New Jersey Payroll Tax Deductions
New Jersey employees are required to pay federal and state payroll taxes. The employer deducts federal payroll taxes from employees' paychecks and pays them to the Internal Revenue Services. It deducts state payroll tax and pays it to the State of New Jersey Department of the Treasury, Division of Taxation.
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Types
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Federal payroll taxes include those that the federal government regulates; specifically, federal income tax, Medicare tax and Social Security tax. The employer withholds these taxes from employees' wages according to the calculations the IRS requires. New Jersey employers are required to withhold state income tax from wages paid to employees who work in the state according to the state taxation agency's instructions; this applies to residents and nonresidents who work in New Jersey. If the employee is a resident of Pennsylvania but works in New Jersey, no New Jersey income tax should be withheld. In this case, the employee pays the income tax to her home state.
Withholding Forms
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New Jersey employers are required to give new employees a W-4 form to complete. The employee states her federal income tax withholding conditions on the form, which helps the employer to determine the amount of federal income tax to withhold. The employer also gives new employees a state employee withholding allowance certificate (NJ-W4), which helps it to determine state income tax withholding. If the employee is a resident of Pennsylvania, the employer should give her Form NJ-165, Employee's Certificate of Non-residence in New Jersey, to complete.
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Calculations
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The employer uses the filing status and allowances on the employee's W-4 and the IRS withholding tax tables (Circular E) to compute federal income tax. It figures Medicare tax at 1.45 percent of gross compensation; and Social Security tax at 4.2 percent (for tax year 2011), up to the annual wage limit of $106,800 (as of January 2011). The employer uses the employee's NJ-W4 form and the state withholding tax tables to determine state income tax --- this process is similar to federal income tax withholding. The employer subtracts the employee's total allowances sum from her income to arrive at her taxable income. Then it uses the percentage method table relevant to her taxable income, filing status and pay period to figure the deduction amount.
Considerations
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The employer pays all federal payroll tax deductions to the IRS and all state income tax deductions to the state Division of Taxation. If the employee does not complete a NJ-W4 form, the employer should consult lines 3 and 5 of the employee's W-4 form for his filing status and allowances and use the corresponding percentage method table to figure New Jersey income tax. If the employee fails to complete a W-4 form, the IRS requires the employer to withhold federal income tax at single with zero allowances.
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References
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