UTMDACC INSTITUTIONAL POLICY # ADM0137
FEDERAL AND STATE PAYROLL
TAXATION POLICY
PURPOSE
The purpose of this policy is to ensure that The University of Texas MD Anderson Cancer Center
(MD Anderson) is in compliance with federal, state and institutional policies, laws, and regulations by
applying current federal payroll taxation rates including federal income tax withholding, social security,
and Medicare taxes.
POLICY STATEMENT
It is the policy of MD Anderson to deduct correct federal payroll taxes from employee paychecks to be in
compliance with Internal Revenue Service.
Note: Payroll Services cannot give tax advice to any employee. If employees need tax assistance, they
should contact the IRS or seek their own tax or legal counsel.
SCOPE
This policy covers all federal and state payroll taxation as applicable to MD Anderson employees.
Compliance with this policy is the responsibility of all faculty, trainees/students, and other members of
MD Anderson’s workforce.
TARGET AUDIENCE
The target audience for this policy includes, but is not limited to, all MD Anderson employees.
DEFINITIONS
None.
PROCEDURE
1.0
Federal Tax Withholding
1.1
Federal income tax withholding is based on employee’s wages and the elections indicated on
Form W-4 “Employee Withholding Allowance Certificate.”
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2.0
1.2
All new employees should fill out a Form W-4 when hired. If a new employee does not submit
a completed form W-4, MD Anderson is required by law to withhold taxes as if the employee
were single with no withholding allowances.
1.3
An employee who wants to change the number of allowances claimed or show a change in
marital status should file a new Form W-4 by accessing myHR on the MD Anderson intranet
site.
Social Security Taxes
There are two components of Social Security Taxes:
2.1
FICA:
The Federal Insurance Contributions Act provides a federal system of old age, survivors,
disability, and hospital pensions and payments. The system is financed through a tax known
as the Social Security Tax or FICA. As an employer, MD Anderson is responsible for
deducting the tax from employees’ wages. MD Anderson matches the amount deducted and
then submits the total for contribution to employees’ credit. For more information on the limits,
view the Social Security Administrations website.
Note: FICA wage base is on a calendar year basis beginning with the January 1st or 5th
paycheck and ends with the December 1st or 20th paycheck.
2.2
Medicare:
The Medicare (medical health insurance for aged and disabled) tax rate is 1.45%. There is no
wage base limit for Medicare tax. Similar to FICA tax, MD Anderson matches the amount
deducted and then submits the total for contribution to employees’ credit.
2.3
Additional Medicare Tax:
A new Additional Medicare Tax goes into effect starting in 2013. The 0.9 percent Additional
Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation,
and self-employment income that exceeds a threshold amount based on the individual’s filing
status. The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000
for married taxpayers who file separately, and $200,000 for all other taxpayers. An employer is
responsible for withholding the Additional Medicare Tax from wages or compensation it pays
to an employee in excess of $200,000 in a calendar year. For additional information on the
Additional Medicare Tax, see our question and answers.
3.0
Supplemental Tax
When MD Anderson pays employee compensation in addition to the employee’s regular wages, the
Supplemental Tax rate is applied. Examples are Team Anderson and the Supplemental Annuity
Program (SAP) payments. Current supplemental tax rate can be found in Publication 15 at
www.IRS.gov.
4.0
Payroll Taxation for Foreign Citizens
4.1
The Internal Revenue Service (IRS) separates Foreign Nationals into two taxation categories:
A.
Resident Aliens, and
B.
Nonresident Aliens.
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4.2
5.0
Tax regulations differ for each of these categories.
Resident Aliens
5.1
The IRS defines Resident Aliens as individuals who possess a "Green" card (Alien
Registration Receipt Card, permanent resident card, or Form I-151 or I-551), or who have
been present in the U.S. a minimum number of days based on the Substantial Presence Test.
Resident aliens are taxed on their worldwide income.
Note: The term "Resident Alien," as defined here, denotes a type of tax status and is not
necessarily consistent with the Immigration and Naturalization Service definition.
6.0
5.2
Resident Alien status will grant individuals tax treatment identical to that of U.S. citizens.
Compensation is subject to federal taxes and FICA at U.S. citizen tax rates. Compensation
and taxes will be reported on Form W-2.
5.3
To claim Resident Alien status, because of documentation from the Immigration and
Naturalization Service attesting to this status (i.e., green card, I-151, I-551), forward a copy of
this documentation to Human Resources.
Resident Aliens Payroll Taxation
Resident aliens are taxed like U.S. citizens. Thus, resident aliens may complete their W-4 form by
following the instructions provided. They are entitled to the same number of personal exemptions as
U.S. citizens, and the standard deduction. Resident aliens are taxed at graduated withholding rates,
and they must pay FICA.
7.0
8.0
Nonresident Aliens
7.1
The IRS defines Nonresident Aliens as individuals who are temporarily in the U.S. who have a
closer connection to another country than to the U.S. Nonresident aliens are taxed on their
U.S. source income only. Nonresident aliens may be entitled to receive tax treaty benefits, if
they are from one of the countries mentioned below.
7.2
Residents of countries with whom the United States has treaties may apply for treaty benefits.
Treaty benefits may reduce their liability or totally exempt them from paying taxes, depending
on the treaty and provision.
7.3
Residents of Tax Treaty Countries listed in IRS Publication 901 may be entitled to claim treaty
benefits. Publication 901 can be found at the www.IRS.gov under Form and Publications.
This publication is updated annually.
Nonresident Aliens Payroll
8.1
Nonresident aliens will be taxed only on their U.S. source income at graduated withholding
rates. All nonresident aliens must pay FICA, except for F-1 and J-1 visa holders during their
exemption period.
8.2
Unlike U.S. citizens and residents, nonresident aliens are not entitled to receive the standard
deduction when they file their tax returns. To compensate for this, the W-4 instructions have
been modified for nonresident aliens. Therefore, nonresident aliens must disregard all
instructions provided on the W-4. Following those instructions will result in under withholding
and a tax liability at the end of the year.
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8.3
Nonresident aliens may be entitled to receive tax treaty benefits.
8.4
Nonresident aliens can obtain a copy of Publication 901, U.S. Tax Treaties, or Publication
515, Withholding Tax on Nonresident Aliens and Foreign Corporations, from the IRS by calling
1-800-TAX-FORM, or from the IRS web address: http://www.irs.gov/Businesses/Taxationof-Nonresident-Aliens-1
8.5
Payroll Services must, nevertheless, obtain completed a W-4 form from nonresident aliens
during the Employee Orientation or in the departments at the time of hire.
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ATTACHMENTS / LINKS
IRS.gov.
RELATED POLICIES
None.
JOINT COMMISSION STANDARDS / NATIONAL PATIENT SAFETY GOALS
None.
OTHER RELATED ACCREDITATION / REGULATORY STANDARDS
Publication 15.
Publication 515.
Publication 901.
SSA.gov.
Taxation of Non-Resident Aliens. http://www.irs.gov/Businesses/Taxation-of-Nonresident-Aliens-1
REFERENCES
None.
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UTMDACC INSTITUTIONAL POLICY # ADM0137
___________________________________________________________________________________
POLICY APPROVAL
Approved With Revisions Date: 07/01/2013
Approved Without Revisions Date:
Implementation Date: 07/01/2013
Version: 10.0
___________________________________________________________________________________
RESPONSIBLE DEPARTMENT(S)
Payroll Services
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