EMPLOYER GUIDE
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.
- 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).
- Determine the standard deduction; $3,250 if the taxpayer is single, $6,500 for married filing jointly or $3,250 or married filing separate returns.
- Determine taxable income by subtracting the standard deduction (Step 2) from the annualized gross pay (Step 1).
- Compute the tax on the taxable income (Step 3) according to the following tax computation table:
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 or married 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
