Your employees (or yourself) may be exempt from state taxes. This article will outline how you can make an employee exempt from these taxes, and prevent these deductions from coming off their paycard when you process payroll. 

Pre-Requisites

• Have already set up your payroll categories 
• Have already set up your employees' master paycards 
• Know which employees are exempt from which state tax(es) 

Creating an Exempted Federal Tax Payroll Category

1. Navigate

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1. to Setup > Payroll

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1. Settings > Payroll

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1 - The Tax Exemption Pay category will be obsolete after this upgrade (Figure 1)

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(Figure 2)

2 - Make Income tax (federal or state) pay category active on employee master pay card: from the top menu go to Employees > master pay card > select employee > go to Taxes tab > click on the pay category > place a checkmark in the ”Active” check box (Figure 2). The pay category will be now active. Click on the check mark button to save the changes.

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(Figure 3)

3 - Make Tax exemption pay category inactive on employee master paycard.  From the top menu go to Employees > master pay card > select employee > go to “Taxes” tab and locate the Tax exemption category. Then uncheck the “Active” checkbox (Figure 3). The pay category will be now inactive. Save the changes.

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(Figure 4)

4 - Once Tax exempt pay category was deactivated review the Employee taxation information. From the top menu go to Employees > Taxation information > Select employee > Detail tab > Place a checkmark in the “Exempt” checkbox. If is Federal exempt place a checkmark in the Exempt checkbox in the Federal section (Figure 4). If is Exempt in a different state place a checkmark in the Exempt checkbox in the specific state.

1. Categories. 
2. Click the "+" button to create a new payroll category. 
3. Select "Add Tax" to create a new tax payroll category. 
4. Enter a "Number", "Name", and "Abbreviation" to identify your payroll category.
5. For "Tax Level", select 'Federal'. 
6. For "Type", select 'Obsolete Tax Exemption'.
7. Click the checkmark icon at the top-right corner of the window to save your changes.

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Editing Your Employees' Master Paycards 

1. In Clarity, navigate to Employees > Master Paycard > 'List' tab. 
2. Double-click on the employee whom you want to make exempt.
3. Navigate to the employees' 'Taxes' tab. 
4. Click on the payroll category on the left side of the window which you have to make exempt. 
5. Un-checkmark the "Active" checkbox at the bottom-right corner of the window. Ensure that the "Active" checkbox next to the payroll category name is also unchecked. 
6. Click the checkmark icon at the top-right corner of the window to save your changes. 
7. Repeat steps 4  through 6 for each payroll category if the employee is exempt from more than one.
8. Repeat steps 2 through 7 for each employee that has exemptions. 

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Editing Your Employees'  Taxation Information 

1. In Clarity, navigate to Employees > Employee Taxation Information > 'List' tab. 
2. Double-click on the employee who is exempt from taxes. 
3. Navigate to the 'Detail' tab. 
4. Locate the tax exemption payroll category. Checkmark the "Exempt" checkbox for the federal and/or state taxes. If the employee is exempt in a different state, place a checkmark in the correct state. 

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