STATE OF NEBRASKA

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/irs-pdf/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 W-4) 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 long-term disability insurance (State Colleges only), and Medical and Dependent Care Reimbursement is the "amount of wages" in each of the tax-rate 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 left-hand 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 long-term 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

$ 119.23

$ 238.46

$ 357.69

$ 476.92

$ 596.15

$ 715.38

$ 834.61

$ 953.84

$1,073.07

$1,192.30

$ 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

$ 57.31

$114.62

$171.93

$229.24

$286.55

$343.86

$401.17

$458.48

$515.79

$573.10

$ 124.17

$ 248.34

$ 372.51

$ 496.68

$ 620.85

$ 745.02

$ 869.19

$ 993.36

$1,117.53

$1,241.70

Multiply the amount of one withholding allowance

for the specific payroll period by the number of

allowances claimed

Next, refer to the tax-rate table which applies to both the payroll period and the single or married status of the employee and find the wage-bracket line (the left-hand column of the table) within which the employee’s "amount of wages" falls. The right-hand 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 year-to-date salary to $6,136. Although entitled to more than one withholding allowance, Smith claims only one on Form W-4. 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 year-to-date 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 year-to-date 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 year-to-date salary to $88,428. On Form W-4 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 year-to-date 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 year-to-date 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' year-to-date salary to $13,500. On his Form W-4 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' year-to-date 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' year-to-date 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 year-to-date 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' year-to-date salary to $9,750. On Form W-4, 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' year-to-date 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 year-to-date 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 year-to-date salary to $6,760. On Form W-4, 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 year-to-date 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 year-to-date Social Security Gross is used by the computer.