hr/payroll concepts
TRANSCRIPT
Friendly Reminders
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• Use the Chat Box for Questions
• Q&A to follow
Agenda
• Payroll Deductions• Tax Withholdings• Templates for FIT & SIT Withholdings• Calculate FIT & SIT Withholdings
Three main types of payroll deductionsPayroll Deductions
• Involuntary
• Voluntary
• Statutory
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Payroll DeductionsVoluntary Deductions
• When an employee chooses – gives written permission to – the district to withhold money for certain purposes
• Written authorization should be received before setting up the deduction
• First to be removed if it causes negative net pay
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Voluntary
Health FSA
Life Insurance
Dependent Care FSA
Tax Shelter Annuity
403b/457
What are some examples?
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Payroll DeductionsStatutory Deductions
• Required by Law according to federal and state laws or collective bargaining unit
• Statutory deductions guarantee the employee pays what is owed, whether they want to or not
• Districts do not have the choice of allowing or disallowing statutory deductions
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Payroll DeductionsInvoluntary Deductions
• Regulated by state and federal laws in order to deduct and remit monies to various government agencies or authorities in order to satisfy certain types of unpaid debts
• Districts and county offices that do not process the involuntary deductions correctly are liable for any payments due
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Deduction Setup in EscapeSystem Deductions are set up in Deduction Management by SCOE IT
• SCOE IT completes the Subject Grosses Affected and W2 Information• Once the System Deduction is established Districts can create custom
codes in Deduction Management based on permissions
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• Add Deduction codes in Employee Management
Payroll DeductionsREPAY Deduction
• When an employee owes money to the District
• CA Labor code along with court decisions set the requirements for when an employer can deduct money owed to them through a deduction in the employee’s paycheck. CA Labor Code 224
• Recommended that the District meet and discuss a repayment plan with the employee and obtain written authorization
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Payroll DeductionsREPAY Deduction in Employee Management
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• Establish the repayment plan with the employee and setup in Employee Management
• Description: Enter reason for Repay
• Deduction Amount:Enter the monthly agreed amount
• Deduction Amount Goal:Enter the full amount owed
• The Deduction will stop once the goal is met and last payment will be the remaining balance
Statutory tax withholdings are mandatory taxes that are contributed by the employee and employer to the taxing agency
Taxes Required Employee Employer
Federal Yes X
State Yes X
Social Security (OASDI) Yes X X
Medicare Yes X X
State Unemployment Ins Yes X
State Disability Ins No X
Income Tax Withholding
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• Withholdings are reported annually on the W-2 Form
• Districts match Social Security and Medicare Contributions
• Districts are responsible for State Unemployment Insurance
• Districts are not required to participate in State Disability Insurance
Form W-4 Employee’s Withholding Certificate
The Form W-4 was redesigned January 1, 2020• Reduces the form's complexity• Increases Transparency and Accuracy• Claiming Allowances are no longer used• Employees will provide Employers with amounts to
increase or decrease the amount of taxes being withheld
Federal Withholding
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https://www.scoe.org/files/New_2020_W4_Form_Escape_Set_Up.pdf
Form W-4• Form W-4 continuing employee received prior to
January 1, 2020 will remain in effect until a new form is received
• New employees must use the current 2021 Form• Effective with employee’s first pay period• Employers responsibility not to accept and withhold
on invalid Forms W-4
Federal Withholdings
https://www.irs.gov/pub/irs-pdf/fw4.pdf
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Step 1: RequiredEmployees: name, address, social security number, and filing status
Important Reminder: Do NOT provide tax
advice. Recommend they seek advice from the IRS
or their Tax Advisor.
Steps 2, 3, and/or 4: Only if relevant to the employees personal situation
Step 5: RequiredThe form is invalid if not signed and dated by the employee
If a new employees fails to furnish a Form W-4 will be treated as if they had checked the box for:
Single or Married filing separately in Step 1(c) and made no entries in Step 2, Step 3, or Step 4 of the W-4
Employee Fails to Furnish W-4 Form
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The W-4 Form no longer has check box for Exempt
Employees can write “Exempt” on Form W-4 in the space below Step 4(c) shall have no federal income tax withheld from their earnings
Withholdings Exemption
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When Claiming Exempt a new form must be submitted each year by February 15
Lock-In Letter• IRS Notice to the Employer• Employee must challenge at IRS• Disregard new W-4 until new letter• Applies to DE-4 CA State Withholdings
“Employee Notice” from IRS • Send to employee within 10 days of receipt• Notify IRS in writing if no longer an employee
Withholdings
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OASDI (Old Age Survivor Disability Insurance• If an employee qualifies for Social Security, they
must also pay into Medicare• All employees who are not participating in a
qualified retirement system are subject to Social Security and Medicare (Non-Members)
• Exception for employees hired prior to 1986 who made a one-time election to be exempt from MC
Social Security & Medicare
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• CalPERS Members are subject to both• CalSTRS Members only subject to Medicare
Voluntary Section 218 Agreement
• A written voluntary agreement between the State and Social Security Administration to provide Social Security and Medicare coverage for state and local government employees
• Section 218 Agreements are irrevocable• CalPERS is the State Social Security Administrator for
School Employees
Social Security (OASDI)
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COBRA 1986 Medicare• Mandated Mandatory Medicare coverage if hired
after March 31,1986• Retiree returning to work, mandatory Medicare• PERS/STRS, mandatory Medicare coverage• No PERS, No Social Security, mandatory Medicare
Rehire Annuitant
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Retirees
• Subject to Medicare tax withholding regardless of Age OR if they were exempt before they retired
• Applies even if they are eligible to receive Medicare• OBRA 90 specifically excludes a qualified member
from mandatory social security if they are rehired with an employer that participates in the same retirement plan from which they retired
Rehire Annuitant
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Student Workers• Exempt from Social Security/Medicare if their
services are performed in an educational institution where they are enrolled and attending classes
• Summer work is subject to SS/MC when not enrolled in classes
Social Security/Medicare
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SSA 1945 FormSocial Security Administration
• Districts must provide a statement to new employees (except students) hired in a job that is not covered by Social Security
• Best practice include this form in the new hire information
https://www.socialsecurity.gov/forms/ssa-1945.pdf
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DE-4 Form Employee’s Withholding Allowance Certificate
• Form must be submitted, can no longer use W-4 for both
• If an employee claims Exempt, then a new form must be submitted each year by February 15 and must claim exempt on W-4
• An employee can file a new form anytime with the most current being the one in effect until a new form is submitted
• IRS Lock-In Letter applies to CA DE-4
CA State Withholding
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https://www.edd.ca.gov/pdf_pub_ctr/de4.pdf
CA State Withholding DE-4 Form
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Important Reminder: Do NOT provide tax
advice. Recommend they seek advice from the IRS
or their Tax Advisor.
CA State Withholding DE-4 Form
Page 15https://www.scoe.org/files/Military_EDD_Exemption_2020.pdf
Military Spouse not
subject to CA Withholdings
Additional steps needed
The California Unemployment Insurance is an employer paid tax and the rate is set annually through the School Employers Fund
• Paid by Employer • Schools do not pay into the
Federal Unemployment System• Rate is determined with rate formula specified by
Section 823(b) of the California Unemployment Insurance Code
• Established annually• Pooled rate for schools
State Unemployment Insurance (SUI)
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Applies to all wages except:
• Board Members• Elected Officials • Students enrolled and regularly attending classes
where employed• Students under 22 years old enrolled in a non-
profit/public education institution which combines academic instruction with work experience
State Unemployment Insurance (SUI)
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State Disability Insurance (SDI)Optional Insurance Program for government entities to help protect employee wage loss because of non-occupational illness or injury
• Each District may or may not offer the coverage• Typically employee paid• An application has to be completed and filed with EDD
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Payroll Rates
https://www.scoe.org/files/Payroll_Rates_20210701-rev9-20-2021.pdf
SCOE IT updates the rates the beginning of
the Fiscal Year and Calendar Year
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Employee Management Taxes TabBe mindful of the system Defaults and update based on the employee information
Important: If there is No Active Tax Record, the system Default is YES and will Report SDI Wages, but not deduct from the employee
{Defaults}
Gross Wages are taxed when paid to an employee and is considered constructively received
• Wages become taxable when Paid not Earned• Considered paid when
– Employee receives paycheck– Money is constructively received– When the employee has the ability to have access
to funds– ACH based on Paid Date
Taxable Income
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Taxable Income
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Gross Wages can exclude benefits such as Tax Deferred and Pre-Tax Benefits to reduce taxable wages
Pop Quiz
Which form is new for
2020? DE-4 or W-4
True or False?Wages become taxable when
paid not earned.
If an employee claims Exempt
when must they submit a
new form?
Can an employee opt
out of Statutory
Taxes? NO!Statutory
are required by
law
True!Based on
constructive receipt
2020 W-4
By Feb 15 each year
Tax Withholding CalculationsDetermine Gross Pay
• Salary Schedule Salary Placement
• Number of Paid Days
• Number of Pay Periods
Payroll Concepts 1 of 2 workshop slides
Calculating Tax WithholdingsDetermine Taxable Wages
• Reduce Gross by any Pre-Tax/Tax Deferred Deductions
Tax Deferred and Pre-Tax DeductionsFederal Tax WageReduction
State TaxWageReduction
Social Security/MedicareWage Reduction
CalSTRS (Tax-deferred) Yes Yes No
CalPERS (Tax-deferred) Yes Yes No
403(b) & 457(b) (Tax-deferred) Yes Yes No
Pre-Tax Medical Insurance Premiums Yes Yes Yes
Section 125 Flex Plan (Medical) Yes Yes Yes
Section 125 Flex Plan (Dependent Care) Yes Yes Yes
Health Savings Account Yes No Yes
Calculate Federal Tax WithholdingsSalary Salary Schedule Cell $ 88,146.00 Master Stipend $ 850.00 Total Salary $ 88,996.00 Number of Pay Periods 10Monthly Gross $ 8,899.60
Pre-Tax ReductionsSTRS $ 912.21 Flex125 Medical $ 150.00 TSA $ 200.00 Total Pre-Tax Reductions $ 1,262.21
Monthly Taxable Gross $ 7,637.39Number of Pay Periods 10Annual Taxable Wages $ 76,373.90
Federal Withholding Calculations
● There are several ways to figure income tax withholding ● Most County Offices use the Percentage Method
● See IRS – 2021 Percentage Method Tables for Automated Systems – Publication 15-T
https://www.irs.gov/pub/irs-pdf/p15t.pdf
Calculating Tax Withholdings
Calculating Tax Withholdings
• The IRS recommends that Employers who use an automated payroll software, such as Escape, use the Percentage Method Tables for Automated Payroll Systems worksheet and the Percentage Method tables to manually calculate District Employees federal income tax withholding monthly amounts
Federal Withholding Calculations – Percentage Method
IRS Worksheet to Calculate Taxes
https://www.irs.gov/pub/irs-pdf/p15t.pdf
Calculating Tax Withholdings
• This method works for Forms W-4 from 2019 or earlier and Forms W-4 from 2020 or later
• This method also works for any amount of wages
Federal Withholding Calculations – Percentage Method
Federal Withholding Calculations
Calculating Tax Withholdings
Is the Employee W4 form prior to 2020 OR after January 1, 2020?
California Withholding Schedules
● CA Provides two methods for determining the amount of wages and salaries to be withheld for state personal income tax● Method A – Wage Bracket Table Method
● Method B – Exact Calculation Method
● Most COE’s and Districts use Method B
Calculating State Tax Withholdings
https://www.edd.ca.gov/pdf_pub_ctr/21methb.pdf
California Ed Code
California Labor Code
California Government Code
Employment Development Department - State of California
(EDD)
Internal Revenue Service (IRS)
Bargaining Unit Agreements/MOU
Resources