Web-Based Entry, Processing, Inquiry, and Correction System (EPIC Web)

140 State Tax

State income tax withheld on a mandatory basis when the duty station State is one that has entered into a withholding agreement with the Secretary of the Treasury. A State tax certificate should be entered to begin withholding; otherwise, the system will automatically withhold taxes based on the duty station at the highest rate applicable for the State.

Some States do not provide State withholding exemption certificates for establishing an exemption status. Other States do not require the processing of State tax withholding 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 is not processed, Federal and State income taxes will be automatically withheld at the rate of single with zero exemption until a W-4 is entered for processing.

If an employee is reassigned or changes duty stations to a new State or city, tax documents must be processed.

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

Note: State income tax is grossed up at the rate of 2 percent on all individual and group spot cash awards and bonuses.

The basis for State tax withholding are as shown in the State withholding formulas, as applicable.

• Marital status and number of exemptions/allowances/dependents
• Wage bracket
• Percentage of Federal tax
• Percentage of annual wages

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.

State laws and regulations should be checked to determine if reciprocal agreement are in place before processing a certificate of nonresidence 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 nonresidence 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 nonresidence 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.

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, select C-Cancel on the Override Code drop-down after the action passes PINE Personnel Input and Edit System edits.

The AD-304, Request and Authorization for Allotments of Compensation for State Income Tax Purposes, serves as a certificate that the employee is authorizing voluntary withholding from his/her pay and must accompany the appropriate State withholding exemption certificate. The 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 the AD-304 is used to record voluntary State tax 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.

Refer to state tax formulas under Tax Information. Withholding formulas are located on the HR and Payroll Clients page. Log on to the Internet and go to the NFC Web site (www.nfc.usda.gov). Select the HR and Payroll Clients page from the MyNFC drop-down menu. Select the Publications icon and U.S. Income Tax Formulas to view the Tax Information links.