Payroll Item Tax Behavior 0 0

What Tax Behavior Does

Tax behavior controls how an allowance, deduction, or payroll item affects taxable income and payroll taxes.

Common categories include:

• Taxable
• Non-taxable
• Before tax
• After tax
• Taxable deduction

Practical Example: Taxable Allowance

An employee earns $2,000 and receives a taxable car allowance of $150.

Taxable income becomes $2,150 before tax is calculated.

Practical Example: Before-Tax Deduction

An employee earns $2,000 and has a before-tax pension deduction of $100.

Taxable income may be reduced to $1,900, depending on the country's payroll rules.

Practical Example: After-Tax Deduction

An employee earns $2,000 and has a loan deduction of $100 after tax.

Tax is calculated first, then the $100 is deducted from net pay.

Common Mistakes

• Marking taxable allowances as non-taxable.
• Setting deductions before tax when they should be after tax.
• Assuming all pension deductions work the same in every country.
• Not checking Draft Review after changing tax behavior.

Related Articles

• Salary Components
• Company-Wide Allowances And Deductions
• Payroll Tax Report
• Draft Review V2