Federal Income Tax / Form W-4
A new employee should complete and submit an IRS Form W-4 Employee’s Withholding Allowance Certificate to establish the appropriate federal income tax withholding from his paycheck. At any time after the initial W-4 setup, an SMU employee can update his W-4 online via Employee Self Service in my.SMU.edu to change her/his federal income tax withholding.
The form includes the tax marital status (Box 3) and the number of allowances claimed (Box 5) that correspond with the IRS tax tables to determine the tax withholding. An employee may also request an additional dollar amount to be withheld (Box 6). Income tax withholding must be based on the claimed marital status and withholding allowances. An employee may not base his withholding amount solely on a fixed dollar or percentage.
Refer to the IRS Withholding Calculator for guidance on how to complete Form W-4 based on the details of your tax personal situation.
If a new employee does not provide a completed Form W-4, income tax is withheld based on the IRS default of single, with zero allowances.
Claiming “exempt” from federal income tax withholding
An employee may claim “exempt” from federal tax withholding on his or her Form W-4. For more information, refer to the IRS guidelines at the top of Form W-4 about the conditions under which an employee may be exempt from federal income tax withholding.
The employee’s claim to be exempt from federal income tax withholding is only effective for the calendar year in which the exemption is claimed, and will automatically expire on February 15 of the following year unless the employee submits a new Form W-4 claiming to be exempt from federal income tax withholding for the next calendar year.
Medicare and OASDI Taxes (a.k.a. FICA)
The Federal Insurance Contributions Act (FICA) is supported by OASDI (social security) and Medicare taxes. These are commonly referred to as one tax (FICA) – but they actually have different tax rates. Only the OASDI tax has a wage base limit that is adjusted annually. (Click here to see the maximum wages for the current and previous years.)
There are no withholding allowances for OASDI and Medicare taxes. As of 01/01/13, the employee tax rate for OASDI returned to 6.2% of wages up to the wage base limit; for Medicare, the tax rate of 1.45% is applied to all covered wages.
Additional Medicare Tax
Under the Patient Protection and Affordable Care Act, the Medicare tax rate increased 0.9% (for employee withholding only) – from 1.45% to 2.35% – on wages paid over $200,000, effective for taxable years after December 31, 2012.
The statute requires an employer to withhold additional Medicare tax on wages or compensation it pays to an employee in excess of $200,000 in a calendar year, regardless of whether the employee will actually reach the applicable threshold. Any discrepancies between the amount withheld and the amount of the employee's actual liability for the additional Medicare tax will be reconciled on the individual's income tax return (Form 1040). Refer to the IRS Web site for additional information.
FICA Tax Exemptions
There are three provisions for FICA tax exemption that may apply to SMU employees:
- Student FICA exemption
- Minister’s FICA exemption
- Nonresident Alien FICA exemption