What Can and Cannot be Deducted from an Employee’s Wages
Webinar Details $219
- Webinar Length: 100 Minutes
- Guest Speaker: Vicki Lambert
- Topic: Human Resources, Taxation and Accounting, Payroll
- Credit: CPE 2.0, HRCI 1.5, SHRM 1.5, ATAPR 1.5, ATAHR 1.5, ATATX 1.5, RCH 1.5
In this webinar we will discuss what can and what cannot be deducted from an employee’s regular paycheck as well as their final one. Failure to follow the regulations pertaining to employee wage deductions can result in substantial penalties and interest.
In payroll we calculate the gross wages of an employee by meticulously following strict regulations on what must be or must not be counted as hours worked and taxable income. We pay the employee their net paycheck only by the payment method that is permitted. But what about in between? When it comes to deducting from the employee’s gross wages to achieve the net income are you also adhering strictly to the rules?
After calculating gross wages for an employee is accomplished, much more difficult decisions must be made. What must an employer deduct from an employee’s wages? What can be deducted legally? What can never be deducted? These questions and more must be answered correctly before processing that paycheck. And if this is the employee’s final check…the rules may change! Handling deductions is a complex task that payroll must get right every time for every payroll check. Failure to deduct the proper taxes could result in penalties on the employer from the IRS but making an illegal deduction for a fringe benefit or for collecting an overpayment can get the employer a visit from the federal Department of Labor auditor, the state department of labor auditor or both! Sometimes the federal government will allow the deduction but that certain state won’t.
Of course, everyone knows that payroll deducts for federal and state taxes. However, how much input does the employee have concerning these deductions? This will be answered in this webinar. Which taxes are mandatory, which are a courtesy and which ones the employee controls will be explained during this webinar. If the IRS or the state wants payroll to collect for back taxes; how is that processed? What does payroll do if a “payday loan” deduction is received as opposed to a creditor garnishment? Which ones must we honor and why. We will discuss this during this webinar.
Fringe benefits are a normal part of payroll for most employees. Deducting for voluntary fringe benefits such as health insurance or group term life can usually be an easy task. But what about health insurance under a medical support order? Does that change how it is processed by payroll? We will discuss processing voluntary and involuntary health insurance deductions.
Many employers require their employees to wear uniforms for work. Can the cost of the uniforms and their upkeep be deducted from an employee’s wages? What about cash shortages or breakage? Can I deduct the cost of shortage or breakage from the employee’s paycheck under the state or federal laws?
Some employers offer meals and lodging as part of the employee’s work contract. What can be deducted from the employee’s paycheck for employer provided meals and lodging and can this be used as credit against the minimum wage paid?
What if an employee is overpaid? Can the employer simply deduct the overpayment from future payments or does the employee have to agree to the deduction in writing? Does the federal law differ from the state law in this area and, if it does, which one does the employer have to follow?
Many employers advance vacation for their employees to ensure that all employees are rested and working at peak efficiency. But what if the employee takes their vacation in advance and then leaves the company? Can an employer recoup advanced vacation hours from the employee’s final check under federal or state laws?
Many employers give loans, advances on wages to employees or allow employees to purchase items from the employer. We will discuss how these can be recouped or repaid if the employee stays or if the employee terminates.
Areas covered in this webinar:
- Taxes—which are mandatory, which are a courtesy, and which ones the employee controls
- Child support—the limits but not beyond
- Tax levies—federal and state
- Creditor garnishments—how many can you honor and how often
- Voluntary wage assignments for “payday loans”—when are they required to be honored
- Handling fringe benefits such as health insurance or group term life
- Uniforms—when the employer pays for it and when the employee furnishes it
- Meals—when they become part of the employee’s wages
- Lodging—when it is part of the employee’s wages and when is it a perk
- Shortages—the employee came up short, so they must cover that right?
- Breakage—you broke it, so you have to pay for it, legal or not?
- Overpayments—the employee was overpaid so you can just take the money back, or can you?
- Advanced vacation pay—the employee knows the vacation hours were advanced so we can take them back when the employee quits can’t we?
- Loans to employees: what terms can be set while the employee is still active and what can be taken when the employee terminates
- Employee purchases—active employees and terminated employees
- Anti-wage theft laws and the states
Who can Benefit:
- Payroll Executives/Managers/Administrators/Professionals/Practitioners/Entry Level Personnel
- Human Resources Executives/Managers/Administrators
- Accounting Personnel
- Business Owners/Executive Officers/Operations and Departmental Managers
- Attorneys/Legal Professionals
- Any individual or entity that must deal with the complexities and requirements of paying employees
- Our Focus Today 00:01:25
- Types of Deductions 00:05:22
- Taxes 00:07:08
- Federal Income Tax 00:07:13
- FICA Taxes 00:12:07
- OASDI 00:13:19
- Medicare 00:15:21
- Additional Medicare Tax 00:16:56
- Nonresident Aliens 00:17:20
- State Income Tax 00:22:12
- Employees' Choices for State Income Tax 00:25:05
- For Example 00:27:23
- States with Local Tax Requirements 00:29:39
- Caution: Local Taxes Ahead 00:22:44
- Garnishments 00:31:03
- Garnishments and the CCPA 00:32:25
- Limits on Child Support 00:33:27
- Disposable Earnings 00:34:56
- Disposable Earnings - Mandatory Deductions 00:35:03
- Worksheet 00:35:15
- Allowable Disposable Income 00:36:54
- Example of Allowable Disposable Income 00:38:02
- So the Math Would Be 00:38:35
- Federal Tax Levies 00:40:22
- Federal Tax Levies - Worksheet 00:41:27
- What Is Meant By Take Home Pay 00:42:17
- Worksheet 00:42:54
- Federal Tax Levy Calculations 00:43:20
- Deductions for Charlie 00:43:33
- Filing Status Worksheet 00:43:49
- Tax Levy Would Calculate 00:43:57
- State Tax Levies 00:44:46
- State Tax Levies Cont’d 00:45:21
- Creditor Garnishments 00:46:19
- Creditor Garnishment Calculation 00:46:54
- Creditor Garnishment Calculation (Cont’d) 00:47:02
- Creditor Garnishment Calculation (Cont’d) 00:47:17
- Creditor Garnishment Calculation (Cont’d) 00:47:36
- But What If There’s a Child Support Order? 00:48:04
- Let’s Do One Where He Has the Money 00:48:32
- Then Do The Garnishment Calculation - Disposable Income 00:50:12
- Then Do the Garnishment Calculation - Garnishment 00:50:27
- Creditor Garnishment Limits By State 00:50:53
- States with Unique Rules 00:51:47
- What If There Is More Than One? 00:53:39
- For Example - Alaska 00:55:05
- Voluntary Wage Assignment 00:56:03
- Fringe Benefits - Health Insurance and Group Term Life Insurance 00:58:47
- Deducting for Fringe Benefits 00:59:12
- Uniforms 01:00:29
- Deducting for Uniforms 01:00:58
- Deductions for Uniforms By State 01:02:58
- Deducting for Uniforms - States 01:03:24
- Meals and Lodging 01:05:56
- Meals and Lodging - Federal 01:06:33
- Lodging: Value Can Be Excluded If: 01:07:37
- Business Premises 01:07:53
- For Employers Convenience 01:07:58
- Condition Of Employment 01:09:22
- Example 01:09:36
- Executive Housing 01:10:31
- De Minimus Meals 01:13:04
- Examples of DeMinimus Meals 01:13:35
- Meals on Premises 01:14:04
- Meals on Premises Cont’d 01:14:58
- Meals And Lodging Credits Against Minimum Wage 01:16:10
- Requirements 01:17:26
- Shortages/Breakage 01:21:36
- Deducting For Breakage Or Shortages 01:21:51
- Are Deductions Permitted For Breakages? 01:22:54
- Are Deductions Permitted For Shortages? 01:23:29
- Overpayments 01:23:48
- Overpayments: FLSA Requirements 01:24:54
- FLSA Requirements 01:25:20
- FLSA 01:25:45
- Facts Of The Case 01:26:41
- FLSA 01:27:25
- FLSA Field Operations Handbook (FOH) 01:28:55
- Exempt Employees 01:30:02
- Overpayments: The States 01:30:32
- Advanced Vacation Pay 01:32:45
- Deducting For Advanced Vacation 01:33:12
- Vacation Pay in FOH 01:33:44
- New York 01:34:24
- Vacation--CA 01:35:30
- Loans and Employee Purchases 01:36:15
- Loans to Employees 01:36:31
- California 01:37:04
- Employee Purchases 01:38:06
- Anti-Wage Theft Laws 01:39:07
- Anti-Wage Theft Laws 01:39:12
- Are There Any Questions? 01:40:17
- Presentation Closing 02:00:24
- Allowable Disposable Income 00:36:54
- California DE4 Form 00:25:44
- Child Support 00:02:53, 00:32:08, 00:39:21, 00:49:45, 00:57:47
- Consumer Credit Protection Act - CCPA 00:32:41, 00:38:47, 00:44:48
- De Minimus 01:13:35
- Department of Labor (DOL) 01:01:30, 01:24:55, 01:29:49, 01:34:51
- Disposable income 00:33:38, 00:35:53, 00:36:56
- Disposable Pay 00:34:59
- Exempt 00:13:58, 00:21:43, 00:25:14, 00:30:50, 01:30:02
- Fair Labor Standards Act (FLSA) 01:21:55, 01:24:57, 01:26:44
- Federal Insurance Contributions Act (FICA) 00:05:48, 00:12:07, 00:17:47
- Field Operations Handbook 01:28:55, 01:33:17
- Form 668-W 00:40:54, 00:42:32
- Form W-220 00:28:37
- Form W-4 00:09:46, 00:10:21, 00:25:15
- Fringe Benefits 00:03:14, 00:58:47
- Garnishments 00:03:04, 00:31:04, 00:45:09, 00:52:39
- Income Withholding for Support (IWO) 00:37:28, 00:42:29
- Internal Revenue Code (IRC) 00:09:24
- Involuntary Deduction 00:06:29, 00:42:36
- Levy 00:03:02, 00:32:34, 00:40:24, 00:42:33, 00:45:00
- Minimum Wage 00:45:14, 00:47:14, 00:52:29, 01:01:01, 01:16:25, 01:22:24, 01:25:51
- Nexus 00:29:18
- Nonresident Alien (NRA) 00:18:21
- OASDI 00:13:19
- Overtime 01:01:46, 01:22:24 01:25:51
- Payment Act of 1943 00:07:20
- Publication 1494 00:40:29
- Reciprocal Agreements 00:26:56, 00:27:24
- Regular Rate of Pay 00:01:35
- Resident Alien 00:18:17
- Take-Home Pay 00:42:22
- Voluntary Deduction 00:06:14, 00:42:35, 00:59:12
- Voluntary Wage Assignment 00:03:09, 00:32:11, 00:56:20
- Wage 00:15:44, 00:21:36, 00:45:05, 01:01:26, 01:10:15, 01:19:32, 01:29:26
- Wage Base 00:15:36
Allowable Disposable Income: Allowable disposable income is the most you can garnish someone's wages, dependent on their disposable income and the CCPA percentage limit.
California DE4 Form: This certificate, DE 4, is for California Personal Income Tax (PIT) withholding purposes only. The DE4 is used to compute the amount of taxes to be withheld from your wages, by your employer, to accurately reflect your state tax withholding obligation.
Child Support: Child support is an ongoing, periodic payment made by a parent for the financial benefit of a child following the end of a marriage or other similar relationship.
Consumer Credit Protection Act (CCPA): The Consumer Credit Protection Act (CCPA) is a piece of federal legislation that puts in place consumer protections against lenders. Passed in 1968, the law requires lenders to explain the actual cost of borrowing money in terms the consumer understands.
De Minimis: Too trivial or minor to merit consideration.
Department of Labor (DOL): The United States Department of Labor is a cabinet-level department of the U.S. federal government responsible for occupational safety, wage and hour standards, unemployment insurance benefits, reemployment services, and some economic statistics; many U.S. states also have such departments.
Disposable Pay: “Disposable pay” is the pay remaining after deduction of any amounts required by law to be withheld. The maximum for student loan and all other garnishments is 25% of disposable income.
Disposable income: Disposable income is the portion of an employee's paycheck that is subject to garnishments. This portion is what remains after the following amounts are deducted from their gross earnings for a given pay period. Voluntary deductions, such as 401(k) contributions, are considered part of disposable income.
Exempt : Exempt employee is a term that refers to a category of employees set out in the Fair Labor Standards Act. They do not receive overtime pay, nor do they qualify for the minimum wage
Fair Labor Standards Act (FLSA): The Fair Labor Standards Act of 1938 29 U.S.C. § 203 is a United States labor law that creates the right to a minimum wage, and "time-and-a-half" overtime pay when people work over forty hours a week. It also prohibits most employment of minors in "oppressive child labor".
Federal Insurance Contributions Act (FICA): The Federal Insurance Contributions Act is a United States federal payroll contribution directed towards both employees and employers to fund Social Security and Medicare—federal programs that provide benefits for retirees, people with disabilities, and children of deceased workers.
Field Operations Handbook: The Field Operations Handbook (FOH) is an operations manual that provides Wage and Hour Division (WHD) investigators and staff with interpretations of statutory provisions, procedures for conducting investigations, and general administrative guidance. The FOH was developed by the WHD under the general authority to administer laws that the agency is charged with enforcing. The FOH reflects policies established through changes in legislation, regulations, significant court decisions, and the decisions and opinions of the WHD Administrator. It is not used as a device for establishing interpretative policy.
Form 668-W: The IRS uses Form 668-W(c) to notify your employer and you of a levy against your wages. If you have unfiled returns, the IRS will not release the levy. Your employer is required to turn over non-exempt wages and you should inform them of any dependents you have.
Form W-220: NONRESIDENT EMPLOYEE’S WITHHOLDING RECIPROCITY DECLARATION - THIS DECLARATION MAY ONLY BE USED BY A NONRESIDENT WORKING IN WISCONSIN WHO IS A LEGAL RESIDENT OF ILLINOIS, INDIANA, KENTUCKY, OR MICHIGAN.
Form W-4: Form W-4 (otherwise known as the "Employee's Withholding Allowance Certificate") is an Internal Revenue Service (IRS) tax form completed by an employee in the United States to indicate his or her tax situation (exemptions, status, etc.) to the employer.
Fringe Benefits: An extra benefit supplementing an employee's salary, for example, a company car, subsidized meals, health insurance, etc.
Garnishment: A legal summons or warning concerning the attachment of property to satisfy a debt
Income Withholding for Support (IWO): The IWO is the OMB-approved form used for income withholding in tribal, intrastate, and interstate cases as well as all child support orders that were initially issued in the state on or after January 1, 1994, and all child support orders that were initially issued (or modified) in the state before January 1, 1994 if arrearages occur. This form is the standard format prescribed by the Secretary in accordance with USC 42 §666(b)(6)(A)(ii). The OMB-approved IWO must be issued to employers or other income payers to collect child support.
Internal Revenue Code (IRC): The Internal Revenue Code, formally the Internal Revenue Code of 1986, is the domestic portion of federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 of the United States Code.
Involuntary Deduction: Involuntary deductions are those of which neither the employer nor the employee has control. The employer is required by law to deduct a certain amount of the employee's pay and send (remit) it to a person or government agency to satisfy the employee's debt.
Levy: A tax levy, under United States Federal law, is an administrative action by the Internal Revenue Service under statutory authority, generally without going to court, to seize property to satisfy a tax liability. The levy "includes the power of distraint and seizure by any means".
Minimum Wage: The lowest wage paid or permitted to be paid specifically fixed by a legal authority or by contract as the least that may be paid either to employed persons generally or to a particular category of employed persons.
Nexus: The term nexus is used in tax law to describe a situation in which a business has a "nexus" or tax presence in a particular state or states. A nexus is basically a connection between a taxing jurisdiction, like a state, and an entity like a business that must collect or pay the tax.
Nonresident Alien (NRA): This income is taxed at a flat 30% rate, unless a tax treaty specifies a lower rate. Nonresident aliens must file and pay any tax due using Form 1040NR, U.S. Nonresident Alien Income Tax Return or Form 1040NR-EZ, U.S. Income Tax Return for Certain Nonresident Aliens with No Dependents.
OASDI: OASDI stands for old age, survivors, and disability insurance tax, and the money that your employer collects goes to the federal government in order to fund the Social Security program.
Overtime: Overtime is time and a half of what an employee earns for every hour worked over 40 in a workweek. The FLSA salary threshold is the minimum salary employers must pay employees for them to be exempt from overtime wages.
Payment Act of 1943: The Current Tax Payment Act of 1943, Pub. L. 68, Ch. 120, 57 Stat. 126 (June 9, 1943), re-introduced the requirement to withhold income tax in the United States. A pay-as-you-go plan for taxpayers whereby employers would retain a percentage of taxes from every paycheck and forward it directly to Washington's war chest. Withholding, as we know it today, was born.
Publication 1494: The IRS mails Publication 1494 (PDF) with the levy which explains to your employer how to determine the amount exempt from levy.
Reciprocal Agreements: A reciprocal agreement, also called reciprocity, is an agreement between two states that allows residents of one state to request exemption from tax withholding in the other (reciprocal) state. This can save you the trouble of having to file multiple state returns.
Regular Rate of Pay: An employee’s regular rate is the hourly rate an employee is paid for all non-overtime hours worked in a workweek. When calculating an employee’s regular rate, all compensation received by the employee in a workweek must be included, including wages, bonuses, commissions, and any other forms of compensation.
Resident Alien : A resident alien is a foreign person who is a permanent resident of the country in which he or she resides but does not have citizenship. To fall under this classification in the United States, a person needs to either have a current green card or have had one in the previous calendar year.
Take-Home Pay: The pay received by an employee after the deduction of taxes and other obligations.
Voluntary Deduction: Voluntary deductions are amounts that an employee has elected to have subtracted from gross pay. Examples are group life insurance, healthcare and/or other benefit deductions, Credit Union deductions, etc. Post-tax deductions are withheld after all taxes have been calculated and withheld. Participation in these programs may require that the individual complete a written salary reduction agreement authorizing payroll deductions.
Voluntary Wage Assignment: A wage assignment is a voluntary agreement between the employee and the creditor where an amount is withheld from the employee's paycheck to satisfy a debt owed to a third-party recipient. In a voluntary wage assignment, a worker asks their employer to withhold a portion of their paycheck and send it to a creditor to pay off a debt.
Wage: A fixed regular payment, typically paid on a daily or weekly basis, made by an employer to an employee, especially to a manual or unskilled worker.
Wage Base: The taxable wage base is the amount of an employee's income from which the IRS calculates an individual's tax liability for Social Security. In other words, the taxable wage base is the income an employee earns on which Social Security taxes must be paid.