When a part-time employee, such as a high school student, marks Exempt on his W-4 federal form or a state withholding form, do you know how to handle it in RTI 2000 Payroll?
First let’s discuss what it means to be exempt in RTI 2000 Payroll. Technically speaking, there are two ways an employee can be exempt:
· exempt from withholding (e.g., a high school student working part-time)
· exempt from tax entirely (e.g., a foreign student)
The exempt from withholding status is more common. In this case the employee marks “exempt” on a withholding form because he does not want any monies withheld from his wages. Typically this employee is a student working part-time who did not owe taxes in the past and believes he will not earn enough through the year to have to pay taxes.
In this case, you the employer would not withhold any taxes, but you are still REQUIRED to report the wages paid to this employee.
In this situation, the employee is exempt from withholding only, but not exempt from tax, and therefore not exempt as far as Payroll is concerned.
To set up an employee as having no federal or state withholding, you set the number exemptions to 999 (which means exempt from withholding), which will result in no taxes being withheld.
To do this, go to Employee Maintenance and select the Tax Constants field. In this field enter 999 as the number of exemptions claimed on a W-4 or corresponding state withholding form.
For this employee, the quarterly reports such as the federal 941, state withholding reports, and also the W-2 proof at year end, will show wages for him and will show zero taxes withheld in the appropriate fields or boxes.
In Payroll, employees are not exempt unless they are exempt from tax entirely. The exempt from tax entirely status is uncommon. This status is only for an employee who is not subject to a tax at all. Typically, this employee is a foreign student (or another non-U.S. citizen). Because this employee is not subject to taxation, you the employer do not have to withhold monies from his paycheck, AND you do not have to report his wages either.
There is only one place in RTI 2000 Payroll to make an employee exempt from taxes entirely, and that is in Employee Maintenance using the Tax Exemptions field. In this field you would select the taxes from which this employee is exempt.
If an employee is marked as exempt from tax using the Tax Exemptions field in Employee Maintenance, then the result in Payroll will be that the employee will have zero wages, and zero wages withheld. Therefore, this employee will not show up on reports such as the 941 and the State Withholding Report.
If you have processed some pay runs for the current
payroll year and feel that you may have marked employees as exempt inappropriately, contact RTI for
a special utility program that will fix any problems caused while the
employee’s records were set up incorrectly.
After using this utility program, you will need to follow the guidelines
described here regarding how to handle employees who are exempt from withholding only, or who are truly tax exempt.