Example of State Tax Wage Basis Rules

This example illustrates how wage basis rules can affect a state income tax (SIT) calculation, specifically imputed earnings.

The wage basis rules for treatment of imputed earnings for SIT, such as personal use of company car, can vary by state.

For New York SIT, the payroll process calculates imputed earnings for the Personal Use of Company Car secondary classification as subject to tax but not withholdable. The process includes earnings amounts in the SIT subject not withholdable balances. These earnings are subject to SIT, but the process doesn't withheld any tax.

For other states, such as California, the payroll process considers imputed earnings amounts for this secondary classification as subject to tax. It includes earnings amounts in the SIT subject withholdable balances.

Scenario

For this example, you have a salesperson who receives a salary of $2,000 each month, working in your company's East Coast district in the state of New York. This person also has access to a company car. To be taxed properly, they must report their personal use of the car. Last month, they reported personal use that equated to $100.

The following shows the tax calculations that apply for this person in New York.

Region	Earnings in salary	Eligible imputed earnings	Subject withholdable wages	Subject not withholdable wages
New York	2000	100	2000	100

These would be the wage basis rules for the Not Withholdable State tax calculation for New York.

Region (reference value)	Primary classification	Secondary classification	Use in wage basis?
New York	Imputed Earnings	Personal Use of Company Car	Y