Section 5. WITHHOLDING DERAI. & STAT-El-- TAXES

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1 ( Section 5 WITHHOLDING DERAI. & STAT-El-- {

2 Income Tax Withholding Statutory tax withholdings are mandatory taxes that are contributed by the employee to the taxing agency. Withholdings made by the employee go to his/her individual employee record and are reported annually on Form W-2. The employer matches social security taxes paid, as well as Medicare contributions. The employer is responsible for state unemployment contributions. In most cases, employees pay the contributions for State Disability Insurance unless the district has an agreement to pay these contributions on behalf of the employee. Districts are not required by state regulation to participate in the State Disability Insurance Program. Federal Form W-4 Employee Withholding Allowance Certificate The Form W-4 is the federal document that informs employers of their employee's tax status for purposes of withholding federal income taxes. Employees are required by federal law to complete and submit a Form W-4 to their employer. Form W-4 information includes the employee's name, address, social security number, marital status and the number of withholding allowances the employee is claiming. Employees can file a new Form W-4 at anytime. A Form W-4 remains in effect until the mplczy..easuhmits...anew form..-an-exception-wou!d--be.-employee&-w9e--slaim f*efrf>t-fmm federal income tax withholding. Claiming exempt from withholding requires the filing of a new Form W-4 no later than February 15 of each year. ( Employees may not be allowed to change their exemptions if the employer has received correspondence from the IRS that sets a required amount of withholding or exemptions the employee is allowed to claim. (See Employer Reporting Requirements) The employer should have on file a signed Form W-4 for all newly hired employees on or before the first day of employment. The form is effective with the employee's first pay period. If a new employee fails to submit a Form W-4, the employer is required to withhold at the single, with no allowances, withholding rate. Exemption from Federal Income Tax Withholding An employee may claim exempt from withholding if: There was not federal income tax liability due in the previous year and ; Expects no liability in the current year and Has not been limited to the number of exemptions by the IRS through a notice to the employer. (Note that the exemption applies only to federal income tax withholding and does not exempt the employee from other employment taxes. The exemption is good for <?ne year.) 1

3 If the employee's status remains exempt for the following year, a new exempt Form W-4 must be filed by February 15 of that applicable year. For an upcoming tax year, employees that can no longer claim the exempt status have until December 1 of the current year to file a new Form W-4. The employer is required to withhold as single with no allowances if an employee fails to submit a new Form W-4 for the above situations. Students are not automatically exempt from federal income tax withholding. Students claimed as a dependent by another individual or who have total earned income that exceeds $950 or unearned income that exceeds $ may not claim exempt. Invalid Forms W-4 Employers have a responsibility not to accept and withhold on any invalid Forms W-4. A Form W-4 is invalid when: The language or format of the form has been altered including additions and deletions The form is not signed or completed properly The em lo ee indicates to the em lo er that the information on the form is incorrect A flat dollar amount or percentage is requested for withholding. The employee should be informed by the employer that a new form is required for any invalid Forms W-4. If the employee fails to submit a new form, withholding must be based on the employee's last valid Form W-4. When a previous Form W-4 does not exist, the employer is required to withhold on the employee as single with no allowances. 2

4 Employer Reporting Requirements Effective April 14, 2005, the requirement to submit copies of Forms W-4 (Employee's Withholding Allowance Certificate) that show withholding of more than 10 allowances or that show an exempt filing was eliminated. IRS [70 F.R , ]. Regulations now require an employer to submit copies of Forms W-4 to the IRS only after the service requests them in writing. California did not conform to the new IRS procedures for Forms W-4. Employers should send Forms DE-4 to the Franchise Tax Board when the employee claims more than 1 O withholding allowances or exempt from California tax withholding. Forms should be sent to: FTB W-4 Unit MS F-180 P.O. Box 2952 Sacramento, Ca IRS Notice to the Employer (The "Lock-in Letter") Employers may receive a notice from the IRS (commonly referred to as a "lock-in letter") specifying the maximum number of withholding exemptions permitted for a specific employee: Lock-in letters are to take effect no earlier than the first pay period beginning at least 60 days after the date of the letter. During this period, the employee can challenge the lock-in letter by providing a new Form W-4 and written statement in support directly to the IRS. If the employee gives a new Form W-4 to the employer, the employer should disregard it until notified by the IRS to withhold based on that form. However, if, at any time, the employee furnishes the employer with a Form W-4 that claims fewerwithholding exemptions than the maximum number specified in the lock-in letter, then the employer should withhold based on that Form W-4. In addition to the lock-in letter, the IRS will provide the employer with an "employee notice" (the IRS will also mail a similar notice to the employee's last known address). If the employee is still employed by the employer when the lock.:in letter and notice are received, the employer must give the notice to the employee within.10 business days of receipt. If the employee is no longer employed by the employer, the employer must send a written response stating that fact to the I RS office designated in the notice. 3

5 Assisting Employees in Completing Form W-4 Employers should refrain from assisting or giving tax advice to employees in regards to complete Form W-4. Providing information to your employees such as when a change should be made, or when you must submit Forms W-4 to the Internal Revenue Service is acceptable. However, be aware not to advise your employees of how many allowances they should take or how much they should withhold. A worksheet is attached to Form W-4 that will guide employees through the steps to calculate eligible allowances. Employers can also refer employees to IRS publications: Publication 919, "Is My Withholding Correct?" Publication 505, "Tax Withholding and Estimated Tax ( Wage Withholding For Nonresident Alien Employees IRS Notice The IRS has specific procedures for determining the amount employers must withhold from nonresident alien employees' wages for services performed in the U.S. There are also specific rules for how a nonresident alien employee must complete Form W-4 (Employee's Withholding Allowance Certificate). Income tax withholding is required to be calculated on wages of nonresident alien employees (except for students and business apprentices from India) by adding an amount to the wages of the nonresident alien employee solely for purposes of calculating their income tax withholding for each payroll period. The specific amount depends on the payroll period. Employers will determine income tax withheld by applying the tables to the sum of the wages paid for the payroll period plus the additional amount. Beginning with wages paid on or after January 1, 2010, employers are required to calculate income tax withholding under section 3402 of the Code on wages of nonresident alien employees by making two modifications rather than the one modification described in the table above. First, employers need to add an amount to wages before determining withholding under the wage bracket or percentage method in order to offset the standard deduction built into the withholding tables. Second, employers need to determine an additional amount of withholding from a separate table applicable only to nonresident alien employees to offset the effect of the Making Work Pay Tax Credit built into the withholding tables. The specific steps for each of these two modifications are set forth in Publication 15 for calendar year 2010 and other IRS forms or publications. 4

6 $39.42 for a weekly payroll period; $78.85 for a biweekly payroll period; $85.42 for a semimonthly payroll period; $ for a monthly payroll period; $ for an annually payroll period; Non- Resident Alien Employee's W-4 Nonresident alien employees are required to: Not claim exemption from withholding; Request withholding as if single, regardless of actual marital status; Claim only one allowance. However, residents of Canada, Mexico, or South Korea may claim more than one allowance; and Write "Nonresident Alien" or "NRA" above the dotted line on line 6 of Form W-4. Advanced Earned Income Credit - AEIC For tax-year 2011 and beyond, there will be no more advance payment of the earned income tax credit. Eligible individuals will still be able to claim it on their personal income tax returns, but employers may no longer advance a portion of it with each paycheck. This is a result of HR 1586 (Public Law , Section 219), signed into law on August 10, Employee Required Notification Employers are obligated to inform certain employees that they may be eligible for the credit. Employers must furnish a written notice explaining the earned income credit to all employees who have no income tax withheld and did not claim exemption from withholding on the Form W-4. The Internal Revenue Service provides Notice 797 "You May Be Eligible for a Refund on Your Federal Income Tax Return Because of the Earned Income Credit". Employers must furnish this notice to employees within one week before or after the date they give their employees Form.W-2. If the notice isn't given out with the Form W-2, the written notice must be furnished by direct hand deliver to each employee, or it must be sent to the employees' home by first class mail. Employers won't meet the requirements for notification if the notice is sent through inter-office mail or posted on a bulletin board. Employers can satisfy the notification requirement by printing the notice on the reverse of the employee's W-2 form. 5

7 Effective January 1, 2008, a new California law (AB 650) requires that employers with employees covered under California Unemployment Insurance Code provide all such employees a special notice of their possible eligibility to take advantage of the federal Earned Income Tax Credit (AEIC). The notice is to be either hand-delivered or mailed within one week of the date the IRS Form W-2 is sent to employees. While an employer can create its own notice, it must contain substantially the same language as the statutory language, so there is not much reason, other then to augment the statutory notice, to use anything other than the statutory language which reads as follows: BASED ON YOUR ANNUAL EARNINGS, YOU MAY BE ELIGIBLE TO RECEIVE THE EARNED INCOME TAX CREDIT FROM THE FEDERAL GOVERNMENT. THE EARNED INCOME TAX CREDIT IS A REFUNDABLE FEDERAL INCOME TAX CREDIT FOR LOW-INCOME WORKING INDIVIDUALS AND FAMILIES. THE EARNED INCOME TAX CREDIT HAS NO EFFECT ON CERTAIN WELFARE BENEFITS. IN MOST CASES, EARNED INCOME TAX CREDIT PAYMENTS WILL NOT BE USED TO DETERMINE ELIGIBILITY FOR MEDICAID, SUPPLEMENTAL SECURITY INCOME, FOOD STAMPS, LOW-INCOME HOUSING OR MOST TEMPORARY ASSISTANCE ( FOR NEEDY FAMILY PAYMENTS. EVEN IF YOU DO NOT OWE FEDERAL, YOU MUST FILE A TAX RETURN TO RECEIVE THE EARNED INCOME TAX CREDIT. BE SURE TO FILL OUT THE EARNED INCOME TAX CREDIT FO~---- THE FEDERAL INCOME TAX RETURN BOOKLET. FOR INFORMATION REGARDING YOUR ELIGIBILITY TO RECEIVE THE EARNED INCOME TAX CREDIT, INCLUDING INFORMATION ON HOW TO OBTAIN THE IRS NOTICE 797 OR ANY OTHER NECESSARY FORMS AND INSTRUCTIONS, CALL THE INTERNAL REVENUE SERVICE BY CALLING OR THROUGH ITS WEBSITE AT Social Security Tax - OASDI Prior to 1986, employees of state and local governments weren't subject to social security or Medicare tax unless covered under a voluntary agreement ( 218 agreement) with the Department of Health and Human Services(HHS). Effective April 1, 1986, certain employees were mandated to be covered for Medicare purposes only. The 1990 Omnibus Budget Reconciliation Act of 1990 (OBRA '90) extended Social Security and Medicare coverage for state and local government employees who were not members of a qualified public employee retirement system. Districts may have employees that do not qualify to contribute to Social Security but may qualify for Medicare under the regulations or a separate 218 Agreement for Medicare only. If an employee qualifies for Social Security coverage they must also pay into Medicare. 6

8 ( For 2014, it is the employer's responsibility to withhold 6.2% on the first $113,700 of Social Security taxable wages of its employees. Employers are required to contribute 6.2% of Social Security taxable wages. If the employer fails to withhold or collect Social Security, they are also responsible for the employee's share. What is a Section 218 Agreement? A Section 218 Agreement is a written voluntary agreement between a state and the SSA pursuant to the provisions of Section 218.of the Act to provide social security and Medicare or Medicare-only coverage for state and local government employees. The term refers to the original agreement and all subsequent modifications. These agreements can cover services of employees who are covered by a public retirement system as well as those who are not. To determine whether your entity is covered under a Section 218 Agreement, or needs to execute one, contact your State Social Security Administrator on-line at Employees Subject to Social Security Coverage All full-time and part-time, temporary, and seasonal employees who are not participating in a qualified retirement system are subject to social security and Medicare coverage. _ Part-time, seasonal, and temporary employees must be fully vested in a plan to avoid social security coverage. To be fully vested, an employee upon separation from mp!uymenlr:nuslbcut.e-consti:uctive-r:ecejpt-of-a_p a-ymei:i -t-squal--t~/o--fp~l:l-s-i-ateres~th-) of the compensation earned while participating in the plan. The contribution can come entirely from the employer or employee or a combination of both. Many employees are covered under Social Security because the retirement system they are a member of provides a Section 218 agreement with Social Security that mandates their coverage. This is very common for CalPERS employees but not CalSTRS employees. 7

9 ( WITHOLDING FEDERAL & STATE Rehired Annuitant OBRA '90 specifically excludes a qualified retired annuitant from mandatory social security coverage if they are rehired with an employer that participates in the same retirement plan from which they retired. To be considered a qualified retired annuitant, the employee must be receiving retirement benefits or has reached normal retirement age under the retirement plan. Example: A teacher retires from a school district that participates in the State Teachers Retirement System and begins receiving retirement benefits from the plan. The retiree is hired to substitute teach in a school district that also participates in the State Teachers Retirement System. The retiree is considered a qualified rehired annuitant and is not required to be covered by the OBRA 90' provisions of social security. The retiree would however qualify for Medicare coverage being hired after March 31, ( Student Social Security Exclusions K-12 Students Generally, Students are exempt from social security and Medicare coverage if their services are performed in a public or private educational institution where they are enrolled and re ularl attendin classes. The service must be erformed concurrentl~---- with attending classes. Students who work during the summer break who are not attending classes would qualify for social security coverage until they returned to school. The school for which the work is being done does not have to be the same school the student is attending if both are considered the same employing entity. Example: A student attending a high school in school district X works after school in an elementary school also in school district X. Both schools are an integral part of school district X, so the student would be exempt from coverage. Community College Students Internal Revenue Procedure has clarified the standards for determining when and if community college students will be exempt from social security coverage. The revenue procedure states that the student must be attending classes at least on a halftime basis of what is required of a full time student. For example, if the college requirement to be a full time student is taking 12 units, the half-time requirement would be taking 6 units. Also eligible are students who are in their last semester and enrolled for the number of hours needed to complete their study even if enrolled for less than the half-time requirements. 8

10 During a normal school break period the student can still work at the college and qualify for a social security exemption if the following occurs: 1) The student was exempt from social security on the last day of classes or exams prior to the school break; 2) And will be enrolled for the first academic period following the break; 3) And will be on semester break for no longer than 5 weeks. The determination of student status should be made at the end of the drop-add period and may be adjusted thereafter at the college's option. If the student is placed on the payroll before the drop-add period, the college can base the qualifications on the hours the student is currently registered until the drop-add period occurs. Career Employees - A student of the community college may not be exempt from social security if considered a career employee. A career employee is someone whose employment cannot generally be considered to be incident to and for the purpose of pursuing a course of study. A career employee is also defined as someone who is eligible to participate in any 401 (a) retirement plan of the community college. If a student is working in m11ltiplaposiiions_auc:la0-0na oltbe.positior::is-meet-tt:le-abevr----- requirements as a "career position", the student looses the social security exemption for all positions. Required SSA Form 1945 The Social Security Protection Act of 2004 requires school districts, to provide a statement to new employees hired in a job not covered under Social Security. The statement explains how a pension from that job could affect future Social Security benefits to which they may become entitled. Form SSA-1945, Statement Concerning Your Employment in a Job Not Covered by Social Security is the document that employers should use to meet the requirements of the law. The SSA-1945 explains the potential effects of two provisions in the Social Security law for workers who also receive a pension based on their work in a job not covered by Social Security. The completed form will be sent by the district directly to the retirement plan agency that covers the employee for retirement purposes. 9

11 Who Is Exempt from Completing the Form SSA-1945? Employees hired before January 1, Employees who contribute into Social Security through their employment with the school district. Students who are employed by the district and do not qualify for membership in the retirement system, and do not pay into Social Security under the Social Security student provision. District Action: Prior to the start of employment, give the statement to all newly hired employees not contributing into Social Security. Verify that the employee has signed the form and filled in their Social Security Number. Keep a copy of the signed form in the employee's personnel file. Submit a copy of the signed form directly to the appropriate retirement plan agency. Procedures for Obtaining SSA-1945 Forms Copies of the SSA-1945 are available on line at the Social Security website, Paper copies can be requested by at oplm.oswm.rqct.orders@ssa.gov or by fax at The request must include the name, complete address, telephone number and contact person of the employer. Forms will not be sent to a post office box. Use the district's street address. Refer to Inventory Control Number (ICN) when placing the order. Medicare Tax: Coverage for Public Schools Section of the Consolidated Omnibus Budget Reconciliation Act of 1985 (OBRA 85) amended Section 3121 of the Internal Revenue Code. In general, the amendment applies Sections 3101 (b) and 3111 (b) the hospital insurance (Medicare) tax portion of the Federal Insurance Contribution Act (FICA), to wages for services rendered after March 31, 1986, of newly hired employees of states political subdivisions. Previously, most employees of state and political subdivisions were not covered under FICA, as their services were accepted from the term "employment" by Section 3121 (b) (7); (I RS Notice 767, July 1986.) The Medicare tax only coverage applies to employees not already covered under a State's Social Security Agreement. Implementation of this law requires that both school districts and employees must pay the Medicare tax portion of the FICA payroll tax. The rate and maximum earnings are set by the Federal Government (payments for Medicare and social security must be kept separate). 10

12 ( I Effective July 1, 1990 school districts may bargain to make Medicare coverage optional for members of the State Teachers' Retirement System who were hired prior to April 1, Elections will need to be held. Medicare Coverage for Employees An employee hired before April 1, 1986 (and exempt from Medicare coverage under prior law) isn't subject to Medicare coverage if he or she is participating in a qualified retirement system and is performing regular and substantial services for the employer. All workers hired after April 1, 1986 continue to be subject to Medicare, even if they participate in a qualified retirement system. It is the employer's responsibility to withhold 1.45% for Medicare contributions from taxable wages of its employees. There is no wage base limit on the taxable wages. Employers are required to match employee contributions at the same rc~te as employees contribute. If the employer fails to withhold or collect Medicare, they are also responsible for the employee's share. State Form DE-4 Employee Withholding Allowance Certificate The employee must complete the DE-4 Employee's Withholding Allowance Certificate for state tax withholding if he/she wants the number of allowances for_gali.fo.miap.er:sonal income tax withholding to be different from the number of allowances claimed for federal income tax withholding purposes. Changing the DE-4: When an employee wants to change any of his/her state withholding data, (to be different from the federal withholding data), he/she must complete a new DE-4 Employee's Withholding Allowance Certificate to supersede the previously filed DE-4. If the employee claims "Exempt," the DE-4 form must be re-filed each year by February 15 or the district must change the employee's withholding status to "single," no dependents. A person cannot file exempt from state withholding unless they are filing exempt from federal withholding or if another person can claim them as a dependent on their tax return. If the federal and state withholding data are the same, only the Federal W-4 form needs to be filed by the employee. 11

13 State Unemployment Insurance - SUI The California Unemployment Insurance is an employer paid tax. The tax rate is set through the School Employers Fund. The schools regular unemployment insurance rate applies to all employees except the following: Board members Elected Officials Students who are enrolled and are regularly attending classes at the school district, college or university where they are employed Students under 22 years of age enrolled in a non-profit or public educational institution in a program, which combines academic instruction with work experience The Unemployment Rate is determined in accordance with the rate formula specified by Section 823(b) of the California Unemployment Insurance Code. The rate for all participants of the School Employees Fund is established annually. State Disability Insurance - SDI California's disability insurance program is to help protect the labor force against wage loss ( because of unemployment resulting primarily from a non-occupational illness or injury. Who is covered? Most wage earners under the unemployment insurance provisions of the California Unemployment Insurance Code are covered under the disability provisions of the CUIC. Exceptions are public school employees; employees of state funded institutions of higher education, other governmental entities, and individuals that file religious exemption certificates, both with the Department and their employers, declaring they rely upon prayer in the practice of religion. Application for SDI Insurance Coverage Before districts can offer SDI coverage, an application has to be completed and filed with the Employment Development Department for an identification number. SDI is withheld by bargaining unit in some school districts and as a district benefit option in other school districts. ( Who Pays? Employees pay for disability insurance and its administration. Some employers may be paying the SDI tax for their employees. For 2013 the SDI tax rate is 1 percent of wages up to $101,

14 CALCULATING Introduction Wages become taxable when they are paid not when they are earned. Wages are considered paid when the employee receives the paycheck or when it is constructively received. When the money is made available to the employee (payday) it is then considered constructively received. Taxable Income When employees contribute to certain benefits and voluntary deductions with "pretax" dollars, the contribution reduces taxable wages. PRE-TAX FEDERAL STATE WAGE SOCIAL SECURITY DEDUCTION WAGE REDUCTIONS /MEDICARE WAGE REDUCTIONS REDUCTIONS CalSTRS YES YES NO Cal PERS YES YES NO Qualified Alternative YES YES NO Retirement Plan - "t'u., \ u I \X ""T.,, ii.;;~ TC.:> Nv (b) Cate. Section YES YES YES 125 Ca. Qualified NO YES NO Ride Share Tax Charts Calculating the withholding of taxes is done by determining the taxable wages and using the applicable tax charts provided by the IRS (federal taxes) and the Employment Development Department (state taxes). The method most commonly used by school districts in computerized payroll systems is the Percentage Method based on the Annual Tax Rate Chart. Some payroll systems may also use the Percentage Method Monthly, Biweekly, or Semi-Monthly tax charts. 13

15 The following are examples of federal and state withholding calculation procedures: Supplemental Wage Withholding A supplemental tax rate can be used instead of the tax charts when employees are paid supplemental wages. For 2014 the federal supplemental tax rate is 25% and the California supplemental tax rate is 6.6% and 10.23% on bonuses. Examples of supplemental wages include: Retroactive wage increases Bonuses, prizes, and awards Severance or dismissal pay Overtime pay Reimbursement for nondeductible moving expenses Payment for unused, accumulated sick leave or vacation payoff Where an employee has no income taxes withheld from regular wages, the supplemental withholding rate may not be used. Instead, the supplemental payment must be added to the regular wages and withholding computed under the aggregate method. ( One option calls for withholding to be computed at a 25 percent rate in 2013; the other requires aggregation of the supplemental and regular wages, with withholding computed by normal methods. Usin the su lemental wa e withholdin rate set at 25 Q-=e_,, rc=e:...:..; n,_,_, t,_,_i=s likely to result in more taxes withheld than the aggregate method for most workers. Only the more highly-paid employees in the 30.5 percent tax bracket and above will benefit from supplemental wage withholding). EXAMPLE: Monica is entitled to a payment of $100 for a retroactive pay increase. If the $100 is paid in a separate check, the employer may simply withhold $25 for payment of federal income taxes and $6.60 for state taxes. If the $100 is included with her regular paycheck of $800, and the pay stub specifically notes that the check includes $800 in regular wages and $100 in retroactive wages, withholding includes the normal amount of withholding for an $800 payment (based on Monica's payroll period, marital status, and allowances) plus $25. 14

16 2014 FEDERAL TAX WITHHOLDING-GENERAL CALCULATION PROCEDURES The following is provided as a general explanation of how tax withholding is calculated for a basic payment situation using the Percentage Method Annual Tax Charts. Step 1. Step 2. Step 3. Determine gross earnings for pay period. Determine salary reductions for pay period. Subtract salary reductions from gross earnings. This result equals period taxable earnings. Step 4. Multiply period taxable earnings by the calendar number of months ( 10, 11, or 12) of the job. The result equals federal/state annual taxable earnings. Step 5. Annual taxable earnings less $3,950 times the number of W-4 exemptions claimed = adjusted wages. Step 6. Step 7. Step 8. Step 9. Refer to the appropriate percentage table Adjusted wages - excess allowed = Excess amount Amount of tax+ (Excess amount X Percentage)= total annual withholding Divide total annual withholding by pay calendar months to arrive at taxes withheld for the pay period. EXAMPLE: Monthly Salary: Pay Frequency: W-4 Status CalSTRS TSA Caf/125 FEDERAL CALCULATION $6, months/ Monthly pay Married, 1 $ $ $ $6, (monthly salary)- $ (CalSTRS) - $ (TSA) - $ (caf/ 125) = $5, (monthly taxable earnings) $5, (monthly taxable earnings) x 12 (pay frequency)= $63, (annual taxable earnings) $63, (annual taxable earnings) - $3, (one W-4 exemption) = $60, (adjusted wages) $60, (adjusted wages) - $26, (excess over from tax chart) = $33, (excess amount) $1, (amount of tax)+ ($33,441,32 x 15% = $5,016.20) = $6, (total annual withholding) $6, (total annual withholding) + 12 months = $ (pay period taxes). 16

17 Percentage Method-2014 Amount for One Withholding Allowance Payroll Period Weekly Biweekly.... Semimonthly Monthly Quarterly.... Semiannually.... Annually.... Daily or miscellaneous (each day of the payroll period).... One Withholding Allowance $ , , Percentage Method Tables for Income Tax Withholding (For Wages Paid in 2014) ( TABLE 7-ANNUAL Payroll Period (a) SINGLE person (including head of household)- If the amount of wages The amount of income If the amount of wages (after The amount of income (after subtracting taxto withhold is: subtracting withholding taxto withhold is: withholding allowances) is: allowances) is: Not over $2, $0 Not over $8, $0 (b) MARRIED person- Over- But not over- of Over- But not over- of excess excess over- over- $2,250 $0.00 plus -$2,250 $8,450 $0.00 plus -$8,450 $11,325 10% $26,600 10% $11,325 $ $26,600 $1, $39,150 plus 15% $11,325 $82,250 plus 15% $26,600 $39, 150 $5, $82,250 $10, $91,600 plus 25% $39,150 $157,300 plus 25% $82,250 $91,600 $18, $157,300 $28, $188,600 plus 28% $91,600 $235,300 plus 28% $157,300 $188,600 $45, $235,300 $50, $407,350 plus 33% $188,600 $413,550 plus 33% $235,300 $407,350 $117, $413,550 $109, $409,000 plus 35% $407,350 $466,050 plus 35% $413,550 $409,000 $118, $466,050 $127, plus 39.6% $409,000 plus 39.6% $466,050 17

18 2014 STATE TAX WITHHOLDING-GENERAL CALCULATION PROCEDURES The following is provided as a general explanation of how tax withholding is calculated for a basic payment situation using the Percentage Method Annual Tax Charts. Step 1. Step 2. Step 3. Determine gross earnings for pay period. Determine salary reductions for pay period. Subtract salary reductions from gross earnings. This result equals period taxable earnings. Step 4. Multiply period taxable earnings by the calendar number of months (10, 11, or 12) of the job. The result equals federal/state annual taxable earnings. Step 5. Look at annual taxable earnings to see if taxes apply. a) $0 tax if annual taxable earnings are equal to or less than: $12,997 if SINGLE or DUAL MARRIED OR MARRIED WITH MULTIPLE EMPLOYERS =======~$=~1'2~-;@:f;lJ ~~nq.j f-=mml'ttcfr,-o=or I ALLOW/A\CFON DbifeRW=4============ $25,994 if MARRIED, 2 OR MORE ALLOWANCES ON DE-4 OR W-4 $25,994 UNMARRIED HEAD of HOUSEHOLD If taxes apply: b) Apply rate to annual taxable earnings less standard deduction: MARRIED with 0 or 1 Exemption is $3,906 MARRIED with 2 or more Exemptions is $7,812 SINGLE is $3,841 UNMARRIED HEAD of HOUSEHOLD is $7,812 Step 6. Step 7. Step 8. Step 9. Refer to the appropriate percentage table Adjusted wages - excess allowed= Excess amount Amount of tax + (Excess amount X Percentage) = annual withholding before personal allowance credit. Reduce result of step 8 by personal allowance tax credit to arrive at annual tax: Personal allowance credit*** for Single, Married, and Head of Household O Allowance - $0. 1 or More Allowances - $ for each allowance 18