The information posted on PayrollTalk is for informational purposes only and is not intended to substitute for obtaining accounting, payroll, tax, or financial advice from a professional accountant.

What's the best way to handle this?

KathieKathie ✭✭
edited September 2010 in General Payroll Topics
It's always something.....

We have temporarily relocated a group of employees from NH (no state tax) to VT (state tax). Management wants to gross them up to make them whole (for the State Tax).

What's the quickest and easiest way to do this?

My boss just wants to do an "other earnings" lump sum, but that's taxable too which again changes the figure. and then because we're doing that, don't we need to disclose to the employee what their "new pay rate" is? So I'll have to do that every pay period?

Forgive me.... I think I'm brain dead this afternoon :?
«1

Comments

  • If you gross them up for the state tax, you have additional income which will affect FICA and FIT - which will produce additional income which will increase state tax which will --- SO
    you have to do it all at once.
    Figure out how much the additional state tax will be on the regular pay - then gross that amount up for all taxes.
  • How long is temporary? Is it possible that come year end, these people won't have worked in VT enough to owe them any taxes and they'll get it all back, when they file their non-resident return? And then you'll have paid it and all of the other additional taxes unnecessarily? What about processing the check, without any gross up, then doing a loan for the amount to the employee? Then if the employee gets refunded, they could pay you back. Or if not, you could release the loan? Or something like that?
  • I like Mindy's idea.

    I believe we discussed this is another thread a few weeks ago, yes?
  • This group of employees will be relocated for at least two & 1/2 months - perhaps longer.
    Mindy wrote:
    Is it possible that come year end, these people won't have worked in VT enough to owe them any taxes and they'll get it all back, when they file their non-resident return? And then you'll have paid it and all of the other additional taxes unnecessarily?

    Yes - to both questions. Management is not concerned about that though - they just don't want to have the employee's net pay affected in any way due to this relocation. With that said, I do like the loan suggestion.
    pattypa wrote:
    I believe we discussed this is another thread a few weeks ago, yes?

    Yes, sort of. In that thread I was asking how to gross up only a portion of time - one employee working one day in a different State - and how the pre-tax deductions worked. In the situation above, the employees are working the entire pay period in the Income Tax State.

    Thanks for the help! It's always good to hear a new idea.
  • On a related note - my boss is one of the relocated employees. She put in writing that she only wants me to tax half of her pay for VT Taxes. However, I know (since she's in a cubicle right next to me) that she's working full time in VT. What do I do with this? I don't feel right about it because I know it's not true, but am I responsible for the forms accuracy? ... kind of like the W-4, if someone tells me it's not correct, then I can't accept it.
  • Hi Kathie,
    Does she want only half the pay reported as VT wages or only withholding on half the pay? Given the gross up, neither option makes sense from the employee standpoint since the gross up will be less (she will get less FICA credit, for example) - it is possible that other things on her tax return will be affected by the increase in income (phaseouts, tax credits, etc affected by AGI - Adjusted Gross Income). The W-4 (or whatever form VT uses) would not reflect how much pay is subject to the tax. It just tells you how much to withhold from the taxable pay.
  • Hi Kathie,
    Does she want only half the pay reported as VT wages or only withholding on half the pay?

    Hi Patrick, she wants only half the pay report as VT wages.
  • she wants only half the pay report as VT wages

    And all the wages subject to VT withholding? (I'm asking). That is the only way I see an advantage to her. With the gross up, that would defraud the employer as she would get a refund. Matter of fact, all the employees could write themselves raises by overwithholding VT tax (and on the federal for that matter) - the gross up would be greater than the actual tax and the employee would get a refund (phantom raise).

    Anyway on the reporting - you can show all the wages as subject NH (which they would be if there was a tax because it is the lived in state) and the portion of the wages attributable to VT as VT even though there is overlap. That is State plus state does not have to equal federal. Furthermore, if she can show that the amount attributable to VT is actually different from what is on the W-2, she can report a different amount (she will have to explain it, but it happens). Regardless of what the employer reports, the amount attributable to VT is the amount she was paid for services performed in VT. And it sounds as if she is asking you to submit a false report to VT. I would be very careful about that.
  • she wants only half the pay report as VT wages

    And all the wages subject to VT withholding? (I'm asking). And it sounds as if she is asking you to submit a false report to VT. I would be very careful about that.

    Yes - all of her wages should be subject to VT Withholding - or at least 95%. She has had an occasional meeting in NH (no State Tax). It's your last two sentences that I'm concerned about. What she is asking me to do is not correct - submitting a false report to VT. What do I do with this? I've already asked if she's sure she wants to do this and while I didn't come right out and call her a liar - I did make a joke about her being here as much as I am (100% of my time).

    Can't wait for the auditors to ask if anyone has asked me to do anything that I knew wasn't right. Yikes!
  • "I'm sorry, but wages for time worked in VT must be reported there. Your request is not compliant with VT tax law and agreeing to your 'request' would put the company at risk for penalties and fines."

    Or.

    NO!!!!!!!! :twisted:
  • I'm sort of with pattypa on this -BUT there is a lot we don't know. Since this is your boss, this is a "tread carefully" situation.

    Don't do anything based on verbal instructions.
    Sounds as if she already put it in writing - but, if she wants it different than federal (i.e. on only half the income) she needs to give you a W-4VT and claim a large enough number of allowances to get the amount she wants withheld.

    Not knowing the organizational structure and not knowing what her reasoning is, I'm not sure what your options are, but, waiting for the auditors to ask that question is not going to do it - Can you go further up the line? Perhaps more in the way of "How do we book this?"

    Is is possible that the 50/50 split is for internal cost allocation purposes rather than tax purposes? Is she traveling outside VT while working out of the VT office? Telecommuting?
  • Since it seems the goal is to reimburse the employee for withholding, I would expect every employee to claim Single / Zero to maximize their payments.

    I'm not a big fan of systems that are designed to pay the employee tax liability. Reason being is that you need to often do gross ups that cause additional taxable wages, and additional tax which can put you in a loop.

    I prefer to tax them based on where they are working according the W4 they submit, then give them something like $200 (net pay, gross up) and say take your multi-state W2s to an accountant who can assist you with filing your tax returns.

    Boss prefers not to be taxed or pay taxes, this happens all the time, unfortunately taxes aren't really optional.

    Call the withholding office in each state to discuss what is required, document your conversations, support the position directly from the State Withholding Handbooks or the website. Then prepare your recommendation, we must do XX in each state in order to be in compliance. Here is the documentation from the state to support this position, and the name and phone number of the agents I spoke with.

    I am recommending following the rules of the state to assure we are in compliance, how do you wish to proceed? Get their answer in writing. If the recommendation you get back leads to non-compliance, simply state that we appear to have conflicting opinions, so we are going to need to send all the documentation to the legal department just to make sure.

    A legal review may be a better option than going over your bosses head. You can take the postion that you are keeping the company best interest in mind and that you want to assure compliance to eliminate the possibility of penalty and interest.
  • I like the legal dept prjeff - but if they don't have one?
  • PrJeff wrote:
    I prefer to tax them based on where they are working according the W4 they submit, then give them something like $200 (net pay, gross up) and say take your multi-state W2s to an accountant who can assist you with filing your tax returns.

    That's a good idea, thanks. Seems like an easier way to do it!
    PrJeff wrote:
    we are going to need to send all the documentation to the legal department just to make sure.

    I wish we did have a legal department.... we're not big enough for that I guess. We do utilize outside auditors, consultants and the occasional attorney, but I'm not allowed to go that route without the bosses OK first.
    PrJeff wrote:
    A legal review may be a better option than going over your bosses head. You can take the postion that you are keeping the company best interest in mind and that you want to assure compliance to eliminate the possibility of penalty and interest.

    You can say that again.... she will make my life a living @#$% if I go over her head.
  • PrJeff wrote:
    Since it seems the goal is to reimburse the employee for withholding, I would expect every employee to claim Single / Zero to maximize their payments.

    I'm not a big fan of systems that are designed to pay the employee tax liability. Reason being is that you need to often do gross ups that cause additional taxable wages, and additional tax which can put you in a loop.

    I agree with this. Grossing up earnings is an unnecessary exercise based on a misunderstanding of taxation.

    Tip: if your boss ever tells you he/she will be grossing up one or more payments to you, the first thing you should do is present your HR dept with a new Form W-4 claiming single / zero. You just might get a nice refund in April! :twisted:
Sign In or Register to comment.