Setup Considerations: Prior Period Tax Adjustments (USA)
You can use this topic to help make decisions when planning your configuration and use of prior period tax adjustments. It explains:
- Why to set them up.
- How they fit into the rest of Workday.
- Downstream impacts and cross-product interactions.
- Security requirements and business process configurations.
- Questions and limitations to consider before implementation.
Refer to detailed task instructions for full configuration details.
What It Is
Prior period tax adjustments (PPTAs) enable you to recalculate taxes for a completed payroll result
and create a tax adjustment result.
Business Benefits
You can use PPTAs to recalculate a worker’s tax authority wages and taxes for a completed payroll result. This feature helps you:
- Comply with tax and year-end reporting.
- Improve efficiency when processing tax adjustments.
- Reduce manual processing and potential errors.
Use Cases
You can adjust prior periods taxes with the
Prior Period Tax Adjustment Calculator
task when a worker moved to a different primary home state, work state, or jurisdiction during the payroll period.Questions to Consider
Questions | Considerations |
|---|---|
How does the PPTA calculator work? | The PPTA calculator applies retroactive changes that you make for the worker’s:
Workday uses the tax authorities in effect as of the period-end date of the original pay result that you’re adjusting. The tax authorities in effect are applied to the entire pay result or subperiod pay result. We include the tax authority attributes when they’re in effect as of the payment date of the original pay result you’re adjusting. Workday only adjusts tax authority wages and taxes for earnings and deductions that were originally applied to the worker's primary work and resident tax authorities. Earnings and deductions applied to other tax authorities on the original result will remain in those tax authorities. |
What’s the difference between a tax adjustment result that you create using the PPTA calculator and a tax adjustment result that you create manually? |
Workday treats the tax adjustment results created with the PPTA calculator as if they were part of the original pay result.
Example: You create a tax adjustment result with the PPTA calculator for a payroll result from January. Workday uses the same wages and tax limits as of the completion date and time of the original payroll result.
For the tax adjustment results that you create manually, Workday uses the completion date and time when you make those changes. Example: In February, you create an off-cycle on-demand additional payment for a pay period in January. Workday uses the completion date and time from February, not January, for the wages and tax limits. |
Where do you want to report your prior period tax adjustment result? |
Workday uses the payment date to determine where the tax adjustment result is processed for tax and year-end reporting.
If you use a payment date in a prior quarter, you might need to amend your tax filings. |
When do I need to use a net pay offset code? |
You must use a net pay offset code for PPTAs when:
The PPTA calculator uses the net pay offset code to bring the net pay to zero on the tax adjustment result. |
How does the Is Not Processing Tax Adjustment Result instance value calculation (IVC) relate to prior period tax adjustments? |
The Is Not Processing Tax Adjustment Result IVC prevents U.S. tax deductions from resolving on tax adjustment results if the tax authorities aren’t sent from the PPTA calculator.
The IVC is on all effective dated rows so you can process PPTAs as far back as you want. You can also use the IVC with tenant pay components if needed. |
How do I adjust prior period taxes for multiple sibling gross-to-net (GTN) results? |
Workday calculates sibling GTN results together when you use the PPTA calculator.
If your period has sibling gross-to-net results, Workday:
Subperiod GTN results that have been calculated together in their original pay calculation should also be adjusted together using the PPTA calculator. When you run the PPTA calculator on 1 sibling GTN result, Workday recalculates the other sibling GTNs together, whether or not they require a tax adjustment. The calculator creates a separate tax adjustment result for each subperiod GTN result. If you take action on any of the sibling tax adjustment results, Workday recalculates, cancels, or completes all of the results together. You must individually adjust reversals for sibling tax adjustment results to help avoid negatively affecting the wage and tax balances and limits. |
Recommendations
Adjust pay results by the earliest:
- Pay period.
- Completed date and time.
Example:
Payroll Result | Period |
Calculation Status | Calculation Date Time |
|---|---|---|---|
A | 01/01/2024 - 01/15/2024 (Semimonthly) | Completed | 01/13/2024 09:56 AM |
B | 01/16/2024 - 01/31/2024 (On-demand additional payment) | Completed | 01/21/2024 03:15 PM |
C | 01/16/2024 - 01/31/2024 (Semimonthly) | Completed | 01/29/2024 07:26 PM |
Adjusting the above pay results in this order helps ensure that pay balances are applied to the correct period:
- Payroll Result A
- Payroll Result B
- Payroll Result C
Requirements
If you plan to collect tax underwithholding from workers, you must create at least 1 net pay offset code.
Limitations
You can’t create prior period tax adjustments for:
- 1042-S workers.
- Gross-up calculations.
- Incomplete payroll results.
- Pretax deduction allocations.
- Trailing payments or payments in a future period that you created using Next Period.
- Workers with multiple jobs.
The
Prior Period Tax Adjustment Calculator
task can’t be used to:
- Adjust pay results created within a company relationship.
- Make retroactive changes for hire date corrections or ongoing multiple work jurisdictions (OMWJ).
- Split the original payroll result into separate subperiods when there are retroactive midperiod changes to tax authorities.
- Move tax authorities to a different company.
- Change the earning or deduction amounts that were paid and deducted on the original pay result.
- View retroactive tax authority change events across workers and pay results.
The
Prior Period Tax Adjustment
related action isn’t available on these pay result types:
- Created by Retro
- Manual Payments
- Pay on Demand
- Payroll History
- Reversals
Using the PPTA calculator for a worker with position-based taxes who had retroactive changes to their position and location will cause an error on the on-demand additional payment. The on-demand additional payment uses the worker's new position, while the worker's position-based taxes calculated in PPTA are based on the old position, causing the error.
You can’t use the PPTA calculator if it calculates that the original earnings and deductions are different amounts from what was paid on the original payroll result. Examples include:
- A deduction went into arrears and the retroactive tax authority change results in a refund of taxes.
- An earning or deduction is no longer in effect for the pay result that you're adjusting
- A pay component is retroactively changed.
Example: A worker who previously lived in California usually paid $50 for a pretax medical deduction. On the original payroll result that you’re adjusting, the worker only paid $45 because they didn’t have enough money to collect the full amount. Then, the worker has a retroactive tax authority change that results in a tax refund.
Now when you try to run the PPTA calculator on the original payroll result, you receive an error because:
- The tax refund increases the net pay and allows the medical deduction to increase to $50, causing the taxable wages in the PPTA calculation to be reduced by $5 when that’s not what was originally deducted.
- The PPTA calculator doesn’t allow earnings or deductions to be changed from the original values and you must calculate and process the tax adjustments manually.
Tenant Setup
No impact.
Security
Domains | Considerations |
|---|---|
Process: Off-Cycle
|
Enables users to access the Prior Period Tax Adjustment > Run related action to create a PPTA. |
Set Up: Payroll (Calculations - Payroll Specific)
| Enables users to create an earning or deduction for their net pay offset pay component. |
Business Processes
No impact.
Reporting
On the
Pay Calculation Results for Worker
report, you can use the columns to help you verify the relationship between an original payroll result and its tax adjustment result:
- Tax Adjustment Result
- Original Result for Tax Adjustment
Integrations
No impact.
Connections and Touchpoints
Workday offers a Touchpoints Kit with resources to help you understand configuration relationships in your tenant. Learn more about the Workday Touchpoints Kit on Workday Community.