How to Calculate Withholding Tax in New Jersey
The state of New Jersey is one of the many states that require employers to withhold state income tax from employees' paychecks. In addition, federal law requires employers to withhold federal income tax, Social Security tax and Medicare tax. The New Jersey Division of Taxation oversees the policies for calculating state income tax. The Internal Revenue Service regulates federal withholding. As a New Jersey employer, keep all the rules in mind when calculating withholding tax.
Other People Are Reading
Things You'll Need
- State withholding tax tables
- NJ-W-4 form
- W-4 form
- IRS Circular E
- Social Security tax rate
- Medicare tax rate
Instructions
-
-
1
Give Pennsylvania residents who work in New Jersey a Form NJ-165 (Employee's Certificate of Nonresidence in New Jersey) to complete; do not withhold New Jersey income tax for these employees. Give New Jersey resident employees and all other nonresident employees Form NJ-W-4 (Employee's Withholding Allowance Certificate) to complete; withhold New Jersey income tax for these employees.
-
2
Give all employees a W-4 form to complete for federal income tax withholding purposes.
-
-
3
Retrieve the employee's filing status and allowances from lines 2 and 4 of her NJ-W-4 form, and use the state withholding tax tables to calculate state income tax. To arrive at the employee's taxable wages, subtract her total allowances sum (see page 4 of Publication NJ-WT) from her gross income. Then apply the percentage method table (see pages 5 through 8) relevant to her taxable wages and pay period to figure the withholding amount.
-
4
Calculate Social Security tax at 4.2 percent (for tax year 2011) of the employee's gross earnings, up to $106,800 for the year.
-
5
Compute Medicare tax at 1.45 percent (for tax year 2011) of all gross earnings.
-
6
Obtain the employee's filing status and his allowances from lines 5 and 7 of his W-4 form, and use the IRS withholding tax tables (Circular E) to figure federal income tax. This procedure is similar to state income tax withholding.
-
1
Tips & Warnings
Do not withhold New Jersey income tax or federal income tax if the employee claims exempt on her NJ-W-4 or W-4 form.
If the employee does not complete a NJ-W-4 form, use the filing status and allowances shown on her W-4 for state income tax purposes.
Pay state income tax withholding to the New Jersey Division of Taxation and all federal withholding to the IRS.
References
- Photo Credit Creatas/Creatas/Getty Images
