STATE OF NEBRASKA
STATE ACCOUNTING MANUAL


Effective 






Date 




TAX COMPUTATION
POLICIES 

2/16/04 




DESCRIPTION: The appropriate procedures for computing payroll taxes
which must be followed for interim payroll computations.
SCOPE: These policies
apply to all State employees' pay.
PURPOSE: To ensure that all State employees' payroll taxes are
calculated correctly and uniformly.
POLICIES:
1. The Standard
Federal Percentage Method Withholding Tables for Biweekly Single and Married
and Monthly Single and Married, respectively are the criteria for all Federal
Income Tax Calculations (http://www.irs.gov/pub/irspdf/p15.pdf).
2. Social Security taxes calculated in 2004 are 7.65% (OASDI  6.20% and Medicare  1.45%) until wages reach $87,900. The Medicare portion of Social Security taxes are 1.45% thereafter, with no maximum wage base. Social Security taxes calculated are matched by the State (employer) 100%.
3. The Tables for
Percentage Method of Nebraska Income Tax Withholding for Biweekly Single and
Married and Monthly Single and Married, respectively, are the criteria for all
State Income Tax Calculations (http://www.revenue.state.ne.us/withhold.htm).
NOTE: In the case
of bonuses, supplemental wages, and taxable awards, it is allowable to withhold
a flat rate of 25 percent for federal taxes and 5.0 percent for state
taxes. However, if no regular wages
have been paid in the calendar year in which the supplemental payment is being
made, tax withholding on the supplemental payment must be computed as if it
were a regular wage payment made under a miscellaneous payroll period.
PERCENTAGE METHOD WITHHOLDING TABLES
An employer who uses the percentage method of computing the
amount of Federal and State Income tax
to be withheld must first ascertain the amount of one withholding allowance for
the particular payroll period for which the employee is paid. This is done by consulting the following
Percentage Method Withholding Table:
WITHHOLDING ALLOWANCE



FEDERAL
AMOUNT OF ONE 

STATE
AMOUNT OF ONE 

PAYROLL
PERIOD 

WITHHOLDING
ALLOWANCE 

WITHHOLDING
ALLOWANCE 







Biweekly 

$119.28 

$ 57.31 

Monthly 

$258.33 

$124.17 
An employer then multiplies the amount of this withholding
allowance by the total number of withholding allowances (if any) claimed by the
employee on his withholding allowance certification (Form W4) and subtracts
the product from the amount of wage earned by the employee during the
particular payroll period. (If the employee's
wage ends in a fractional dollar amount, the last digit of the wage may be
reduced to zero, or the wage may be rounded off to the nearest dollar; if the
wage ends in 50 cents, the rounding off must be the next higher dollar.) The resulting remainder less tax sheltered
retirement, health, vision and dental insurance, life and longterm disability
insurance (State Colleges only), and Medical and Dependent Care Reimbursement
is the "amount of wages" in each of the taxrate tables.
There
are two sets of tables for both Federal and State Withholding, one set for each
of the two different payroll periods.
Each set of tables for each payroll period consists of two separate
tables one to be used for single persons (Including heads of households) and
one to be used for married persons.
For easy reference in computing an employee's "amount
of wages", the following allowances table may be used. First locate, in the lefthand column, the
total number of withholding allowances claimed by the employee. In the corresponding line, in the payroll
period column, is the total dollar amount of the employee withholding
allowances. This is the amount that
should be subtracted, along with deferred compensation, tax sheltered retirement,
health, dental, life and longterm disability insurance (State Colleges only),
from the total wages earned by the employee for the payroll period to arrive at
the "amount of wages."
If the
number of allowances is 
And wages
are paid 


Federal Biweekly Monthly 
State Biweekly Monthly 

0 1 2 3 4 5 6 7 8 9 10 
0 $
119.23 $
238.46 $
357.69 $
476.92 $
596.15 $
715.38 $
834.61 $
953.84 $1,073.07 $1,192.30 
0 $
258.33 $
516.66 $
774.99 $1,033.32 $1,291.65 $1,549.98 $1,808.31 $2,066.64 $2,324.97 $2,583.30 
0 $
57.31 $114.62 $171.93 $229.24 $286.55 $343.86 $401.17 $458.48 $515.79 $573.10 
0 $
124.17 $
248.34 $
372.51 $
496.68 $
620.85 $
745.02 $
869.19 $
993.36 $1,117.53 $1,241.70 
11 or more 
Multiply the amount of one
withholding allowance for the specific payroll period by
the number of allowances claimed 

Next,
refer to the taxrate table which applies to both the payroll period and the
single or married status of the employee and find the wagebracket line (the
lefthand column of the table) within which the employee’s "amount of
wages" falls. The righthand
column of the table shows how to compute the tax. Use the Income Tax Withholding Tables on page 35.
NOTE: Microsoft Excel
version of the spreadsheet PAYCALXX (XX = current
calendar year) is available to aid in the computation of taxes and net
pay. This spreadsheet will calculate
taxes and net pay based on the number of withholding allowances, pay frequency
and optional deductions entered.
Example
1: Married,
Biweekly, With No Tax Sheltered Deductions.
Employee Smith, who is married and has a dependent
child, earns $498 biweekly. This
warrant will bring Smith's yeartodate salary to $6,136. Although entitled to more than one
withholding allowance, Smith claims only one on Form W4. Consequently, Federal "amount of
wages" is $498 minus $119.23 or $378.77, and State "amount of
wages" is $498 minus $57.31 or $440.69.
Refer to the Federal tax table  Biweekly Payroll Period, Married
Person. It is found that $378.77 falls
within the "Over $308 but not over $858" bracket. The tax for that bracket is stated to be 10%
of the excess over $308. In this
example, the excess over $308 is $70.77.
10% of $70.77 is $7.08, the amount of Federal Income tax to be withheld
from Smith's biweekly wages.
Refer to the State tax table  Biweekly, Married. It is found that $440.69 falls within the
"Over $317 but not over $862" bracket. The tax in that bracket is stated to be $2.86 plus 3.47% of the
excess over $317. In this example, the
excess over $317 is $123.69. 3.47% of
$123.69 is $4.29 which, when added to $2.86 is $7.15, the amount of State
Income Tax to be withheld from Smith's biweekly wages.
The Social Security tax to be withheld is 7.65% of the
taxable gross wages up to $87,900. Since
Smith's yeartodate salary will be $6,634 including current pay, the entire
gross pay is subject to Social Security tax.
Thus, for this example, the Social Security tax would be 7.65% of $498
which equals $38.10 to be withheld from Smith's biweekly wages. An equal amount must be contributed by the
State. NOTE: A different
formula based on the yeartodate Social Security Gross is used by the computer
in NIS.
Example
2: Single,
Monthly, With No Tax Sheltered Deductions.
Employee Jackson, who is single and has a dependent
child, earns $7,369 monthly.
This warrant will bring Jackson's yeartodate salary to $88,428. On Form W4 Jackson claims two withholding
allowances. Consequently, Federal
"amount of wages" is $7369 minus $516.66 or $6,852.34, and State
"amount of wages" is $7,369 minus $248.34 or $7,120.66. Refer to the Federal tax table  Monthly
Payroll Period, Single Person. It is
found that $6,852.34 falls within the "Over $5,708 but not over $12,392"
bracket. The tax for that bracket is
stated to be $1,107.80 plus 28% of the excess over $5,708. In this example, the excess over $5,708 is $1,144.34. 28% of $1144.34 is $320.42 which when added
to $1,107.80 yields $1,428.22, the amount of Federal Income Tax to be withheld
from Jackson's monthly wages.
Refer to the State tax table  Monthly, Single. It is found that $7,120.66 falls within the
"Over $6,258" bracket. The
tax on this bracket is stated to be $375.65 plus 7.36% of the excess over
$6,258. In this example, the excess
over $6,258 is $862.66. 7.36% of
$578.66 is $63.49 which, when added to $375.65 yields $439.14, the amount of
State Income Tax to be withheld from Jackson's monthly wages.
The Social Security tax to be withheld is 7.65% of the
taxable gross wages up to $87,900, and 1.45% thereafter with no maximum
base. Since Jackson's yeartodate
salary is $88,482 including current pay and does exceeded the $87,900 limit by
$582, $6,787 ($7,369  $582) of current pay is subject to Social Security tax
(7.65%) and $582 is subject to the Medicare portion of Social Security tax
(1.45%). Jackson's $7,369 monthly wages
minus the $582 subject to the Medicare Portion yields $6,787 which is subject
to Social Security tax, thus, for this example, Social Security Tax would be
7.65% of $6,787, which equals $519.21 and the Medicare Portion of Social
Security tax would be 1.45% of $582, which equals $8.444 for a total of $527.64
to be withheld from Jackson's monthly wages.
An equal amount must be contributed by the State. NOTE: A different formula based on yeartodate
Social Security Gross is used by the computer in NIS.
Example
3: Married
(Withhold at Single Rate), Monthly, with Tax Sheltered Retirement. Employee Jones, who is married, earns
$1,350 monthly. This warrant
will bring Jones' yeartodate salary to $13,500. On his Form W4 Jones claims, "Married, but withhold at
higher Single rate". Jones
also claims zero withholding allowances.
Jones also participates in a tax sheltered State retirement plan and
contributes 4.33% until the total deductions reach $864, and 4.8%
thereafter. Since Jones' yeartodate
deductions have not exceeded $864, he contributes at 4.33% or $58.46. Consequently the amount of wages subject to
Federal and State Income Tax is $1,350 minus $58.46 tax sheltered retirement
deduction or $1,291.54.
In this case, refer to the Federal tax table  Monthly
Payroll Period, Single Person. It is
found that $1,291.54 falls within the "Over $808, but not over $2,567"
bracket. The tax for that bracket is
stated to be $58.70 plus 15% of the excess over $808. In this example, the excess over $808 is $483.54. 15% of $483.54 is $72.53, which when added
to $58.70 yields $131.23, the amount of Federal Income Tax to be withheld from
Jones' monthly wages.
Refer to the State tax table  Monthly, Single. It is found that $1,291.54 falls within the
"Over $367 but not over $1,292" bracket. The tax in that bracket is stated to be $4.58 plus 3.47% of the
excess over $367. In this example, the
excess over $367 is $924.54. 3.47% of
$924.54 is $32.08 which, when added to $4.58 yields $36.66, the amount of State
Income Tax to be withheld from Jones' monthly wages.
The Social Security tax to be withheld is 7.65% of the
taxable gross wages up to $87,900.
Since Jones' yeartodate salary will be $13,500 including current pay,
the entire gross pay is subject to Social Security tax with no allowance
for the tax sheltered retirement deduction.
Thus, for this example, Social Security tax would be 7.65% of $1,350
which equals $103.28 to be withheld from Jones' monthly wages. An equal amount must be contributed by the
State. NOTE: A different
formula based on the yeartodate Social Security Gross is used by the computer
in NIS.
Example
4: Single,
Biweekly, With Tax Sheltered Deferred Compensation.
Employee Thomas, who is single, earns $750 biweekly. This warrant will bring Thomas' yeartodate
salary to $9,750. On Form W4, Thomas
claims one withholding allowance.
Thomas also has a $75 deferred compensation deduction each pay
period. Consequently the amount of
wages subject to Federal Income Tax is $750 minus $75 deferred compensation
deduction and $119.23 for one withholding allowance or $555.77, and the amount
of wages subject to State Income Tax is $750 minus $75 deferred compensation
deduction and $57.31 for one withholding allowance or $617.69. Refer to the Federal tax table  Biweekly
Payroll Period, Single Person. It is
found that $555.77 falls within the "Over $373 but not over $1,185"
bracket. The tax for that bracket is
stated to be $27.10 plus15% of the excess over $373. In this example, the excess over $373 is $182.77. 15% of $182.77 is $27.42 which when added to
$27.10 yields $54.52, the amount of Federal Income Tax to be withheld from
Thomas' biweekly wages.
Refer to the State tax table  Biweekly, Single. It is found that $617.69 falls within the
"Over $596 but not over $875" bracket. The tax in that bracket is stated to be $16.91 plus 5.32% of the
excess over $596. In this example, the
excess over $596 is $21.69. 5.32% of
$21.69 is $1.15 which when added to $16.91 yields $18.06, the amount of State
Income Tax to be withheld from Thomas' biweekly wages.
The Social Security tax to be withheld is 7.65% of the
taxable gross wages up to $87,900.
Since Thomas' yeartodate salary will be $9,750 including current pay,
the entire gross pay is subject to Social Security tax with no allowance
for the deferred compensation deduction.
Thus, for this example, Social Security tax would be 7.65% of $750 which
equals $57.38 to be withheld from Thomas' biweekly wages. An equal amount must be contributed by the
State. NOTE: A different
formula based on the yeartodate Social Security Gross is used by the
computer.
Example
5: Married,
Monthly, With 125 Flexible Benefit Plan.
Employee Lewis, who is married, earns $2,100 monthly. This warrant will bring Lewis' year‑to‑date
salary to $14,700. On Form W‑4,
Lewis claims three withholding allowances.
Lewis also has Blue Cross/Blue Shield PPO Family Coverage health
insurance coverage and Family dental insurance coverage. The monthly deductions are $197.29 and
$49.76, respectively, and are tax sheltered under the State's Section 125
Flexible Benefit Plan. Lewis also has
Medical Care Reimbursement and Dependent Care Reimbursement. The pay period deductions are $20.00 and
$250.00 respectively, and are also tax sheltered under the State's Section 125
Flexible Benefit Plan. The amount of
wages subject to Federal Income Tax is $2,100 minus $197.29 health insurance
deduction, $49.76 dental insurance deduction, $20.00 Medical Care
Reimbursement, $250.00 Dependent Care Reimbursement and $774.99 for three
withholding allowances, or $807.96, and the amount of wages subject to State
Income Tax is $2,100 minus $197.29 health insurance deduction, $49.76 dental
insurance deduction, $20.00 Medical Care Reimbursement, $250.00 Dependent Care
Reimbursement and $372.51 for three withholding allowances, or $1,210.44.
Refer to the Federal Tax Table ‑ Monthly Payroll Period, Married Person. It is found that $807.96 falls within the
"Over $667 but not over $1,858" bracket. The tax for that bracket is stated to be 10% of the excess over $667. In this example, the excess over $667 is $140.96. 10% of $140.96 is $14.10, which is the
amount of Federal Income Tax to be withheld from Lewis' monthly wages.
Refer to the State tax table ‑ Monthly, Married. It is found that $1,210.44 falls within the
"Over $688 but not over $1,867" bracket. The tax in that bracket is stated to be $6.23 plus 3.47% of the
excess over $688. In this example, the
excess over $688 is $522.44. 3.47% of
$522.44 is $18.13, which when added to $6.23 yields $24.36, the amount of State
Income Tax to be withheld from Lewis' monthly wages.
The Social Security tax to be withheld is 7.65% of the
taxable gross wages up to $87,900.
Since Lewis' year‑to‑date salary will be $14,700 including
current pay, the entire gross pay less the deductions for health insurance,
dental insurance, and reimbursement would be subject to Social Security
tax. Thus, for this example, Social
Security tax would be 7.65% of $1,582.95 ($2,100 minus $197.29 health deduction and $49.76 dental deduction,
$20.00 Medical Care Reimbursement and $250.00 Dependent Care Reimbursement),
which equals $121.10 to be withheld from Lewis' monthly wages. An equal amount must be contributed by the
State. NOTE: A different
formula based on the year‑to‑date Social Security Gross is used by
the computer.
Example
6: State
College Employee, Single, Biweekly, With 125 Flexible Benefit Plan. Employee Brown, who is single, earns
$520 biweekly. This warrant will
bring Brown's yeartodate salary to $6,760.
On Form W4, Brown claims one withholding allowance. Brown also has the Employee coverage fixed
additional $20,000 optional deduction life insurance plan. The monthly deduction is $6.60, and is tax
sheltered under the State College's Section 125 Flexible Benefit Plan. The amount of wages subject to Federal
Income Tax is $520 minus $3.30 life insurance deduction and $119.23 for one
withholding allowance, or $397.47, and the State Income Tax is $520 minus $3.30
life insurance deduction and $57.31 for one withholding allowance, or $459.39.
Refer to the Federal tax table  Biweekly Payroll Period,
Single Person. It is found that $397.47
falls within the "Over $373 but not over $1,185" bracket. The tax for that bracket is stated to be $27.10
plus 15% of the excess over $373. In
this example, the excess over $373 is $24.47.
15% of $24.47 is $3.67, which when added to $27.10 yields $30.77, the
amount of Federal Income Tax to be withheld from Brown's biweekly wages.
Refer to the State tax table  Biweekly, Single. It is found that $459.39 falls within the
"Over $169 but not over $596" bracket. The tax in the bracket is stated to be $2.09 plus 3.47% of the
excess over $169. In this example, the
excess over $169 is $290.39. 3.47% of
$290.39 is $10.08, which when added to $2.09 yields $12.17, the amount of State
Income Tax to be withheld from Brown's biweekly wages.
The Social Security tax to be withheld is 7.65% of the
taxable gross wages up to $87,900.
Since Brown's yeartodate salary will be $6,760 including current pay,
the entire gross pay less the deduction for life insurance would be subject to
Social Security tax. Thus, for this
example, Social Security tax would be 7.65% of $516.70 ($520 minus $3.30 life
insurance deduction), which equals $39.53 to be withheld from Brown's biweekly
wages. An equal amount must be
contributed by the State. NOTE: A different formula based on the yeartodate Social Security
Gross is used by the computer.

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