Issue/Symptom/Question

What is the difference between the Employee FIT taxability settings;  Subject to Federal W/H - Y/N and  Tax Exempt Status popup window

Environment

Penta for Windows

Payroll/Employees/Employee Payroll Information - Withholding tab

Subject to Federal W/H field and Tax Exempt Status 

Resolution/Fix/Answer

The two federal tax settings treat taxable earnings differently.  

The Subject to Federal W/H field on the Withholding tab of the employee information screen, when set to NO will continue to accrue earnings and taxable earnings for the employee and will display these earnings in box 1 of the W2; but no taxes will be withheld.

If there is a start date entered in the Tax Exempt Status window for FIT, federal earnings will not be accrued for the designated start and end period date range.  When this is in place, no earnings are accrued and will show zero amount in box 1 of their W2.

The Tax Exempt Status window setting will override the Subject to Federal W/H setting, if there is a conflict for the payroll processed within the date range entered.