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Strange 1042-S Box 5 behavior


I have an odd situation that I can't figure out. It might be something that I need to pass to SAP for review but I thought I would see if any of you have run into a similar problem before I do.

At the end of last year we decided that we needed to have 1042 reporting and withholding tax codes set up and ready for use in 2014. In part we had to have these ready before the end of 2013 because of an a-typical invoice payment that needed to be made before the end of the year where we would "gross-up" the tax and pay it on behalf of the vendor. So I set up the configuration and set up 3 new withholding tax codes for 1042; '40' for reporting only, '41' for this special gross-up scenario, and '42' for the normal scenario where we withhold tax from the vendors payment.

My problem is with this '41' gross up tax code. When setting this up we wanted to roll 30% of the total payment into an expense account which we would then use to pay the tax to the IRS. This works fine, but in testing I could not get the math to work out to 30%. So I started to adjust the withholding tax rate in config until it tested as 30%.I had to adjust the rate down to 23.0771%. Why?

Now this has come back to bite me. The posting worked great, but now that we are testing the reporting, when we print the 1042-S for this vendor, Box 5 shows 23.08% from the configuration, when instead it should be 30%.

FI(new)->FI Global->Withholding Tax->Extended Withholding Tax->Calc->Withholding Tax Code->Define Tax Codes

And the posting...which worked perfectly, 30%.

Did I miss something? Or is something crazy going on here?

config.png (16.4 kB)
posting.png (10.7 kB)
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  • Posted on Jan 24, 2014 at 05:28 PM

    Ok - so I got this to work correctly, though I still feel it is an SAP bug or at the very least it is not very intuitive.

    I created an entry in "Define Formulas for Calculating Withholding Tax".

    Created this under US for tax type '03', tax code '41' and I left withholding tax country blank.

    Under the formulas folder I created an entry for 30.00% withholding tax rate.

    After I created this entry form 1042S prints out in box 5 correctly.

    But...if I removed the 23.0771 from the other config, my posting did not work correctly. So I had to leave that there.

    I am a bit worried that I will run into a problem if we ever need to withhold at different rates based on country so I may still submit this to SAP as an issue but my immediate need is resolved.

    Thanks.

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    • Thanks for the reply.

      I have not looked at this in a while, maybe I did not explain it clearly enough. I can change the rate per country configuration and this does flow through to the form. So for example, if I changed the config to 40%, 40% would print on the form. The problem is that it doesn't seem to have any bearing on the actual posting in FI. Unless I keep a value in the config from my screen shot above for With/tax rate the posting in FI does not work correctly.

      I'll probably revisit this more closely in a few months and possibly send to SAP. We only had a small number of 1042's this past year and all were for the same rate so I was able to make it work.

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