Utah is the latest state to make income tax withholding changes as a result of the ongoing fallout relating to federal income tax legislation passed late last year. These changes go into effect on May 1, 2018. While these changes should be implemented by sometime in May in terms of employer withholding, Utah reduced its effective tax rate slightly (from 5% to 4.95%) retroactively effective to the first of the year. Corporate income tax rates were similarly decreased.
Just looking at the percentage change however does not tell the whole story, nor does the summary of changes provided by the Utah State Tax Commission fully outline what has changed. Buried withinin the updated publication 14 document:
- No longer is there an allowance of $125 multipled by withholding allowances (see further comment below)
- Base allowances have been increased from $250/single and $375/married to $360/single and 720/married
- Exempt wages have been changed from $12,000/single and $18,000/married to $7,128/single and 14,256/married.
Utah does not have its own W-4 form and has used the IRS W-4 form. The IRS W-4 form however still asks for the number of allowances. In Advanced Accounting there has always been a separate entry field for state allowances (under the label St) in addition to federal allowances (plus the ability to add an optional additional amount for either as well). But in light of this change, any number entered in the state allowances field will now be moot because the Utah formula no longer takes those allowances into account in computing state income tax withholding; and the new tables published similarly show computed tax amounts solely for "Single" and "Married" with no allowances. This is a significant departure from the past. So while an employee could claim five (5) allowances which still (at least for now) makes a tremendous difference in the federal income tax withholding calculation, as of May 1 it makes no difference at all in the Utah state income tax withholding calculation.
Curiously, the there is no also difference in the single and married withholding amounts once a certain wage amount has been attained (at about $1,338/weekly; $5,800/monthly).
The 1.3% multiplier has remains unchanged.
Overall these are changes with unintuitive consequences. For some employees these changes may mean relatively little. In our quick testing of the old rates versus the new, the difference that all of these changes make seems to be on balance quite small, sometimes slightly more, sometimes less. It all depends on income levels as well as allowances that were previously being claimed. Employees with high allowance numbers may be surprised by how much their Utah state income tax increases. Our testing shows that an employee claiming a single status with formerly five (5) federal/state allowances earning $3,000 (taxable) per month will see a monthly increase of $46.00; and a married taxpayer with the same allowances and earnings will see a monthly increase of $26.00. For a single or married employee with the same earnings but no allowances, the withholding amount is essentially the same for single status employees both before and after the May 1 change, but for an employee that is married, a decrease of $26.00/mo. can be anticipated.
There are no "UT" tax tables in Advanced Accounting's PR-K (Maintain Tax Tables) since, as with several states, the withholding logic is embedded in the program option (PR-B) that performs the calculations, because the logic doesn't follow a traditional tax table approach. So Advanced Accounting users with Utah employees will need to obtain a program update from us to implement this change (this change has been made and an update is available; it is the first change that we've had to make to the Utah income tax withholding logic in over ten years).
Another Utah change relates to the filing of quarterly returns which now must be made on-line which can be completed by establishing a TAP account (see link below) and submitting the information via an on-line form
Utah has for several years also required the electronic filing of W-2 forms for all employers (which is unusual compared to the rest of the country, although the trend is clearly in the direction of lowered thresholds; it is in fact somewhat surprising the minimum requirements hasn't decreased on the federal level but increasingly employers want to e-file for security and other reasons).
Utah Publication 14 updated May 1, 2018
Utah State Tax Commission: Utah withholding taxes
Utah's Taxpayer Access Point (TAP)
IRS 2018 W-4 form
Oregon has a new transit tax that employers will have to start withholding in July
Effective July 1, 2018, Oregon employees (including the wages of nonresidents that perform services in Oregon) will be subject to a 0.1% tax. This is a tax solely paid by employees but that employers are required to withhold and remit on a quarterly basis (and no matter how small that remittance might be). While paid to the Oregon Department of Revenue (ODOR), payment of the tax requires two new quarterly forms (a summary sheet accompanied by a detail form similar to a state unemployment tax wage list) as well as an annual reconciliation form.
Advanced Accounting users should be able to easily accommodate this new requirement but should plan now as to which user-defined deduction to use for this purpose (in part because it is best to use the same user-defined deduction for the same purpose throughout a given calendar year). The steps to set this up include:
(1) Establish a new GL liability (type L) account in SY-E (Create/Chg G/L Accounts) in a range proximate existing liability accounts for payroll withholding accounts for FICA/Medicare, FIT, SIT, SUTA, etc.
(2) Decide whether to use your existing vendor code for the ODOR which should be fine as long as the remitted tax is paid separately from other taxes, or establish a new one to be used solely for remittance of the tax.
(3) In SY-D (Enter/Chg PR/GL Interface), decide which of the six numbered deductions* to use for this withholding tax, enter a short description such as TRANSIT TAX next to that dedcction, and then enter the liability account that you created in step 1 above. Then:
- Under Deduct Amounts enter the rate of: 0.0010
- This is NOT a pre-tax deduction (but see below re: Sec. 125 amounts) so answer the next question accordingly.
- Choose option 6 - % of Gross pay for the post-tax calculation method (Calc how will display 6).
- Enter the vendor code (press F2 or click on F2 Display Vendors) that you decided to use in step 2 above.
Press F10 or click on the F10 Save button to save. Repeat for each of your active payroll divisions.
*While we would normally recommend use of one of the six user-defined deductions, if all of those are in active use, there is another albeit less desirable option. In addition to the six user-defined deductions, Advanced Accounting has at least four other possibilities. Two of those however do not provide any automatic calculation capabilies ("Misc" and "Special") so they would also not be desirable. Workers compensation employee withholding fields could be used but each employee record would have to contain the appropriate rate and that would also obviate the possibility of using those fields for their intended WC purpose. However, an option that could work would be the SDI deduction. SDI is normally only used in states that have a state disability insurance requirement (and there are very few of those, only five that we are aware of - one of which is California - and Oregon is not one of those states). In Advanced Accounting, we have also co-opted SDI to handle, in part, COIT in Indiana but it could be used elsewhere for other types of employee only withholding involving a flat rate applied to gross wages (to handle certain city or municipality taxes, for example).
Confusingly an SDI "expense" column exists in the Advanced Accounting SY-D setup that goes back to very old versions of the software which implies that some expense account would be ultimately debited (which would not be appropriate for the transit tax withholding) when processing payroll checks, but it appears that was something put into place for potential future implementation by the original developer and not actually ever implemented, so only the GL liability code comes into play.
When using SDI for an additional deduction, some unobvious issues must be dealt with. SDI deductions have to be "enabled" at the employee level (PR-A). To use SDI as an additional deduction of some kind, you would have to change the "SDI" flag for each employee in PR-A from the default of "Y" (which normally means exempt from SDI) to "N."
Then you would still set up a new liability code (as in step 1 above), decide on which vendor to code use (as in step 2) and in SY-D connect the new liability code in the liability GL code column, and in order to get access to the vendor code currently the program requires that some valid GL expense code be entered (since it is never used, we will change the way this behaves in future releases).
Next, for each division you would in the PgDn Rates section of SY-D enter the rate next to State Disability, but amounts there are input as percentages, so instead of 0.001 you would need to enter 0.10 (to indicate 0.1%) and under the limit input 999999 so that the Enter Pay Info option (PR-B) will attempt to compute the withholding amount on any/all wages (since in the case of this transit tax, there is no wage limit) and then save each of payroll divisions.
"SDI" amounts withheld can also be included in box 14 of W-2 forms and e-filings if desired (to communicate to each employee how much in transit taxes were withheld for the year).
Section 125 note: Section 125 (cafeteria plan) amounts are exempt from the Oregon transit tax. Using either method above, those amounts will not be subtracted by the software automatically in applying the 0.1% rate. Users can override any tax calculation during PR-B processing and so this amount will need to be reduced by any cafeteria plan deduction via a manual adjustment.
Oregon new statewide transit tax
Oregon Quarterly Statewide Transit Tax Withholding Return
Statewide Transit Tax Employee Detail Report (quarterly form, accompanies the above form)