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State Tax Data

For processing purposes, the tax year usually begins in Pay Period (PP) 25 and ends in PP 24. All taxes withheld for those inclusive pay periods are reported on the IRS Form W-2, Wage and Tax Statement.

A new State tax certificate may be processed at any time to change an employee’s tax information. If the employee’s duty station or residence changes and the new local tax location has an agreement with Treasury for mandatory withholding, a new tax certificate should be processed. All previously processed exemptions, additional withholding, etc., will be removed and must be reprocessed, if applicable. If a new tax certificate is not processed, PPS will begin withholdings at the highest taxable rate if the duty station has a mandatory tax withholding agreement.

In accordance with the Military Spouses Residency Relief Act (P.L. 111-97) signed on
‎November 11, 2009, spouses of military personnel are allowed to withhold State tax based on an address other than their residence or duty station address. The employee is designated as a spouse of military personnel and is recorded on a personnel action. If State tax is currently being withheld and should be withheld as a spouse of military personnel, a cancellation must be processed to the State tax document. Enter CAN in the Total Number of Allowances field to cancel the tax document on the Payroll/Personnel database.

Note: If the current State tax record is not canceled and another tax document is processed, it will result in a dual State tax record.

To verify that State tax cancellation has applied to the database, access IRIS Program IR105. A 0 (No) will be displayed in the Duty Station Status field and the Withholding State Code/Name field on IRIS Program IR105 will be blank. A new State Tax document with the correct withholding should be processed.

An employee may be exempt from withholding of State tax on the basis of limited earnings or other reasons determined by the State. If exemption is allowed by the State, type Only (ONL) in the Total Number of Allowances field, to indicate the employee is exempt from withholding.

Some States do not provide State withholding exemption certificates for establishing an exemption status; others do not require the processing of State tax withholding data since the income tax formulas are based on a percentage of Federal income tax, Federal exemption status, or a percentage of annual wages. If the State tax withholding is based on the Federal withholding and an IRS Form W-4, Employee’s Withholding Allowance Certificate, is not processed, Federal and State income taxes will be automatically withheld at the rate of single with zero exemption until an IRS Form W-4 is entered for processing.

Unless otherwise indicated, State tax deductions for lump sum payments and cash awards are withheld based on the employee’s State tax exemption recorded in the database.

Dual State Tax Voluntary Withholding

Dual State tax withholding allows employees to voluntarily elect to pay State tax in both their duty station and residence States. If State income tax is currently being withheld based on the duty station and a State tax form is entered to begin withholding for the residence State, the document will appear in suspense with an informational message indicating the document entered will result in dual State tax deductions. To release the document, type C in the Status Code field.

Form AD-304, Request and Authorization, for allotments of compensation for State Income Tax Purposes, serves as a certification that the employee is authorizing voluntary withholding from his/her pay and must accompany the appropriate State withholding exemption certificate. Form AD-304 can also be used to record the voluntary State tax withholding data in cases where the State does not provide a form for the declaration of withholding.

If Form AD-304 is used to record voluntary State tax data in lieu of a State tax certificate, the State Tax Withholding State Code, the Total Number of Allowances, and the Additional Amount (if applicable) must be indicated on the form when signed by the employee.

Cancellation of Voluntary Withholding

Voluntary State tax withholding will terminate if:

  • An employee’s duty station State changes (the certificate of non-residence is not void).
  • The State revokes its tax withholding law.
  • An exemption from withholding certificate is processed (ONL in the Total Number of Allowances field).
  • A cancellation of voluntary withholding is processed (CAN in the Total Number of Allowances field).

In accordance with the Military Spouses Residency Relief Act (P.L. 111-97) signed on
‎November 11, 2009, spouses of military personnel are allowed to withhold State tax based on an address other than their residence or duty station address. The employee is designated as a spouse of military personnel and is recorded on a personnel action. If State tax is currently being withheld, and should be withheld as a spouse of military personnel, a cancellation must be processed to the State tax document. Enter CAN in the Total Number of Allowances field to cancel the tax document on the Payroll/Personnel database.

Note: If the current State tax record is not canceled and another tax document is processed, it will result in a dual State tax record.

To verify that the State tax cancellation has applied to the database, access IRIS Program IR105. A 0 (No) will be displayed in the Duty Station Status field and the Withholding State Code/Name field on IRIS Program IR105, State Tax, will be blank. A new State Tax document with the correct withholding should be processed.

Certificate of Non-Residence for State Tax

States with reciprocal agreements have agreed that if taxes are withheld for the residence State, taxes will not be withheld for the duty station State. A certificate of non-residence allows an employee to declare non-residency for the duty station State and to have taxes withheld for the residence State.

State laws and regulation should be checked to determine if reciprocal agreements are in place before processing a certificate of non-residence for an employee. In most cases, the employee must reside in one of several designated States to be exempt from the mandatory withholding provisions of their duty station State.

If an employee’s duty station changes, the certificate of non-residence in effect at that time will become void, and a new certificate is required for the new duty station State (if applicable).

Each certificate of non-residence is to be completed following the instructions on the individual form. Enter the duty station State tax document to waive liability before entering the State tax document for the residence State. Type WAV (waiver) in the Total Number of Allowances Claimed field.

Voluntary Withholding

Several taxing entities that do not have agreements with the Secretary of the Treasury have been established in the database for voluntary tax withholding. Tax data must be processed for these entities for taxes to be withheld. Voluntary withholding is based on residence. An employee may voluntarily elect to pay tax based on residence if:

  • The residence city, county, or State is established in TMGT.
  • The mandatory duty-station tax is waived (if allowed).
  • The residence tax locality on the tax form agrees with the residence tax locality of the duty-station.

Additional Withholding Amount

Employees may authorize an amount to be withhold from their salary each pay period in addition to the amount automatically withheld in accordance with the income tax formula. Most exemption certificates allow for additional withholding. This dollar amount is entered in the Additional Amount field of the applicable income tax certificate page.

This section shows the process of establishing or changing an employee’s State income tax withholding code or an additional withholding amount, establishing or canceling a certificate of non-residence, and claiming total exemptions from withholding, if permitted by the State.

Before beginning, the following information is needed (Refer to the State Tax Withholding Certificate completed by the employee.):

  • State Tax withholding code.
  • Total number of allowances.
  • Additional allowances (for California, Illinois, Virginia, and Puerto Rico only).
  • Personal exemptions claimed.
  • Veterans/special deduction (for Puerto Rico only).