Payroll accounting 2016 - PowerPoint Presentation

Payroll accounting 2016 Bernard J. Bieg and Judith A. Toland © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Income Tax Withholding Chapter 4© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning Objectives Explain coverage under the Federal Income Tax (FIT) Withholding Law by determining: (a) the employer-employee relationship, (b) the kinds of payments defined as wages, and (c) the kinds of pretax salary reductions. Explain: (a) the types of withholding allowances that may be claimed by employees for income tax withholding and (b) the purpose and use of Form W-4 © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning Objectives (cont.) Compute the amount of federal income tax to be withheld using: (a) the percentage method; (b) the wage-bracket method; (c) alternative methods such as quarterly averaging, annualizing of wages, and part-year employment; and (d) withholding of federal income taxes on supplementary wage payments. Explain: (a) Form W-2, (b) the completion of Form 941, Employer’s Quarterly Federal Tax Return , (c) major types of information returns, and (d) the impact of state and local income taxes on the payroll accounting process . © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Coverage Under FIT Withholding Laws Employee-employer relationship must exist for FIT withholding laws to apply See Chapter 3 for guidance on determining status Statutory nonemployees (direct sellers and qualified real estate agents) have no federal taxes withheld © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-1

Coverage Under FIT Withholding Laws (cont.) Taxable wages for FIT withholding purposes – gross amount of following items are taxable Wages/Salaries Vacation pay Supplemental payments Bonuses/Commissions Taxable fringe benefits (see next slide) © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-1

Coverage Under FIT Withholding Laws (cont.) TipsCash awards See Figure 4.1for other types of taxable payments © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-1

Figure 4.1 Taxable Payments to Employees© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-1

Figure 4.1(cont.) © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-1

Fringe Benefits Noncash fringe benefits treated as compensationEmployer must withhold FIT unless specifically excluded Examples of noncash fringe include Tickets to athletic events Athletic club membership Personal use of corporate car Frequent flier miles Stock options (when option exercised) © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-1

Fringe Benefits (cont.) Specifically excluded fringe benefits includeQualified employee discountsReduced tuition, meals & lodging if for employer benefit De minimis fringe benefits (like personal use of corporate cell phone) Complete list found on page 4-4 or consult Publication 15 (Circular E), Employer’s Tax Guide http:// www.irs.gov/pub/irs-pdf/p15.pdf © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-1

How to Withhold FIT on Fringe Benefits Value and withhold like supplemental wages (flat 25%) Employer must figure value of fringe benefits no later than 1/31 (except if use special period rule) Value and add to regular pay - treat as one paycheck and withhold accordingly Flexible reporting – option of treating benefits as being paid on one or more dates in the same calendar year, even if benefit received at one time © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-1

How to Withhold FIT on Fringe Benefits (cont.) For example, can add entire $2,000 value of country club membership or add $500 on each of 4 paychecks – then calculate withholding accordinglyNote: Employer can choose not to withhold FIT on employee’s personal use of corporate car © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-1

FIT Withholding on Tips Employee must report tips to employer by 10th of each monthEmployer must withhold FIT and FICA based on this information (called “reported tips”)Employer is not required to withhold on allocated tips - only reported tips Tip allocation can be done one of three methods – hours worked, gross receipts or good faith agreement © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-1

FIT Withholding on Tips (cont.) What if taxes withheld > hourly wages to be paid? For example blackjack dealer in South Lake Tahoe reports tips = $2,000 for one week; her FIT/FICA withholding will exceed her gross paycheck In that situation, she gets no paycheck and pays quarterly estimated tax payments or Can pay balance of tax when she files1040 tax return © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-1

Traveling Expenses Travel reimbursements made to an employee, paid under an “accountable plan,” are not subject to FIT withholdingAn accountable plan is an IRS-approved plan; must meet three rules Business connected Adequate accounting within reasonable time period Employee returns advanced cash in excess of substantiated expenses If there is not a plan in place, travel reimbursements are made under a non-accountable plan and considered wages Therefore employer must withhold FIT © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-1

What is Exempt from FIT Law excludes certain payments includingMinisters’ wages/salariesAdvances Educational assistance If maintains/improves job status $5,250 per year of employer provided assistance for undergraduate or graduate is tax-free (also applies to down-sized employees) Qualified moving expense reimbursements Transportation in a commuter highway vehicle/transit pass up to $130/month value See Figure 4.2, pg. 4-6 for comprehensive list of exempt payments © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-1

Figure 4.2 Exempt Payments© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure 4.2 (continued) © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Pretax Salary Reductions are Exempt from FIT Contribution to cafeteria plansEmployee can choose between cash (pay) or qualified (nontaxable) benefits (list of potential benefits found on page 4-7) Contribution to Flexible-Spending Accounts The employee puts pretax dollars into a trust account to be used for health care, certain insurance premiums and dependent care © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-1

Cafeteria Plans, Potential Benefits © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-1

Pretax Salary Reductions are Exempt from FIT (cont.) These dollars do not have FIT or FICA withheld on themForfeited if not used!!Health Savings Accounts (HSA) If employee has high-deductible health insurance, can contribute annually to an HSA to meet out of pocket medical bills Archer Medical Savings Accounts For small employers that have high-deductible insurance plans © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-1

Tax-Deferred Retirement Contributions Exempt from FIT Contributions to tax-deferred retirement accounts are monies set aside from current paychecks that will be paid out to employee upon retirementTypes of retirement plans 401(k), 403(b), 457(b) or SIMPLE plans Contributions are made pretax for FIT purposes However, employer must still withhold and match FICA Additional “make up amounts” allowed to be contributed if age 50 or older (see page 4-8 for annual contribution amounts) © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-1

Tax Deferred Retirement Accounts © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-1

Tax-Deferred Retirement Contributions Exempt from FIT (cont.) Individual Retirement Accounts (IRA)In 2015, depending upon certain conditions, an employee can contribute lesser of $5,500 or 100% of earned income pretax to a retirement account If made through payroll deductions, generally employer does not need to comply with ERISA as long as certain guidelines are met Roth IRAs are used for nondeductible contributions © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-1

How Much to Withhold for FIT Best for employee if FIT withholding = tax liability (Goal is no refund and no tax due)Employee completes W-4 See W-4 (Employee’s Withholding Allowance Certificate) in Figure 4.3 (page 4-11) The W-4 identifies number of withholding allowances; employee can take: One allowance for self (if not claimed by other person) and one allowance for each dependent © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-2

How Much to Withhold for FIT Special allowances such as itemized deductions, other compensation, tax credits, etc. - use worksheet on back of W-4 to calculateEmployer must retain W-4 as long as its in effect and for four years thereafter © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-2

Completing Form W-4 Choose “Single” or “Married” or “Married, but withhold at higher single rate” box Q: Why would an EE choose the last option listed above? (line 3 of Form W-4) A: couples with both spouses employed or a married employee with more than one employer may elect to have her/his federal withholding computed at the single rate to increase the amount of income tax withheld. NOTE: IRS doesn’t pay interest on over withheld taxes.  If using as a means to save better off calculating the difference between married or married single rate and investing it  yourself. © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-2

Completing Form W-4 (cont.) Line 3© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-2

Completing Form W-4 (cont.) Exempt status Can claim if taxpayer had no income tax liability last year and none expected this year (line 7 of Form W-4) © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-2

Completing Form W-4 (cont.) Line 7© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-2

Completing Form W-4 (cont.) Valid for one year and must be reclaimed each yearCan’t claim exempt if:Dependent on someone else’s tax return and Income exceeds $1,050 (including more than $350 unearned income) Or if unearned income < $350, but total income >$6,300 Some individuals are automatically exempt Note : Never advise employee as to how many allowances to claim © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-2

Other Situations on W-4 If employee doesn’t provide a completed W-4, employer must withhold as if single and zero allowances (highest rate)Employee can change W-4 When employer receives amended W-4, has 30 days to change Employee must change within 10 days for decrease in # of allowances If there’s an increase in # of allowances, can change or leave in effect © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-2

Other Situations on W-4 (cont.) Additional/voluntary withholding agreementsCan effect additional FIT withholding by either reducing number of withholding allowances or request specific additional amount be withheld on line 6 Employer can establish electronic W-4 system, but must provide paper option if employee requests Unauthorized changes/additions invalidate W-4 Employers should submit W-4s to IRS only when requested; penalties imposed for willfully filing false Form W-4s © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-2

FIT Withholding on Other Income Sources Pensions (W-4P) in excess of $20,640 per yearWithhold as if married with 3 allowances unless complete W-4P to change amount of tax withholding Third party payer of sick pay (W-4S) Government payments, such as social security benefits, by completing a W-4V This request is voluntary © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-2

Employer Calculates FIT Withholding Textbook used 2015 tax tables for FIT ratesUse either wage-bracket method (easiest) or Percentage method (only use if one of the following situations apply) Highly compensated individual Compensated annually or semiannually Need to know Single/married, how often paid, gross pay and # of allowances Note: also other methods, rarely used, for withholding LO-3 © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Example #1 Calculating FIT Withholding FACTS: Noni’s annual salary is $40,144 – she is paid biweekly and her W-4 shows “Married with 4.” What is her FIT withholding? Biweekly gross $40,144/26 = $1,544.00 Can use wage bracket tables to look up married, biweekly and 4 allowances FIT withholding = $60 LO-3 © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Example #2 Calculating FIT Withholding FACTS: John earns an annual salary of $84,400 and is paid biweekly. His W-4 shows “Married with 1.” What is his FIT withholding? Biweekly gross is $84,400/26 = $3,246.15 Must use percentage method Steps to percentage method: Subtract allowance amount * (biweekly allowance for1) from gross $3,246.15 - $153.80* = $3,092.35 FIT equals $70.90 + (.15)($3,092.35 - $1,040.00 = $378.75 *From Table of Allowances found in Appendix LO-3 © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Example #3 Calculating FIT Withholding FACTS: Maggie earns an annual salary of $336,000 and is paid monthly. Her W-4 shows “Married with 2 .” What is FIT withholding? Monthly gross is $336,000/12 = $28,000 Must use percentage method Steps: Subtract allowance amount (monthly allowance for 2) from gross $28,000 – (2 x $333.30) = $27,333.40 FIT equals $4,298.17 + (.33)($27,333.40 - $19,921 = $6,744.26 LO-3 © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Example #4 Calculating FIT Withholding FACTS: Belinda earns a monthly salary of $3,000 and is paid biweekly. Her W-4 says “Single with 2.” What is her FIT withholding? Annualize salary $3,000 x 12 = $36,000 Biweekly gross $36,000/26 = $1,384.62 Can use wage bracket tables to look up single, biweekly and 2 allowances FIT withholding = $131 LO-3 © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Example #5 Calculating FIT Withholding FACTS: Ferhart’s annual salary is $485,000 – he is paid semimonthly. His W-4 says “Married with 4.” What is his FIT withholding? Semimonthly gross is $485,000/24 = $20,208.33 Must use percentage method Steps: Subtract allowance amounts (semimonthly allowance for 4) from gross $20,208.33 – (4 x $166.70) = $19,541.53 FIT equals $4,638.53 + (.35)($19,541.53 - $17,504) = $5,351.67 LO-3 © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Supplemental Wages Withholding Examples includeVacation pay (treated differently than other supplemental wages)Severance pay, bonuses and commissions How to withhold With regular pay (treat as one paycheck and withhold accordingly) Except if amount indicated separately (then use flat rates – see below) © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-3

Supplemental Wages Withholding (cont.) orPaid separatelyMethod A – Add supplemental and regular wages from recent payroll; calculate FIT as if it were single regular payroll payment Method B - 25% flat supplemental withholding (39.6% for amounts in excess of $1,000,000) © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-3

Gross-Up Supplemental Wages If want to give an employee the intended amount of supplemental check, must “gross up” this amountFor example, an employer wants Dov , an employee, to receive a $700 net bonus check © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-3

Gross-Up Supplemental Wages (cont.) To do: Must divide desired net check by [1.00 – tax rates]FIT tax rate = 0.25OASDI tax rate = 0.062 HI tax rate = 0.0145 $700/[1.00 – (0.25 + 0.062 + 0.0145)] = $1,039.35 grossed up bonus Then subtract taxes to get $700 desired net bonus Note : in many states there is a required withholding rate for state income tax! © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-3

Wages and Tax Statement (W-2) Employers required to furnish Form W-2 to employees (and also must send copies to federal and state/local governmentsReports wages and withholding taxesInstructions for completing in Figure 4.8 (pages 4-23 and 4-24) Hard copy to employee on or before 1/31 or Can post on secure web site so employee can access individual W-2 © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-4

Wages and Tax Statement (W-2) (cont.) If issuing 250+ W-2s, must use magnetic media and have until 3/31 Can request extension of time via FIRE at http://fire.irs.gov W-3 is transmittal form and 941s must tie to W-3 Various penalties for filing incorrect or late W-2s Must file W-2c and W-3c (if correcting) © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-4

Returns – Quarterly & Informational Quarterly reports of taxable wages required (see Figure 4.11 and 4.12, pages 4-27 and 4-28 for major required returns) Payroll income tax withholdings reported on Form 941 Employers must file information returns to report tax liability for nonpayroll items such as backup withholding * and withholding on gambling winnings, pensions, and annuities Form 945 * Individual receives interest, dividends and certain other payments and fails to provide correct taxpayer identification number. © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-4

Figure 4.11 Major Returns Filed by Employers© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-4

Figure 4.12 Major Information Returns© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-4

Returns – Quarterly & Informational (cont.) 1099-MISC with 1096 as transmittal - See Figure 4.13, page 4-29Must issue to IC if paid at least $600 and aren’t incorporated IC must submit taxpayer identification number (TIN) on W-9 to hiring agent If this is not done, then hiring agent must withhold federal income tax = 28% of payments made Nonpayroll items (like withholding on independent contractors, pensions, IRAs, etc. ) reported on Form 945 © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-4

Figure 4.13 Form 1099-MISC© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-4

Withholding State & Local Income TaxesIn states with state income tax (SIT), and localities with local income tax, generally the payroll department must File periodic withholding returns to report wages and withholding Prepare reconciliation returns to compare deposits to withholdings File annual statements to report annual wages paid and applicable taxes withheld © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-4

Withholding State & Local Income Taxes (cont.)Issue information returns to report payments to individuals not subject to withholdingThree different methods of withholding SIT – full taxation, leftover taxation and reciprocity Most states require employers to withhold tax from both nonresidents and residents, unless a reciprocal agreement is in place © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO-4