Purpose
To explain the methodology that is used to calculate withholding taxes for adjunct employees.
Affected Employees
Employees appointed to adjunct positions
Background
The methodology for calculating withholding taxes for all State employees, including adjunct employees in the State and City Universities, was changed when New York State converted to a new payroll system in 1998. To avoid potential under withholding of taxes, the Office of the State Comptroller (prior to conversion) notified state agencies of the changes in the tax withholding methodology; each agency was responsible for notifying employees that they had the option of adjusting their withholding allowances to ensure that the proper amount of taxes was being withheld. Since the conversion, there have been many inquiries from adjunct employees about the impact of this methodology on their paychecks. As a result, OSC is re-issuing and clarifying the explanation provided to state agencies regarding the tax withholding calculation methodology
Prior to conversion to the new payroll system, the bi-weekly tax rate methodology was used to calculate withholding taxes. This methodology calculates withholding taxes based on earnings in each paycheck, without regard to the contract period or the total amount earned over the contract period. The bi-weekly methodology assumes that the same bi-weekly amount will be earned for an entire year.
The annualized tax rate methodology replaced the bi-weekly methodology upon conversion to the new payroll system. Unlike the bi-weekly methodology, the annualized methodology does not assume that the same amount will be earned for an entire year. The annualized methodology calculates withholding taxes for adjunct employees based upon total contract earnings and the number of payroll periods within the contract period.
Both the bi-weekly and annualized tax rate methodologies comply with Federal, State and Local regulations. However, the annualized methodology will generally result in lower tax withholding amounts. In certain cases, this methodology will result in no taxes being withheld. To ensure that the proper amounts of taxes are being withheld, agencies should encourage adjunct employees to consider the following action steps:
- Review their tax withholding status with a professional
- Review their paycheck stub each payday, check the amount of taxes withheld and adjust the tax withholding allowances and/or marital status, as appropriate
- Determine whether withholding additional taxes is necessary
- Reconsider their withholding status if contract dates and amounts change
Tax Withholding Methodology
The Annual Tax Rate Schedule is used for all tax calculations. Taxes are calculated on the amount of contract pay using the tax marital status of single or married and the number of withholding exemption allowances. This amount is then divided by the number of contract periods, and any additional withholding amount reported is then added.
Federal Tax: 2001
The Federal tax for 2001 is calculated by subtracting the number of exemptions multiplied by $2,900 (the annual amount per allowance) from the contract pay.
New York State Tax: 2001
The New York State tax is calculated by subtracting the annual deduction allowance of $6,975 for single, or $7,475 for married, from the contract pay amount; then subtract the number of exemptions multiplied by $1,000.
City Resident Tax: 2001
The New York City Resident Tax is calculated by subtracting the annual deduction allowance of $5,000 for single, or $5,500 for married, from the contract pay amount; then subtract the number of exemptions multiplied by $1,000.
Yonkers Resident Tax: 2001
The Yonkers Resident Tax is calculated by subtracting the annual deduction allowance of $6,975 for single, or $7,475 for married, from the contract pay amount; then subtract the number of exemptions multiplied by $1,000. Multiply the results by .05 then divide that amount by the number of contract periods.
Yonkers Non-Resident Tax: 2001
The Yonkers Non-Resident Tax is calculated by subtracting the annualized pay exclusion amount from the contract pay, if applicable. Multiply the results by .0025; then divide that amount by the number of contract periods.
Examples
Examples of the tax calculation methodology are attached to provide further clarification.
Agency Actions
Notify adjunct employees of tax withholding calculation methodology. A letter is attached that Payroll Officers could use to inform adjunct employees about the tax withholding methodology.
Questions
Questions regarding this bulletin may be directed to the University Manager of Payroll Systems and Operations at CUNY Central Office.