Section 17: COMPUTING WITHHOLDING TAXES


An employer may withhold taxes according to the withholding tax tables provided in this booklet or use any approved formula to determine the correct amount of tax to be withheld each pay period. The employer must withhold at a rate so that no tax is estimated to be due on the wages paid when the employee files his or her personal income tax return. The Division of Revenue will approve an alternate formula that considers the allowable standard deduction and tax credit(s) claimed by the employee, using the tax rate schedule on the balance of the wages paid. An approved method, based on annualized wages, is shown below.


WITHHOLDING METHODS BASED ON ANNUALIZED WAGES


Effective January 1, 2000, the $100 tax credit per exemption has been increased to $110. This change alters the method for calculating withholding based on annualized gross wages. The method below includes these changes.

Effective January 1, 2010 through December 31, 2011, the percentage on amounts of "$60,000 and over" increased from 5.95% to 6.95%.

Effective January 1, 2012, the percentage on amounts of "$60,000 and over" decreases from 6.95% to 6.75%.

Effective January 1, 2014, the percentage on amounts of "$60,000 and over" will decrease from 6.75% to 6.60%. The tax computation below includes these changes.

  1. Annualized gross pay. (Multiply the daily gross by 300, weekly gross by 52, monthly gross by 12, semi-monthly gross by 24 and bi-weekly by 26).
  2. Determine the standard deduction; $3,250 if the taxpayer is single, $6,500 for married or entered into a civil union filing jointly or $3,250 or married or entered into a civil union filing separate returns.
  3. Determine taxable income by subtracting the standard deduction (Step 2) from the annualized gross pay (Step 1).
  4. Compute the tax on the taxable income (Step 3) according to the following tax computation table:

Tax Computation Table Effective January 1, 2014

Taxable Income Between
$0 - $2,000
$2,000 - $5,000
$5,000 - $10,000
$10,000 - $20,000
$20,000 - $25,000
$25,000 - $60,000
$60,000 & over

Pay
$0.00
$0.00
$66.00
$261.00
$741.00
$1,001.00
$2,943.50

Plus
0.00%
2.20%
3.90%
4.80%
5.20%
5.55%
6.60%

On Amounts Over
0
$2,000
$5,000
$10,000
$20,000
$25,000
$60,000

  1. Multiply the number of employee's personal exemption by $110.
  2. Subtract the total amount of the employee's personal exemption credit (Step 5) from the computed tax (Step 4).
  3. Divide the resulting amount by the appropriate number of payroll period to determine the amount of tax to be withheld each pay period.

Example of Computation of Withholding Tax
Single Taxpayer - 1 Allowance

1. Annualized Gross Wages
2. Minus Standard Deduction
3. Taxable Income
4. Tax on $21,750.00 ($741.00 + $91.00 [$1,750.00 x 5.20%])
5. Multiply the Number of Personal Exemptions by $110.00
6. Tax Liability (Subtract Line 5 from Line 4)
7. Divide Tax By the Number of Pay Periods
     Weekly - 52
     Bi-Weekly - 26
     Semi-Monthly - 24
     Monthly - 12

$25,000.00
-3,250.00
$21,750.00
832.00
-110.00
$722.00
$13.88
$27.77
$30.08
$60.17

Married or Entered into a Civil Union Taxpayer filing Joint Return - 3 Allowances

1. Annualized Gross Wages
2. Minus Standard Deduction
3. Taxable Income
4. Tax on $18,500.00 ($261.00 + $408.00 [$8,500.00 x 4.80%])
5. Multiply the Number of Personal Exemptions by $110.00
6. Tax Liability (Subtract Line 5 from Line 4)
7. Divide Tax by the Number of Pay Periods
     Weekly - 52
     Bi-Weekly - 26
     Semi-Monthly - 24
     Monthly - 12

$25,000.00
-6,500.00
$18,500.00
669.00
- 330.00
$339.00
$6.52
$13.04
$14.13
$28.25

Married or Entered into a Civil Union Filing Separate Return - 2 Allowances

1. Annualized Gross Wages
2. Minus Standard Deduction
3. Taxable Income
4. Tax on $21,750.00 ($741.00 + $91.00 [$1,750.00 x 5.20%])
5. Multiply the Number of Personal Exemptions by $110.00
6. Tax Liability (Subtract Line 5 from Line 4)
7. Divide Tax By the Number of Pay Periods
     Weekly - 52
     Bi-Weekly - 26
     Semi-Monthly - 24
     Monthly - 12

$25,000.00
-3,250.00
$21,750.00
832.00
- 220.00
$612.00
$11.77
$23.54
$25.50
$51.00

It is important to note that the wage-bracket table gives the employee full benefit of allowances claimed by the employee, and the standard deduction of $3,250 for single, married, or entered into civil union persons filing separately. Tables have been provided for weekly, bi-weekly, semi-monthly, monthly, and daily or miscellaneous payroll periods.

The wage-bracket tables are arranged so that the amount of tax can be determined readily by reading down a column of wage-brackets, and then across the column headed by the number of withholding allowances claimed by the employee on his Federal W-4 or W-4A form.

In addition to the required withholding under the wage-bracket table method or the exact computation method, additional amounts may be withheld under an agreement between the employee and employer. The agreement must be in writing and in such form as the employer may prescribe. The additional withholding, together with the amounts otherwise required to be withheld as income tax, should be reported on Form W-2 as income tax withheld from wages. An agreement for additional withholding shall be effective for such period as may be mutually agreed upon; however, unless the agreement provides for in earlier termination, either the employer or employee may terminate the agreement by giving 30 days written notice.

Employer's Failure to Withhold