Quarterly tax balancing

What is balancing?

After the end of every quarter, Eddy performs a process called “balancing”, in which the taxes that were calculated throughout the quarter (or imported on external payrolls) are adjusted for accuracy and alignment with agency rules.

For example, if a tax has a fixed rate, then balancing will ensure that the tax amounts withheld in the quarter equal the total taxable wages for the quarter multiplied by that rate. Or for a tax like Social Security, which has a cap on wages that can be considered “taxable” in a given year, balancing will adjust taxable wages for the tax to sure that it has not exceeded this limit.

This balancing process is essential to ensuring that Eddy is able to file for taxes, and prevents tax notices for the employer. And as part of this process, employers may receive a collection or refund for changes in tax amounts that this balancing process produced (i.e,. “variances”).

Quarterly Tax Balancing Report

To dig deeper into the root cause of tax variance adjustments, you can request a Quarterly Variance Report. This will return a breakdown of tax variances on a company’s balancing payroll by employee and by tax.

To view the Quarterly Variance Report, contact Eddy support. We expect to make this report available in. your account shortly.

Understanding the root cause of tax variances

There is not always a straightforward answer to “why” tax variances exist for a company. A few example causes of tax variances are:

• Mid-quarter rate changes — For example, if a company’s state unemployment rate changes mid-quarter, then payrolls that were calculated during the quarter before the rate change was entered in Eddy will produce a variance.
• Exemptions added or removed — If an exemption to a tax was added or removed mid-quarter, then payrolls that were already processed may produce a variance to retroactively add or remove the tax.
• Mistakes during company setup — A company’s historical payrolls may have been entered with incorrect subject wages or tax amounts.
• Rounding throughout the quarter — Simple rounding differences between calculating a tax payroll by payroll vs. in aggregate on the entire quarter may produce minor variances.
• Other agency-imposed requirements — For example, credit reduction states for FUTA are announced in November ever year, and will appear as tax variances for employers in the affected states in Q4.

Balancing variance transactions

When company ends up with an amount owed or a refund, Eddy will process a payment with your default company bank account, similar to a regular payroll. These are submitted on the second business day of the filing month and variance collections or refunds are scheduled for three business days later.

Exceptions to this timeline

In some cases, balancing payroll approval may be delayed:

• Companies with data inaccuracies — If corrections are needed (from a company setup error or inaccurate historical payroll data), Eddy will process those corrections first.
• Companies not in Good Standing — Companies in bad standing will not have approved balancing payrolls until they resolve their outstanding requirements. Once resolved, Eddy will schedule the associated variance transaction.

In some cases, a second balancing payroll may run due to a partner- or employer-initiated correction or agency feedback.

Make sure you have funds in your account if a collection is required

Eddy recommends reviewing the Quarterly Tax Balancing Report on a regular basis during the filing month to maximize your ability to set clear expectations and to ensure you have any necessary funds in your account. The “last updated” field on the report can help you identify amounts that have changed.