Monitor Employee Income Taxation

Purpose

This document provides guidance and procedures on monitoring income tax withholdings and income tax exemption for employee payments. It outlines the steps needed to perform the monitoring task and ensure compliance.

Income Tax Monitoring

Once withholding and exemption information is entered into the system for an employee, the campus has a responsibility to ensure that this information is accurate and in compliance with IRS and NYS regulations. To that end, what follows are the details to monitor different categories of employees and their federal and state income tax status.

Employee Group

Monitoring Task

Frequency/Tool

Nonresident Alien employee

Taxation –

Ensure that the tax status and exemptions as well as the system tax residency status field are accurate.

Bi-weekly -

Use the RF Non-Citizen Employees Tax Status Exception

 

All employees

Year End Re-Certification of exemption claims

Ensure that those employees who are claiming exemption from withholding re-certify with new forms for the new year if continuing the claim.

Year end -

Use the Discoverer Query “HR_YE Employee Re Certify Exemption Income Taxes”

 

 

All employees

Valid forms and taxation

Ensure government withholding certificates of the employees are current and valid. Then verify that the system data match the withholding certificates.

Annually

Internal audit of random sample

 

 

Nonresident Alien Employees for Tax Purposes - Monitor Taxation

Tax withholding rules for nonresident alien employees are restrictive and it is important to continuously monitor this group of employees to ensure compliant tax withholding are processed.

Step

Action

1

Run RF report RF Non-Citizen Employees Tax Status Exception

2

Review each sub-report section of the exception report for any applicable action

NOTE: Report help provides details and criteria for data listed. The sub-reports are in order of critical issues. Example: The first three sub reports are the most critical for accurate taxation - treaty limits, taxation status compliance and accurate system tax screen for residency status. Refer to Taxation Guidance on Employee Payments to Nonresident Aliens and Processing Taxation and Exemption of Employee Payments to Nonresident Aliens.

3

Collect new IRS or NYS forms if appropriate

4

Update system data if appropriate:

  • People form Nationality field value
  • Non Citizen Visa and Residency Special Info Types (SIT)
  • Federal or State Tax Rules forms
  • Tax residency status field

All Employees - Year End Re-Certification of Exemption Claims

When employees claim exemption from tax withholding generally the forms are valid for only one calendar year. Below describes the steps necessary to ensure that employees are notified their exemptions are expiring and they need to complete new forms. Also below is a table that describes the appropriate forms and their date of expiration. On or around the time of the new calendar year, new year dated forms are released (usually December):

Step

Action

1

Run Discoverer Query HR_YE Employee Re Certify Exemption Income Taxes


NOTE: Query finds all active records currently set for FIT and/or SIT exempt.

2

Optional: Review each record to find the forms on file the employee used to claim exemption.

 

NOTE: This can extend customer service in identifying the forms the employee used in a prior year and may assist you later when identifying the date the exemption expires.

3

Gather:

  • Appropriate Blank IRS and or NYS withholding/exemption documents (See table following later for assistance). This will depend upon the citizenship, residency for tax purposes for the employee.
  • Tax Exemption Expiration Memo. Campus locations can edit or personalize their own letter or memo if desired.

4

Distribute memo, appropriate blank tax and exemption documents, IRS W-4 and NYS IT-2104 (See table below on other possible forms for packet to employee)

 

NOTE:The query can be exported to an Excel spreadsheet. Name and addresses are included to assist if campus wants to use Mail Merge functionality. Address line 2 and 3 have data containing the value of “NULL” for some records. Before processing a mail merge, you will need to find all values of “NULL” in the Excel spreadsheet and replace them with a blank value before printing envelopes and or memos.

5

To ensure compliance in case the employee does not respond, date track ahead to the beginning of the pay period in which the income tax exemption expires based on the exemption claim form the employee used in the prior calendar year. Set the “W4 Information” region of the record to withhold at the highest possible tax withholding rate, Single and 0 allowances (government default rate).

6

  • If the individual returns completed and valid IRS and or NYS forms go to step 7.
  • If the individual does not return completed and valid exemption, STOP. Default withholding rates processed in step 5 will take affect at the pay period that the exemption expiration occurs.

7

Review the forms for the applicable exemption or withholding instructions and:


Enter the appropriate data to the system based on the new IRS and / or NYS tax or exemption forms replacing changes entered in step 5 if applicable.

Table – Forms to Provide with Recertify Document

Residency Status for Tax Purposes

Possible Exemption Claim Form

Expiration Date of Exemption

US Citizen and Resident Alien

 

IRS W-4

February 15 of new year

NYS IT-2104E

April 30 of new year

NYS IT-2104.1 (Non NYS residents)

February 15 of new year

IRS 673 (US Citizens Living and Working Abroad)

February 15 of new year or expiration date entered on Part I of the 673

IRS W-9 (Resident Alien – treaty exemption)

December 31 of current year

Non Resident Alien

 

IRS 8233 and supporting statement from IRS Publication 519

December 31 of current year

Note: Should also include IRS W-4 and NYS IT-2104 already prepared with the default withholding rules of Single and 1 allowance and “NRA” or “Nonresident Alien” placed above the dotted line leading to the additional withholding amount box in case the employee can no longer claim a treaty exemption.

December 31 of current year

New Calendar Year “Dated” IRS and NYS Forms

A “dated” form means the IRS or NYS releases a new revised form for each calendar year. When a new calendar year form is released, you should discard all blank prior calendar year forms you might have on hand and make sure you provide the new current year form. You should provide the new current form to the employee or project staff or direct them to the appropriate government Web site to obtain the new form.

All Employees – Monitor Valid Forms and Tax Withholding

The employee withholding certificates are held at the campus RF personnel / payroll offices which is “office of record.” Therefore, best practice is to process an internal audit on the physical forms on file and data input to the system. Follow steps to proactively conduct this evaluation for your employee IRS W-4 and NYS IT-2104 forms and data input into the system. If the form on file and the system input do not match, either over or under income tax withholdings occur. This is considered an “administrative error.”

Administrative errors are the only possible reason an income tax refund might be approved and processed in a current calendar year by the central office. Any administrative errors related to prior calendar years are reconciling items between the employee and the IRS or NYS when the employee completes their individual income tax return. General steps to conduct a proactive review:

Assisting Employees with Tax Forms

Operating locations should, if necessary, assist employees with information pertaining to the preparation of any necessary forms. Operating location staff must NOT prepare the forms on behalf of the employee or offer tax advice.

Change History.

 

 

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