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Administrator Guide
Last Updated: 2024-09-20
Concept: Retro Differences from Tax Authority Changes (USA)

Concept: Retro Differences from Tax Authority Changes (USA)

When you select
Enable Retro Processing from Different Tax Authorities to On-Cycle Payroll
 and
Enable Taxes on Retro Amounts from Prior Tax Authorities
 in your tenant, Workday:
  • Calculates retro differences for earnings and deductions and forwards them to the current pay period.
  • Associates taxes on the retro difference with the tax authorities in effect during the retro pay periods.
  • Calculates taxes on retro pay based on the worker's current tax rates, elections, and rules.
  • Displays source tax authorities that includes the work and resident tax authority details from each individual payroll result processed by retro on the retro worker result.
  • Displays retro tax authorities for pay components in the Retro Period Tax Authorities column on a payroll result.
  • Displays a separate payroll result line for each unique combination of source period and current period that have different tax authorities.
During pay calculation, Workday calculates retro periods before the current period. When there is more than 1 retro period, Workday calculates them in alphanumerical order based on the retro period tax authorities and then by these dimensions:
  1. Work state
  2. Work city
  3. Work county
  4. SUI state
  5. Resident state
  6. Resident city
  7. Resident county
  8. Resident school district
With only the
Enable Retro Processing from Different Tax Authorities to On-Cycle Payroll
 tenant setting enabled, Workday processes retro differences in on-cycle payments and forwards them to the current pay period. Workday taxes the retro differences based on the current tax authority.
You can use on-demand additional payments to process retro differences from tax authorities for workers:
  • Who have taxes for both U.S. states and territories
  • In Pennsylvania who:
    • Selected or cleared the
      Primary EIT
       check box on their work city tax election since the retroactive period.
    • Have an OMWJ tax allocation set up for a city in Pennsylvania that's different from the primary EIT city designated tax election.
Workday only applies pay input for pay component related calculations to the current pay period. You can adjust the retro period by adding an input adjustment to balance the total for the current and retro pay periods.
Workday includes the retro taxes and earnings that are paid on on-cycle pay results in the disposable income calculation on a worker's income withholding order.
Workday uses the effective date of worker's tax elections to determine whether a local tax is included in the retro pay period. When you process retro differences for workers with local tax elections, consider:
Use Case
Tax Election Adjustment
The worker's tax election is no longer applicable.
Add a new local tax election and select the
Inactive
 check box with an effective date for when the local tax election is no longer applicable.
The worker has a tax election for a new city or county.
Add a new local tax election for the worker's city or county.
Example
As of January 1, 2024, James lives in Cleveland, Ohio and works in Toledo, Ohio earning 3000 per pay period. As a payroll administrator, you run pay calculation and complete for 2 pay periods in January:
  • 2024-01-01 to 2024-01-15
  • 2024-01-16 to 2024-01-31
On February 1, 2024, James moves to New York when he now lives and works. James also receives a retroactive compensation change of 1000 per pay period, effective January 1, 2024.
You run the retro pay calculation and then you run pay calculation and complete for the current pay period in February. The
Compensation
 section of the
Gross to Net
 tab on James' payroll result displays the retroactive payments for January along with the tax authorities in effect during those retro periods.
Pay Component
Retro Period
Retro Period Tax Authorities
Amount
Base Pay
2024-01-16 to 2024-01-31
State (Work): Ohio
State (SUI): Ohio
State (Resident): Ohio
City (Work): Toledo
City (Resident): Cleveland
(3000)
Base Pay
2024-01-16 to 2024-01-31
State (Work): Ohio
State (SUI): Ohio
State (Resident): Ohio
City (Work): Toledo
City (Resident): Cleveland
4000
Base Pay
2024-01-01 to 2024-01-15
State (Work): Ohio
State (SUI): Ohio
State (Resident): Ohio
City (Work): Toledo
City (Resident): Cleveland
(3000)
Base Pay
2024-01-01 to 2024-01-15
State (Work): Ohio
State (SUI): Ohio
State (Resident): Ohio
City (Work): Toledo
City (Resident): Cleveland
4000
Base Pay
4000
Because the tax authorities in effect during the 2 retro pay periods are the same, Workday displays the aggregated amounts for gross wages, subject wages, and taxable wages for each pay component on the
Taxes
 section of the
Gross to Net
 tab.
Pay Component
Worktags
Retro Period Tax Authorities
Amount
Related Calculation
Amount
Federal Withholding USA
State (Work): Ohio
State (SUI): Ohio
State (Resident): Ohio
City (Work): Toledo
City (Resident): Cleveland
78.33
Gross Wages
2000
Subject Wages
2000
Taxable Wages
2000
State Withholding USA
Ohio
State (Work): Ohio
State (SUI): Ohio
State (Resident): Ohio
City (Work): Toledo
City (Resident): Cleveland
47.41
Gross Wages
2000
Subject Wages
2000
Taxable Wages
2000
If the retro periods have different applicable tax authorities, then Workday displays separate pay result lines for each retro period.