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 |