Payroll Services Letter 05-24.1: Tax Exempt Status (Federal and State)
Date: April 17, 2005 (Revised May, 2009)
Subject: Tax Exempt Status (Federal and State)
Category: Non-SF-50 Actions
Reference: PS 05-24, Subject: Tax Exempt Status (Federal and State), dated April 17 2005. PS 05-24.1 supersedes PS 05-24. Please replace that letter with this one.
The conversion of the HHS payroll system to the Defense Finance and Accounting Services (DFAS) requires changes for processing Federal and/or State tax exemption actions for employees. This letter provides new instructions for submitting information on employees claiming exemption from Federal and/or State tax withholding to the Payroll Services Division.
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Effective April 17, 2005 Human Resource (HR) Centers will no longer be able to submit non-SF-50 personnel actions to update the payroll records for employees who claim exemption status from the withholding of Federal and/or State taxes.
The Internal Revenue Service and various states have determined that there are certain circumstances that permit employees to claim exemption from the withholding of Federal and/or State taxes. For the Federal rules, regarding Federal tax exemption, see the following website: http://www.irs.gov/taxtopics/tc753.html. The state rules vary so HR Centers should check with the states they service for the eligibility rules governing exemption from State tax withholding.
The HR Centers must follow the procedures listed below:
Receive the signed Federal W4 and/or State tax form(s) from the employee that requested exemption from withholdings.
Determine the employee’s eligibility is based on the guidelines for exemption from Federal and/or State tax withholding.
If the HR Center determines that the employee is eligible for exempt status, forward the information to your Payroll Customer Service Team electronically using the Peregrine system. HR Centers must retain the original certification/ form submitted by the employee.
Use Peregrine Category: DEDUCTION Subcategory: TAXES.
The Peregrine ticket must include the name and social security number of the employee.
The first line of the description field must indicate Tax Exempt Status and the name of the HR staff that determined eligibility and date certified.
Employees must be informed that Federal exempt status is good for only the year in which it is filed.
Employees must file a new Federal exemption certificate by February 15 of the next taxable year to be eligible to retain exempt status.
Failure to file the form will result in the payroll office withholding Federal tax at the single with zero exemptions rate from any wages paid by the employer.
Each year the HR Center must repeat number 3 above.
Exemption from the withholding of State tax varies by the rules of the states. HR Centers must follow the individual state rules for determining eligibility for employees asking to continue exempt status.
For further assistance or for questions regarding the information in this letter, please contact your Payroll Customer Service Team.