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Supplemental payment - IT0210 Exempt indicator does not work for FED

former_member235056
Active Contributor
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Hello Friends,

We are facing an issue with Supplemental payments being taxed for withholding tax for a case as mentioned below.

Employee set-up-

1. Employee has regular payments with supplemtnal payments paid to employee.

2. Employee has reular payment of $1,000.00 and supplemental payment of $50,000.00.

3. There are no pretax deductions nor any other deductions nor any

3. IT0210 for state is Exempt, not reportable and for FED is Exempt, reportable.

When payroll is run, employee does not get taxed for FED withholding nor for state withholding although has taxable earnings for FED.

State does not have any taxable earning.

This works fine for regular payment of $1,000.00 based on IT0210 indicators.

Coming to supplemental payment of $50,000.00, when payroll is run, employee does get taxed for FED withholding but not for state withholding and also has taxable earnings for FED.

State does not have any taxable earning.

The issue is why does FED get taxed for withholding when its Exempt of taxes based on IT0210.

Is there a reason for this behaviour in system or is this a bug?

Any help to fix this is greatly appreciated.

I know how this can be fixed using IT0234 with using "No tax" Checkbox but wanted to know system behaviour as it works fine for state but not FED so I am wanting your expert advice.

Thanks,

Ameet

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former_member235056
Active Contributor
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Hello Friends,

There is a rule on IRS publication 15 page # 18 for amounts that go beyond 1 million dollar within year that was being triggered here hence the rule for IT0210 for exemption indicator was disregarded.

This is also mentioned in same section that it disregards form W-4 for employee and calculates withholding tax at 39.60%.

Hope this information helps.

Thanks,

Ameet

Former Member
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Ameet

Isn't that in case of 'Supplemental wages' alone exceeding a million dollar in a calendar year?

Here is it the Supplemental Wage Amount paid Monthly or Semi Monthly?

I mean is it 50000 * 12 or 50000*24??

Please correct me if I am wrong.

former_member235056
Active Contributor
0 Kudos

Hi Ranjani,

This applies to Supplemental payment YTD that has already been taxed upto $1,000,000.00 during the year.

Once this limit is reached for FED for this payment then remaining amount that comes in current or future periods during same year is taxed at 39.60% irrsepective of exempt status indicator or whatever is in employees W-4.

In this case employee W-4 i.e. IT0210 is ignored or not considered.

Thanks,

Ameet