account that is used for OTT tax. This is done on the State Tax Rate Table window found at Payroll->Setup->State Tax Rate Table. Once on that window, click the G/L Numbers tab. Enter the G/L account that has been created in the new Oregon Transit Tax entry as shown below:
The Transit Tax Settings
You can view the OTT settings on the Local Tax Settings tab of the State Tax Rate Table. This will display the tax rate, the description, and the starting date. All of these settings should be entered automatically when you download the update. With the current law, these settings should match the following screenshot.
Running the Payroll Audit
This option will ensure that the year to date totals are correctly initialized for the transit tax. To run this option, go to Payroll->Utilities->Payroll Audit/Fix Options, and click on the Preview button. Close the report once it has finished running, and the program will be ready to calculate the transit tax on your next batch of checks.
How will this update affect reports and check entry?
Payroll check reports will now include a column for the OTT amount.
The Daily Payroll Batch Report will automatically calculate the OTT amount when creating checks. The old Create Checks option will also perform this calculation.
The Batch Check Entry window will list the OTT deduction along with other deductions.
The OTT deduction will appear on check stubs, with both the current and YTD amounts withheld.
The OTT amount will be printed in a new column on the Payroll Journal, and the liability will be posted to the G/L account that you have set up.
The Payroll Tax Deposit window will include the transit tax liability due.
Several more complicated mutli-state payroll scenarios will be handled correctly. For instance, if an employee that is reported to California for UI purposes (and is thus subject to SDI withholding) works in Oregon, the employee will have Oregon income tax withholding, transit tax, Worker’s Benefit Fund, and SDI withheld from their check.
What if I don’t get the update installed before my first third quarter payroll?
Because the OTT is a percentage based tax, it works the same way as the SDI, FICA, and Medicare calculations do. The program first computes the total tax that the employee should have withheld since the transit tax starting date, including the wages on the current check. It then subtracts what has been withheld since the tax went into effect to determine how much to withhold on the current check.
This type of calculation:
- Ensures that there are never any cumulative rounding errors, because the total deducted is always based on YTD wages.
- Automatically catches up missed deductions or fixes deductions made at an incorrect rate.
What additional changes will be made?
The quarterly and annual reports will be modified to report the new transit tax. An update will be available at the end of September to handle the third quarter reporting changes.
The transit tax amount will also need to be reported on the W-2. This will likely be in box 14 (Oregon has not finalized a rule on this yet. Individuals who itemize deductions on their tax return should be eligible to include the transit tax in the itemized state taxes paid, so it will need to be reported on the W-2 in some way.)
For More Information
If you have further questions or need assistance with this update, contact Datatech customer support at email@example.com.