Expert: Shirley McAllister, CPP, PHR - 1/6/2011

Question
QUESTION: Hi. I do not think my final paycheck is correct. The check covers the last week of December for the final hours I worked; it also covers an accrued vacation payout.
The total check is about $5,800, with about $1070 for 24 actual hours worked; and $4730 for vacation payout. I claim HOH with 10 Fed exemptions and HOH with 6 state of MD exemptions.
I have 1 voluntary deduction in the flat amount of $70
And the health deduction for $20 – this is not a pre tax benefits axes are abot $
The total taxes taken from my check were $1750 with $950 few w/h; $330 FICA; and $385 state.
I have never paid this much in taxes during a payperiod. While I realize the gross amount has increased, which in turn increases the tax amount, I think that they are calculating the total amount as my gross amount on a bi-weekly basis, which is placing me in another tax bracket.
My concern is they took out too many taxes, specifically the fed w/h seem to be way too much.  My average  withholdings for my normal gross pay is FED $190; FICA $240; state $155
Their pay cycle is on a bi-weekly basis and it looks like they are saying my salary is a gross $5800 bi-weekly, which is not the case. The only time that was bi-weekly was the $1070; the $4730 should have been calculated on a bi-weekly tax schedule since it is my final vacation payout for the year, which is annual.

ANSWER: Vacation payout is figured as a supplemental wage. One of the methods that can be used is if it is paid along with other wages it can be counted as one single payment for a regular payroll period.

The other method would be to use the supplemental tables and charge federal at a flat rate of 25% than the state would also be charged at the flat rate for the state our state is 7.8% for supplemental wages.

Either methods is approved by the IRS and is legal for the company to use at their option. I don't know which method was used but either one does result in extra withholding amounts.

If you do not owe this much tax you will not lose it, you will file for a refund and get it back when you file your income taxes.



You can find this in circular e "Employer's Tax Guide" for 2010. Supplemental wages are discussed on page 14. This guide can be found at www.irs.gov.


Shirley



---------- FOLLOW-UP ----------

QUESTION: I have not cashed the check – I would prefer to have the correct taxes taken out now, opposed to waiting for 2012 to get a refund from my 2011 wages.
How do I explain my case to my ER in the simplest form? The payroll person has no idea what I am talking about. She says ASP calculates taxes and she does not regulate it. How do I verbalize what I want ADP to do?

Answer
The taxes are not incorrect. They must use a different method to calculate supplemental pay such as vacation pay and they have done so. This method which they must use per the government takes out more taxes. It is not the payroll department it is the rules from the IRS which you need to be upset about. They have followed the rules they are given to follow.

Shirley