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Payroll:  Payroll Taxes

 

Federal Income Tax / Form W-4

 

All new employees should complete and submit a [IRS] Form W-4 Employee’s Withholding Allowance Certificate to establish the appropriate federal income tax withholding from his paycheck. At any time after the initial W-4 setup, an SMU employee can update his W-4 online via Self-Service in access.smu.edu to change his federal income tax withholding.

 

The form includes the tax marital status (Box 3) and the number of allowances claimed (Box 5) that correspond with the IRS tax tables to determine the tax withholding. An employee may request an additional dollar amount to be withheld (Box 6). Income tax withholding must be based on the claimed marital status and withholding allowances. An employee may not base his withholding amount solely on a fixed dollar or percentage.

 

If a new employee does not provide a completed Form W-4, income tax is withheld based on the IRS default of single, with zero allowances.

 

è Claiming “exempt” from federal income tax withholding

 

An employee may claim “exempt” from federal tax withholding on his or her Form W-4. (Refer to the IRS guidelines at the top of Form W-4 about the conditions under which an employee may be exempt from federal income tax withholding.)

 

The employee’s claim to be exempt from federal income tax withholding is only effective for the calendar year in which the exemption is claimed, and will automatically expire on February 15 of the following year unless the employee submits a new Form W-4 claiming to be exempt from federal income tax withholding for the next calendar year.

 

Medicare and OASDI Taxes (a.k.a. “FICA”) 

The Federal Insurance Contributions Act (“FICA”) is supported by OASDI (“social security”) and Medicare taxes. These are commonly referred to as one tax (FICA) – but they have different tax rates and only the OASDI tax has a wage base limit that is adjusted annually. (The 2013 limit is $ 113,700.) 

There are no withholding allowances for OASDI and Medicare taxes. As of 01/01/13, the employee tax rate for OASDI returned to 6.2% of wages up to the wage base limit; for Medicare, the tax rate of 1.45% is applied to all covered wages. 

New for 2013:          Additional Medicare Tax 

Under the Patient Protection and Affordable Care Act), the Medicare tax rate will increase 0.9% (for employee withholding only) – from 1.45% to 2.35% – on wages paid over $200,000, effective for taxable years after December 31, 2012. 

The statute requires an employer to withhold additional Medicare tax on wages or compensation it pays to an employee in excess of $200,000 in a calendar year, regardless of whether the employee will actually reach the applicable threshold. Any discrepancies between the amount withheld and the amount of the employee's actual liability for the additional Medicare tax will be reconciled on the individual's income tax return (Form 1040). 

FICA Tax Exemptions

There are three provisions for tax exemption under FICA that may apply to SMU employees:

  1. Student FICA exemption
  2. Minister’s FICA exemption
  3. Nonresident Alien FICA exemption