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Date: February 2, 2018

Bulletin Number: 1633 - REVISED

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Subject Claiming Exempt From Federal, State and/or Local Tax Withholding in Tax Year 2018

Purpose To inform agencies of the processing requirements for employees who claim exempt from Federal, State and/or Local tax withholding in tax year 2018.

Affected Employees Employees who claimed exempt from Federal, State and/or Local tax withholdings in 2017 and employees who submit withholding allowance certificates claiming exempt in 2018.

Effective Date(s) Administration paycheck dated March 7, 2018.
Institution paycheck dated March 15, 2018.

Background According to IRS Publication 505 (Tax Withholding and Estimated Tax) and IRS Instructions for Form W-4 (Employees Withholding Allowance Certificate), employees who claimed exempt from Federal withholding for a prior year must file a new Form W-4 by February 15th of the current year in order to claim exemption for the current tax year. IRS Notice 2018-14 has temporarily extended the due date for claiming exemption from income tax withholding until February 28, 2018. The new 2018 Form W-4 has been issued by the Internal Revenue Service (IRS). Therefore, employees should now use the 2018 Form W-4.                          

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

Agency Actions The following Control-D report is available for agency use.

NPAY738 - Employees Exempt from State and Federal Taxes

This report identifies employees who claimed exempt from Federal, State and/or Local tax withholding for tax year 2017.

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. Home>Payroll for North America>Employee Pay Data USA>Tax Information>Update Employee Tax Data.
  2. Select the Federal Tax Data page.
  3. Insert a new row with a valid effective date for 2018.
  4. Under the Special Withholding Tax Status (on either the Federal or State page as appropriate), select “Maintain taxable gross.” FWT will be zero unless specified under “Additional Amount” below.
  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. Home>Payroll for North America>Employee Pay Data USA>Tax Information>Update Employee Tax Data.
  2. Select the Federal Tax Data page.
  3. Inert a new row with a valid effective date for 2018.
  4. Under the Special Withholding Tax Status, (on either the Federal or State page as appropriate) select “None.”
  5. Set the Tax Marital Status to “Single.”
  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, agencies must update the employee’s Tax Data page, with the 2018 information, as instructed above.

Questions Questions regarding this bulletin may be emailed to the Tax and Compliance mailbox.