What Can and Cannot be Deducted from an Employee’s Wages
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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 have to 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.
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 lodging as part of the employee’s work contract. What can be deducted from the employee’s paycheck for employer provided 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
- Uniforms—when the employer pays for it and when the employee furnishes it
- Lodging—when it is part of the employee’s wages and when is it a perk
- Shortages—the employee came up short, so they have to 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
- Learn Taxes—which are mandatory, which are a courtesy, and which ones the employee controls
- Learn About Child support—the limits but not beyond
- Learn Tax levies—federal and state
Our Focus Today 00:01:07
Types of Deductions 00:01:30
Federal Income tax 00:02:12
FICA Taxes 00:03:07
Additional Medicare Tax 00:04:07
Nonresident Aliens 00:04:26
State Income Tax 00:05:50
Employees Choices for State Income Tax 00:06:32
For Example 00:06:47
States with Local Tax Requirements 00:07:10
Caution: Local Taxes Ahead 00:07:37
Garnishments and the CCPA 00:08:54
Limits on Child Support 00:09:17
Disposable Earnings 00:10:09, 00:10:14
Allowable Disposable Income 00:10:50
Example of Allowable Disposable Income 00:11:07
So the Math Would Be 00:11:25
Federal Tax Levies 00:11:53, 00:12:15
What Is Meant By Take Home Pay 00:12:22
Federal Tax Levy Calculations 00:13:01
Deductions for Charlie 00:13:13
Tax Levy Would Calculate 00:13:23
State Tax Levies 00:13:39, 00:13:57
Creditor Garnishments 00:14:13
Creditor Garnishment Calculation 0:14:32, 00:14:42, 00:15:23, 00:15:33
But What If There’s a Child Support Order? 00:15:37
Then Do the Calculation 00:16:21
Let’s Do One Where He Has the Money 00:16:28
Creditor Garnishment Limits By State 00:16:45
States with Unique Rules 00:16:56
Creditor Garnishment Fees by State 00:17:24
State Fees 00:17:37, 00:17:45, 00:17:55
What If There Is More Thank One? 00:18:05
For Example - Alaska 00:18:18
Voluntary Wage Assignment 00:18:29
Fringe Benefits 00:19:11
Deducting for Fringe Benefits 00:19:18
Deducting for Uniforms 00:20:22
Deductions for Uniforms By State 00:21:57
Deducting for Uniforms - States 00:22:03
Meals and Lodging 00:22:37
Meals and Lodging - Federal 00:23:11
Lodging: Value Can Be Excluded If: 00:23:35
Business Premises 00:24:03
For Employers Convenience 00:24:09
Condition of Employment 00:24:18
Executive Housing 00:25:18
De Minimus Meals 00:26:24
Examples of De Minimus Meals 00:26:49
Meals on Premises 00:27:37, 00:27:55
Meals and Lodging Credits Against Minimum Wage 00:28:40
Deducting for Breakage or Shortages 00:29:43
Are Deductions Permitted for Breakages? 00:30:27
Overpayments: FLSA Requirements 00:31:27
FLSA Requirements 00:32:55
Facts of the Case 00:33:58
FLSA Field Operations Handbook,k (FOH) 00:35:09
Exempt Employees 00:35:36
Overpayments: The States 00:35:57
Advanced Vacation Pay 00:39:13
Deducting for Advanced Vacation 00:39:26
Vacation Pay in FOH 00:39:54
New York 00:41:19
Loans and Employee Purchases 00:43:24
Loans to Employees 00:43:39
Employee Purchases 00:48:22
Anti-Wage Theft Laws 00:50:50, 00:51:01
Are There Any Questions? 00:52:00
Presentation Closing 01:00:56
- Allowable Disposable Income 00:10:53
- Consumer Credit Protection Act - CCPA 00:08:56, 00:14:13
- De Minimus 00:26:33
- Disposable income 00:10:09
- Fair Labor Standards Act (FLSA) 00:20:29, 00:32:55
- Federal Insurance Contributions Act (FICA) 00:03:08
- Form 668-W 00:12:10
- Form W-4 00:02:38
- Fringe Benefits 00:19:12
- Garnishments 00:02:01, 00:08:03
- Internal Revenue Code (IRC) 00:02:33
- Nonresident Alien (NRA) 00:02:45, 00:04:27
- OASDI 00:03:25
- Payment Act of 1943 00:02:12
- Publication 1494 00:11:59
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.
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 minimus: Too trivial or minor to merit consideration.
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.
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.
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-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
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.
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.
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.
Vicki M. Lambert, CPP, is President and Academic Director of The Payroll Advisor™, a firm specializing in payroll education and training. The company offers a payroll news service which keeps payroll professionals up-to-date on the latest rules and regulations.With over 35 years of hands-on experience in all facets of payroll functions as well as over 20 years as a trainer and author, Ms. Lambert has become the most sought-after and respected voice in the practice and management of payroll issue... View Full Profile
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