logo

Date: December 4, 2009

Bulletin Number: 948

line

Subject

Claiming Exempt from Federal, State and/or Local Tax Withholdings

Purpose

To instruct agencies how to perform an annual review of employees who claim to be exempt from Federal, State and/or Local tax withholdings and to provide instructions on entering tax data to ensure consistency.

Affected Employees

Employees who claimed exempt from Federal, State and/or Local tax withholdings for tax year 2009.

Background

According to IRS Publication 15, employees who claim exempt from Federal withholding must file a new Form W-4 (Employee’s Withholding Allowance Certificate) by February 15 of each year.  Please see instructions for Form W-4 for additional information.

The New York State Department of Taxation and Finance requires a new form IT-2104-E (Certificate of Exemption from Withholding) annually from employees who claim exempt from New York State, New York City or Yonkers withholding.

The Forms W-4 and IT-2104-E for the current year’s exemption must be retained in the employee’s agency payroll office for four (4) years.

OSC Actions

OSC has created Control-D report NPAY738 (Employees Exempt from State and Federal Taxes).  The report identifies employees who claimed exempt from Federal and/or State tax withholding for tax year 2009.

If the employee’s record is not updated by February 15, 2010 to reflect that new forms have been received, OSC will update the employee’s Tax Data pages to reflect the marital status of “Single” and the withholding allowance of “0.”

Agency Actions

Agencies must review the NPAY738 Control-D report and request a new Form W-4 and/or IT-2104-E from all employees appearing on the report.

If the employee does provide new forms, agencies must update the employee’s Federal, State and/or Local Tax Data pages as follows:

  1. Navigate to Home > Compensate Employees > Maintain Payroll Data (US) > Use > Employee Tax Data.
  2. Select the Federal Tax Data page.
  3. Insert a new row with the effective date of 02/18/10.
  4. Under the Special Tax Withholding Status, select the “Maintain Gross; FWT will be zero unless specified under ‘Additional Withholding’ below” radio button.
  5. Save the page.

Note:  The above steps must also be followed to update the State and Local Tax Data pages.

If an employee appearing on the report does not provide new Forms W-4 and/or IT-2104-E, the agency must update the employee’s Federal, State and/or Local tax Data pages as follows:

  1. Navigate to Home > Compensate Employees > Maintain Payroll Data (US) > Use > Employee Tax Data.
  2. Select the Federal Tax Data page.
  3. Insert a new row with the effective date of 02/18/10.
  4. Under the Special Tax Withholding Status, select the “None” radio button.
  5. Set the “SWT Marital/Tax Status to “S.”
  6. Withholding Allowances “0.”
  7. Save the page.

Note:  To claim exempt from tax withholdings and be in compliance with IRS and NYS Rules and Regulations, the agency must populate the employee’s Tax Data page as instructed above.

Note:  Employees claiming single or married with 99 allowances are not in compliance with IRS regulations.

Questions

Questions may be emailed to the Tax and Compliance mailbox.