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Regular Rate of Pay

(Pay Rate X Hours) + additional Pay/Hours Worked

Tip Pay

2.13 per hour, if tips are not enough to raise the regular rate of pay to 7.25 for the workweek the ER must pay the difference

Piece Rate of Pay

Add the weekly piece rate earnings to any other earnings for the workweek then divide the total by the number of hours worked in the workweek

Commission Pay

Commissions paid to nonexempt employees are included in the regular rate of pay, the commission is allocated to the workweeks it was earned

Overtime Premium Pay

To calculate O/T premium pay, multiply one- half of the regular rate of pay by the number of hours over 40 in a workweek

Payments excluded: gifts, paid time off, reimbursed expenses, discretionary bonuses (e.g. holiday bonus) and benefit plan contributions

Weighted Average

When an EE is compensated at more than one rate of pay in the workweek, the regular rate of pay must be at least the weighted average of all rates used in the week

Constructively Paid

"Actually Paid" EEs are actually paid if on payday they receive cash, are given a check that can be cashed on that day or receive a dir dep of their net pay into their acct

Imputed Income

Represents the value of the benefits employees receive from the ER and must be included in the EE's income. E.g. Group term life ins

If ER delays imputing income until the end of the year, increased taxes from the calculation can leave the EE's net pay greatly reduced

Federal Taxable Wages

Federal income tax, Social Security,Medicare and FUTA

Federal Income Tax Withholding

1. Wage-bracket
2. Percentage
3. Optional flat rate
4. Mandatory flat rate

Supplemental Wages

Payments that are not part of regular wages e.g. Bonuses, commissions, prize money, car allowance, nonaccountable plan reimbursement (tips can be treated as suppl or regular wages)

Optional Flat Rate

Supplemental wages less than $1M:


Mandatory Flat Rate

Supplemental wages over $1M:


Aggregate Method

Must be used when calculating FIT on supplemental wages when no FIT taxes were withheld from regular wages from the current or prior year

Aggregate= sum or total

Social Security Tax

EE Rate: 4.2%

ER Rate: 6.2%

Wage base limit: $106,800

Medicare Tax

EE Rate: 1.45%

ER Rate: 1.45%

Wage base limit: None


Desired net pay/100% - Total % all tax paid

Voluntary Deductions

Federal law requires the ER to get a written, signed authorization from each EE allowing wages to be deducted, once signed, cannot be revoked for one year

Involuntary Deductions

Withholding orders:

Child support
Federal tax levy
Creditor garnishment
Student Loan

CS Withholding Guidelines

Maximum amount to withhold:

50% of disposable earnings if supporting another family
55% if at least 12 weeks in arrears

60% if not supporting another family
65% if in arrears


Consumer Credit Protection Act: provides the legal framework around which state child support withholding laws are constructed

Fed requirement for Child Support

1. Maximum amount to withhold
2. Priority of order: cs order takes priority over all other garnishments except tax levies
3. When order takes effect: 1st pay period that begins after 14 days from the mailing of the notice
4. Time to remit: 7 business days of paying wages
5. Combining payments: can combine pmts from several EE's to be sent to SDU
6. No discharge for withholding
7. Admin fees for ER
8. Notify agency OSCE (Office of Child Support Enforcement) when EE leaves employment
9. ER penalized for not withholding

Disposable Earnings

Gross wages - deductions required by law

Required by law: Federal, State or local income tax, SS, Medicare tax, state unemployment or disability tax and mandated pmts by state EE retirement systems

Not required by law: health & life ins premiums, union dues, retirement plan contributions are not deducted from gross wages to calc disposable earnings

Form 668-W

Notice of Levy on Wages, Salary and Other Income. (federal tax levy)

Form 668-D

Release of Levy/Release of Property from Levy

Form will contain the final amount that is due from the EE, when paid EE is released from levy

Pmts Exempt from federal tax levies

1. Unemployment compensation benefits
2. Workers compensation benefits
3. Annuity and pension pmts under Railroad Retirement Tax Act and certain armed services personnel
4. Certain armed service-connected disability pmts
5. Certain public assistance pmts (welfare & supplemental SS benefits)
6. Amounts ordered to be withheld under previously issued court order for child support

Creditor Garnishment

The Consumer Credit Protection Act (CCPA) sets the max amt that can be garnished as the lesser of:

*25% of the EE's disposable earnings

*the amt by which the EE's disposable earnings for the week exceed 30 times the federal min hrly wage then in effect

If EE's wages are already subject to a garn withholding and constitutes at least 25% of EE's disposable earnings no amount can be withheld for the creditor garnishment

Bankruptcy Regulations

When ER receives bankruptcy order he must stop withholding on any other garnishment against the EE except for child support

Student Loan Garn

Maximum amount is the lesser of:

15% of EE's disposable earnings or the excess of the EE's disposable earnings over 30 times the federal min hrly rate

Priority of Withholding Orders

Child support
Student loan
State tax levy
Local tax levy
Creditor garnishment
Employer deductions e.g. Benefit
Employee voluntary deductions

Other Payments:
Advances & Overpayments

Fit withheld:
If EE repays advance/overpayment in same year the money was received the ER excludes amt from EE's income on W2, EE will receive excess as refund

If EE repays in a later year the amount of repayment cannot be excluded from income

SS & Medicare:
If EE repays advance/overpayment after ER filed the 941 the ER must refund any over withheld SS/Medicare taxes to EE

If EE repays in a later year the repayment will not reduce the EE's SS/Medicare wages for the year of repayment

ER may be able to claim a refund of overpaid FUTA but only if after repayment the EE earned less than $7,000 during the year

Note: the ER must take into account any applicable wage bases for these taxes for the year in which overpayment was made, if the EE's earnings exceed the applicable wage base even after repayment is taken into consideration, neither the EE nor the ER is due a refund


IRS has defined bonuses as supplemental wages

Must be included in income subject to FIT, SS, Medicare and FUTA

ER may choose to withhold FIT using the optional flat rate or aggregate method if less than $1M


IRS defined as supplemental wages

Subject to FIT, SS, Medicare and FUTA

ER's may choose to withhold FIT using the optional flat rate or aggregate method if less than $1M

Jury Duty

Depends on ER policy:

1. If ER pays an EE their regular wages in addition to jury duty pay the wages are subject to FIT, SS, Medicare and FUTA
2. If ER pays an EE the difference between Ee's regular pay & jury duty, only the difference is subject to federal taxes
3. If ER pays an EE wages for time spent on jury duty but requires the EE to turn over the jury duty pay, only the difference between amt paid and amt turned over is subject to federal taxes

If a juror is paid at least $600 by a state the amount is reported on form 1099-Misc in box 3 "Other Income"

Retroactive Pay

IRS defined as supplemental wages

Treated as wages when they are made and subject to FIT, SS, Medicare & FUTA

ERs may choose to withhold FIT using the optional flat rate or aggregate method if less than $1M

Taxable Tips

Generally tips or gratuities are taxable wages

Service charges are NOT tips

EE's report tips on Form 4070, Employees Report of Tips to Employer

Withholding on Tip Income

IRS defined Tips as supplemental wages but ER can treat as suppl or regular wages

Subject to all federal taxes if EE reports more than $20 in tips for the month

Where taxes to be withheld exceed wages available the ER should withhold as follows:

*SS & Medicare taxes on reg wages
*federal income tax on reg wages
*SS & Medicare taxes on tips
*federal income taxes on tips

Uncollected SS & Medicare taxes must be reported on EE's W2 in box 12 code A and B

Employer Provided Loans

Repayment of ER loans is not limited by FLSA restrictions on ER deductions

If at any time during the calendar year the value of the loans to EE exceeds $10,000 the ER may be required to impute income to the EE if the interest rate on the loan is less than the interest rate the ER would pay on outstanding taxes to the IRS

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