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395 - Payroll

Section: 395-11
Effective: 01/01/1991
Supersedes: 09/28/1978
Review: TBD
Issuance Date: 01/01/1991
Issuing Office: General Accounting Division

PPM 395-11 Policy [pdf format]
PPM 395-11 Exhibit A [pdf format]
PPM 395-11 Supplement I [pdf format]
PPM 395-11 Supplement II [pdf format]

FEDERAL & STATE-WITHHOLDING TAXES

  1. REFERENCES AND RELATED POLICIES
    1. Internal Revenue Code
    1. Internal Revenue Service Publication 15, Circular E
    1. Payroll Guide, Volume 1, Section 5
    1. Internal Revenue Service Publication 518, Foreign Scholars and Educational and Cultural Exchange Visitors, 1989 Edition
    1. DE 44, Employer's Tax Guide, State of California
    1. Federal Privacy Act 1974
    1. University of California Accounting Manual

P-196-28

Payroll:  Federal Taxation of Citizens

 

 

T-182-27

Taxes:  Federal Taxation of Aliens

 

    1. UCSD Policy and Procedure Manual (PPM)

395-13

Alien Information

 

  1. DEFINITIONS
    1. Employer

An employer is a person or organization for whom an individual (as opposed to a corporation or other legal entity) performs a service as an employee.

    1. Employee

Anyone performing services subject to the will and control of an employer, both as to what shall be done and how it shall be done, is an employee. This applies even if the employer permits the employee considerable discretion and freedom of action, if the employer has the legal right to control both the method and the result of the services.

 

    1. Taxpayer Identifying Number

In compliance with Federal Income Tax regulations, the University is required to include an identification number on all statements and reports of wages paid and taxes withheld. For payments to individuals, Federal regulations have designated the Federal Social Security number as the taxpayer's identifying number. Therefore, the Federal Social Security number, issued by the Social Security Administration, must be obtained from each person receiving payment(s) from the University.

  1. POLICY
    1. Federal and State Withholding

The University is required by both Federal and State statutes to withhold appropriate taxes from payments made to individuals. Failure to collect or pay tax withheld will result in the University being liable for the tax due plus penalties. Income tax withholding is based upon information submitted by the employee on a University of California Employee's Federal-State Withholding Allowance Certificate, UC W-4/DE 4, Exhibit A. Marital status and the number of withholding allowances claimed on the UC W-4/DE 4 are taken into account when computing taxes. The law provides that if no UC W-4/DE 4 is submitted, the employer must withhold taxes at the rate for a single person claiming no exemptions. Certain employees may qualify to claim an exemption from tax withholding by completing item #4 on the UC W-4/DE 4, Exemption from Withholding of Federal/State Income Tax, and item #5. These are the only two items that are to be completed when an employee is claiming exempt from tax withholding. To qualify the employee must certify 1) that no income tax liability existed in the prior taxable year, 2) that none is anticipated for the current year, and 3) that if the employee's current yearly income exceeds $500 and includes non-wage income, another person cannot claim the employee as a dependent. Note: Employees claiming exempt from withholding, who are earning in excess of $200 per week and answering ``NO'' to item #5 on the UC W4/DE 4 form will have a copy of the UC W4/DE 4 sent to the Internal Revenue Service.

 

    1. Social Security

Social Security is deducted from those employees who are members of the University of California Retirement Plan (UCRP) and who:

 

      1. Were members of the system prior to April 1, 1976 and elected Social Security coverage, or

 

      1. Became a member of the system after April 1, 1976.

 

Social Security is also known as "FICA". The term "FICA" is an acronym for Federal Insurance Contributions Act which is comprised of two components: Medicare Tax and OASDI (Old Age Survivors and Dependents Insurance) Tax.

 

Generally the only exception to this policy is nonresident aliens admitted to the United States on an F-1 (student admitted to attend a specific school) or J-1 (exchange visitor engaged in a Department of State approved program for study, research, or training) visa.

 

    1. Defined Contribution Plan/Safe Harbor Plan

The Defined Contribution Plan, also known as the Safe Harbor Plan, is an alternative to Social Security Tax participation. This plan is an employer- sponsored retirement plan which provides for benefits that are generally equal to the pension benefit provided under Social Security. Participation in the plan is open to those employees who do not otherwise qualify for membership in the University of California Retirement Program (UCRP) or another defined benefit retirement plan in which the University participates. Nonimmigrant aliens with F-1 or J-1 visa status and employees who are registered UC students are not eligible to enroll in this plan as they are exempt from paying FICA taxes.

 

Eligible employees may elect to enroll in the Defined Contribution Plan (DCP) or elect to pay Social Security taxes at the time of the initial appointment. Once an election is made, the election is irrevocable for the duration of the employee's continuous employment with the University.

 

Eligible employees who were hired on or after 4/1/86 and elect to enroll in the Defined Contribution Plan/Safe Harbor Plan will have a 7.5% pretax DCP deduction taken from his/her salary and will pay the 1.45% Medicare tax.

 

Eligible employees who were hired before 4/1/86 and elect to enroll in the Defined Contribution Plan/Safe Harbor Plan will also have a 7.5% pretax DCP deduction but will not be required to pay the 1.45% Medicare tax.

 

Eligible employees who choose not to enroll in the Defined Contribution Plan and elect to pay the OASDI will become subject to the Medicare tax, regardless of the hire date.

 

  1. PROCEDURE
    1. Taxpayer Identifying Number (Social Security Number)

 

The employing department will require each new employee to furnish his/her social security number which is recorded in the appropriate section of the UC W-4/DE 4 Form. The disclosure of the social security number is mandatory pursuant to Federal and State codes and conforms to the Federal Privacy Act of 1974. If the employee indicates that he/she does not have a social security number, the hiring department will instruct the individual to apply for one at a Social Security Office. Until a valid social security number or a receipt for application for a social security number is received, the employee's forms for employment will not be processed. Note: The Social Security Office nearest to UCSD is located at 1940 Garnet Avenue, Suite #207, which is in Pacific Beach. The office is open Monday through Friday from 9:00 a.m. to 4:30 p.m. The general information phone number is (619) 483-7646 or 1- 800-234-5772.

 

    1. Withholding Tax
      1. United States Citizen

Employees determine the amount of tax withheld from their earnings by filing with the Accounting Office/Payroll Division a University of California Employee's Federal-State Withholding Allowance Certificate, UC W-4/DE 4, indicating the number of exemptions claimed. Based upon the Certificate, the payroll system will calculate and withhold Federal and State taxes from employee's payroll checks. (See Supplement I and II for tables to calculate approximate taxes to be withheld.) If an employee has reduced his/her exemptions to zero to allow for maximum tax to be withheld and their liability is still not satisfied, an additional amount per pay period can be requested by the employee. (See Item #6, Exhibit A, Page 1.) The number of exemptions claimed for withholding purposes need not be the same number of exemptions which may be claimed on the employee's annual tax return. Employees with a sizeable amount of itemized deductions may claim additional withholding exemptions to reduce the amount of tax withheld thereby reducing an anticipated large tax refund at the end of the taxable year. The number of additional exemptions may be determined by completing both sides of the enclosed attached worksheet Form W-4, Exhibit A, Pages 2-3, and Form DE 4, Exhibit A, Pages 4- 6. Those employees indicating in excess of 10 (ten) Federal and/or State exemptions on their UC W4/DE 4 form will have a copy of their form sent to the IRS and/or State of California Franchise Tax Board.

 

      1. Aliens
        1. Resident Aliens

Aliens who qualify under the Substantial Presence Test as resident aliens may claim residence for tax purposes. (Refer to PPM 395-13 for qualifying conditions.) Federal and State taxes will be withheld in the same manner as a United States citizen. (See Section B.1. above.)

        1. Non-resident Aliens

Aliens who do not qualify as resident aliens under the Substantial Presence Test are considered as non-resident aliens. The earnings of a non-resident alien are subject to withholding at the same rate as a single United States citizen claiming one exemption regardless of the number of actual exemptions the individual might wish to claim, except for residents of Canada, Mexico, South Korea and Japan. Some non-resident aliens may be eligible for exemption from Federal tax withholding if they qualify according to the terms of a tax treaty between their country of residence and the United States. To determine the eligibility of an alien, departments should contact the Accounting Office/Payroll Division and request a review of the tax treaty. Note: a tax treaty exemption applies only to Federal taxes, and does not exempt an individual from State tax withholding. (Refer to PPM 395-13 for additional alien information.)

 

    1. Annual Statements
      1. Wage and Tax Statement, Form W-2

Forms W-2 are issued to employees on or before January 31st of each year for earnings paid in the preceding taxable year. The information contained on the form is the total earnings and taxes withheld that were reported to both Federal and State Agencies. The statement also includes any additional non-salary payments issued to an employee through the University system. These payments include but are not limited to stipend payments and uniform allowance.

 

      1. Income Subject to Withholding Under Chapter 3, Internal Revenue Code, Form 1042S

Forms 1042S include salaries and miscellaneous payments made by the University to non-resident aliens who have claimed exemption from Federal tax. These statements are issued on or before March 15th of each year.

 

      1. Statement for Recipients of Miscellaneous Income, Form 1099

Form 1099 is issued to individuals who are not employees of the University. The statement indicates the total non-payroll payments issued. These non-payroll payments include but are not limited to rents, fees, and payments to independent contractors and consultants. The statement is released on or before January 31st of each year.


 

EXHIBIT A

 


 


 


 


 


 


 

SUPPLEMENT I

FEDERAL INCOME TAX
WITHHOLDING RATES

Effective January 1, 1993

 

INSTRUCTIONS:

MONTHLY RATED EMPLOYEES:

 

EXAMPLE:

A married employee, earning $4,967 per month, with $50/month tax shelter. Employee has spouse and two children, also claims three allowances for itemized deductions. Spouse not working.

            4          Exemptions for family members

            3          Allowances for itemized deductions

            7          Exemptions on Form UCW-4, Line 3

 

Step 1:

From the taxable gross (after deducting tax shelter, TSP, retirement) deduct $195.83 for each withholding allowance claimed on line "3" of the Form UCW-4 to obtain the adjusted taxable gross.

                        $ 4,967.00         Total Gross

                        (  70.34)            Retirement Reduction

            (  50.00)            Tax Shelter Savings

            4,846.66            Taxable Gross

           

            (1,370.81)          $195.83 x 7 Exemptions

            3,475.85            Adjusted Taxable Gross

 

Step 2:

Using the appropriate attached table for marital status and pay period, seek the adjusted taxable gross (determined in Step 1) range in the two left columns.

 

Married Employee, paid monthly, range is

$3,396 - $6,771 ... $431.85 plus 28% of excess over $3,396

 

Step 3:

Deduct the range minimum in the right column from the adjusted taxable gross and multiply the difference by the percentage indicated.

 

            3,475.85            Adjusted Taxable Gross

            (3,396.00)          Range Minimum

            79.85                Excess

            X 28%              Tax Bracket

            22.36                Subtotal

 

Step 4:

Add the fixed dollar amount (if tax rate is more than 15%) to the amount calculated in Step 3. This is the amount of Federal Tax.

            431.85              Fixed Amount

            23.36                Subtotal

            454.21              Federal Tax to Withhold

 

HOURLY RATED EMPLOYEE:

 

Use the same procedure as above, except deduct $90.38 for each deduction in Item 1.

 

 


1993
SOCIAL SECURITY/UCRS WAGE BASES

 

The Revenue Reconciliation Act of 1990 provides different wage base caps for the OASDI and Medicare components of the social security tax. Effective with earnings paid on or after January 1, 1991, the OASDI and Medicare wage base will increase. The tax rate percentages remain unchanged.

 

FICA:

 

OASDI covered wages

57,600.00

OASDI employee contribution rate

6.20%

OASDI employer contribution rate

6.20%

Maximum OASDI employee contribution

3,571.20

Medicare covered wages

135,000.00

Medicare employee contribution rate

1.45%

Medicare employer contribution rate

1.45%

Maximum Medicare employee contribution

1,957.50

 

 

UCRP:

 

UCRP wage base

57,600.00

UCRP contribution rate

 

FICA coordinated within UCRP wage base

2.0%

FICA coordinated above UCRP wage base

4.0%

Not coordinated with FICA

4.5%

 

 

SAFE HARBOR:

 

Safe Harbor wage base

57,600.00

Safe harbor contribution rate

7.5%

Maximum Safe Harbor contribution

4,320.00

 

 

EXEMPTIONS TABLE
Effective 1/1/93

Refer to the following table for the federal exemption amount:

 

 

Value of One FEDERAL Exemption

Value of One

STATE Exemption

Annual

$2,350.00

$1,000.00

Monthly

195.83

83.00

Bi-Weekly

90.38

38.00

 

 

 

 

 

 

 

 

FEDERAL INCOME TAX WITHHOLDING RATES

 

Biweekly Employee

 

Single Person including Head of Household:

Married Persons:

If the amount of wages (after subtracting withholding allowances) is:

The amount of income tax to be withheld shall be:

If the amount of wages (after subtracting withholding allowances) is:

The amount of income tax to be withheld shall be:

Not over $97.00...............$0

Not over $238.00$0

Over -

But Not Over -

 

Of Excess Over

Over -

But Not Over -

 

Of Excess Over

$97

__$902

15%

__$97

$238

__$1,567

15%

__$238

$902

__$1,884

$120.75 plus 28%

__$902

$1,567

__$3,125

$199.35 plus 28%

__$1,567

$1,884

 

$395.71 plus 31%

__$1,884

$3,125

 

$635.59 plus 31%

__$3,125

 

 

Monthly Employee

 

Single Person including Head of Household:

Married Persons:

If the amount of wages (after subtracting withholding allowances) is:

The amount of income tax to be withheld shall be:

If the amount of wages (after subtracting withholding allowances) is:

The amount of income tax to be withheld shall be:

Not over $210.00...............$0

Not over $517.00$0

Over -

But Not Over -

 

Of Excess Over

Over -

But Not Over -

 

Of Excess Over

$210

__$1,854

15%

__$210

$517

__$3,396

15%

__$517

$1,954

__$4,081

$261.60 plus 28%

__$1,954

$3,396

__$6,771

$431.85 plus 28%

__$3,396

$4,081

 

$857.16 plus 31%

__$4,081

$6,771

 

$1,376.85 plus 31%

__$6,771

 

 


 

SUPPLEMENT II

CALIFORNIA STATE

INCOME TAX WITHHOLDING RATES

Effective January 1, 1991

 

INSTRUCTIONS:

MONTHLY RATED EMPLOYEES:

EXAMPLE:

A married employee, earning $4,467 per month, with $50/month tax shelter.  Employee has spouse and two children, also claims three allowances for itemized deductions.  Spouse not working.

                        4          Exemptions for family members, Form UCW-4, Line 2A

                        3          Allowances for itemized deductions, Form UCW-4, Line 2B

                        7          Exemptions on Form UCW-4, Line 2C

 

Step 1:

From the taxable gross (after deducting tax shelter, TSP, retirement) deduct $83.00 for each withholding allowance claimed on line 2B of the Form UCW-4 to obtain the adjusted taxable gross.

                        $4,467.00          Total Gross

                        (  70.34)            Retirement Reduction

                        (  50.00)            Tax Shelter Savings

                        4,346.66            Taxable Gross

 

                        ( 581.00)           $83.00 x 7 Exemptions

                        3,765.66            Adjusted Taxable Gross

 

Step 2:

Determine regular exemptions from Form UCW-4, Line 2A.

                        Form UCW-4, Line 2A = 4 exemptions

 

Step 3:

Using the appropriate State table for marital status and pay period, seed the adjusted taxable gross range (determined in Step 1 above) in the two left columns.

 

 

 

NUMBER OF WITHHOLDING ALLOWANCES CLAIMED

AT LEAST

BUT LESS THAN

0

1

2

3

4

$3,700

$3,800

112.99

107.82

90.94

85.77

80.60

 

Step 4:

In the same table refer to the column for the corresponding regular exemptions (See Step 2) to obtain State Withholding Tax.

                        4 Withholding Allowances = $80.60

 

HOURLY RATED EMPLOYEE:

Use the same procedures as above, except deduct $38.00 for each deduction in Item 1.

 


 

CALIFORNIA STATE INCOME TAX WITHHOLDING RATES

MONTHLY PAYROLL PERIOD

SINGLE PERSONS

DUAL INCOME MARRIED OR MARRIED WITH MULTIPLE EMPLOYERS

 


 

MONTHLY PAYROLL PERIOD
MARRIED PERSONS

 


 

MONTHLY PAYROLL PERIOD
MARRIED PERSONS (Cont)

 


 

MONTHLY PAYROLL PERIOD

UNMARRIED HEAD OF HOUSEHOLD

 


 

BIWEEKLY PAYROLL PERIOD

SINGLE PERSONS

DUAL INCOME MARRIED OR MARRIED WITH MULTIPLE EMPLOYERS

 


 

BIWEEKLY PAYROLL PERIOD

MARRIED PERSONS

 


 

BIWEEKLY PAYROLL PERIOD

MARRIED PERSONS (Cont)

 


 

BIWEEKLY PAYROLL PERIOD

UNMARRIED HEAD OF HOUSEHOLD