Hi,
After research about using SAP for pension tax calculation, I found that
Requirements:
- According to State government regulation, the calculation of pensioners tax withholding (Tax Type 70, 71, 72) is different from regular withholding (Tax Type 01) for some states such as AR, CO, GA, MI, etc. Because there are additional deductions depending on age of pensioners.
- Some states such as AL,HI,MS,PA has no pension tax.
With this in mind, using regular tax calculation, pensioners will be withheld more comparing to pension tax calculation
Technical:
- BSI Taxfactory 10.0 provides the calculation for pension withholding tax which aligns with the state regulation. (I tested in BSI tax factory itself and the formula from state website and the result is the same.)
- SAP can't call the pension tax engine. In order to call BSI Pension tax engine, you have to send Tax Type 70, 71, 72 AND TAX_PROCESS_TYPE=2 (Pension). (From <https://mail.google.com/mail/u/0/#inbox/153c2de9e4bec480>)
- SAP code Function PAYROLL_TAX_CALC_US hards code the value of TAX_PROCESS_TYPE = 0 (Regular). There is no way to change this code in SAP before RFC to BSI. As a result, you need an enhancement (program modification) to do the task.
- We did the enhancement and the error due to tax engine is resolved. HOWEVER, SAP also has a code related to Reciprocity state and work area tax which also hard code for Tax Type 01. This causes another error due to tax engine. Because when you use RFC to BSI, only one TAX_PROCESS_TYPE can be used. If you have both Tax Type 01 and 70, the error will occur.
- In order to resolve this, we have to create IT208 work area with no tax for pensioners.
- I reported the issue to SAP and waiting for response. In a meantime, our client has decided to use the regular engine and manually adjust exemption amount as needed according to the regulation.
If anyone has experienced using SAP-BSI pension engine, please let me know.
Thank you.