HR Fast Facts: FAQs About Employees Entering Tax Information

How do employees determine how many allowances to claim?

Each state has differing guidance on choosing the appropriate number of allowances for state income tax withholding. To calculate the appropriate number of federal allowances, see the the IRS Withholding Calculator (or Form W-4).

Entering state tax information as an employee

Generally, during an employee’s onboarding process, they can enter their state tax filing and withholding information for the state(s) where they live and work.

Your payroll carrier may use your employees’ home addresses and the addresses of their work locations to determine the states for which they should provide tax info. They’ll usually fill out the federal W-4, and if your home address and work addresses are:

• In the same state (and it has state income tax), your payroll carrier will likely ask them to enter withholding allowances and filing status for that state. Note that some states have no income tax.
• In different states, your payroll carrier will likely ask for tax information in each state that has income tax. If these states have a reciprocal agreement in place, your employee can complete a Certificate of Non-Residence in their work state (and provide it to your company’s administrator), and let your payroll carrier know they’d like to be taxed solely in your home state.

Employee tax withholding exemptions

Employees can be exempt from taxes for a number of reasons. Individual situations can differ, but here are a few general guidelines for eligibility for full exemption.

• Foreign nationals who are working in the US under a F-1, J-1, M-1, Q-1, or Q-2 visa are exempt from paying Social Security or Medicare taxes. They should not have withholding for Social Security and Medicare.
• Family employees of certain types of businesses are sometimes exempt from particular taxes. For example:
  • Children under 18 who work for their parents may be exempt from Social Security or Medicare and FUTA taxes.
  • Individuals employed by their spouse may be exempt from FUTA taxes.

IRS regulations state that individuals who wish to claim exemption from federal income taxes must meet both of the following criteria:

• For the prior year, the individual had a right to a refund of all federal income tax withheld because they had no tax liability, and
• For the current year, the individual expects a refund of all federal income tax withheld because they expect to have no tax liability.

What if an employee reached the additional Medicare tax threshold with a previous employer?

As an employer, you must begin withholding the Additional Medicare Tax (0.9%) from an employee’s wages once you have paid them wages in excess of $200,000. If they earned over $200,000 from a previous employer in the same year, they are still responsible for paying the additional tax, but as their current employer you may not be willing or able to handle these extra withholdings for them.

Employees can contact a tax advisor for more information and instructions on handling the additional withholding. For example, they have the option to make estimated payments if they expect to have any liability for the additional tax, or to request that you, as their current employer, withhold additional income tax on Form W-4 — which can then be applied to all taxes on your Form 1040.

What if an employee reached the wage cap for social security with a previous employer?

If an employee has already met the annual wage base limit for Social Security with a previous employer in a given year, they can contact a tax advisor to recover any excess tax paid on their personal returns.

However, their current employer is still required to withhold and pay Social Security taxes up to the annual wage base limit for wages paid to the employee (even if they reached the limit for the year with a prior employer). Employers cannot honor the Social Security wage cap for wages paid to a current employee by a former employer.