Neb. Admin. Code § 316-21-004 — Determining the Amount of Income Tax Withholding

004.01 The Nebraska income tax withheld by an employer from wages must be determined using one of the following income tax withholding methods: 004.01A Method I - The Percentage Method. The amount of income tax to be withheld is determined by subtracting the value of the withholding allowances claimed on the Federal Employee's Withholding Allowance Certificate, Form W-4, from gross wages and taking the result to the withholding rate schedule or multiplied by a comparable flat percentage. 004.01A(1) The Tax Commissioner must publish withholding rate schedules for different pay periods. 004.01A(2) The income levels and rates must be established so that the withholding will approximate the actual income tax liability using the standard deduction and personal exemption credit. 004.01A(3) These rate schedules are published in the Nebraska Circular EN and must be used by the employer to properly calculate the correct amount of withholding on the amount of wages or payments subject to income tax by Nebraska, except payments subject to backup withholding as required by I.R.C. § 3406. The Nebraska Circular EN may be found on the Department's website. 004.01B Method II - The Wage Bracket Method. The amount of income tax to be withheld is determined by taking the gross amount of wages and the number of withholding allowances claimed on the Federal Form W-4 on the appropriate table in the Nebraska Circular EN, and using the amount shown where the row and column intersect. The Nebraska Circular EN, which contains the income tax withholding tables based upon the amount of wages paid, the length of the pay period, the number of federal withholding allowances claimed, and reflecting the above Nebraska withholding schedules, may be found on the Department's website. 004.01C If the calculation by an employer under either Method I or Method II results in income tax withholding from an employee that is less than 1½% of gross wages minus tax-qualified deductions, the employer must obtain from the employee satisfactory evidence that a lesser amount of withholding is justified. Satisfactory evidence includes marriage or birth certificates; Social Security information for dependents; or other evidence that reasonably assures the employer that the employee is not improperly or fraudulently evading or defeating the income tax by reducing or eliminating withholding. 004.02 If supplemental wages such as bonuses, commissions, overtime pay, and sales awards are paid at the same time as regular wages, the income tax to be deducted and withheld is determined as if the total of the supplemental and regular wages were a single wage payment for the regular payroll period. If these supplemental wages are paid at a different time, the employer may determine the amount of income tax withholding by adding the supplemental wages to either the regular wages for the current payroll period, or the regular wages for the last preceding payroll period within the same calendar year; or the employer may elect to withhold on the supplemental wages by using a flat withholding rate as determined and published in the Circular EN by the Tax Commissioner. 004.03 The Nebraska income tax must be withheld based on the same payroll period that is properly used for federal income tax withholding purposes. 004.04 In addition to the income tax required to be withheld under this regulation, an employer and employee may agree in writing that an additional amount will be withheld from the employee's wages. 004.04A The agreement is effective for any period that the parties agree to be bound. 004.04B If the agreement fails to provide a termination date, either party may terminate the agreement, by furnishing written notice to the other party. This notice is effective for the first payment subject to income tax withholding made on or after the beginning of the next calendar quarter occurring at least 30 days after the date the notice is furnished. 004.04C The amount deducted and withheld pursuant to an agreement will be considered income tax required to be deducted and withheld under the Nebraska Revenue Act. All provisions of law and regulations applicable to income tax withholding are also applicable to any amount of income tax deducted and withheld pursuant to the agreement. At no time may the parties agree to withhold an amount less than would be withheld using the established Nebraska withholding rate schedules or tables. 004.05 The amount of income tax withheld from gambling winnings is a flat withholding rate applied to the winnings. The flat withholding rate will be determined and published in the Circular EN by the Tax Commissioner. 004.06 The income tax withheld from pensions and annuities is based on the federal income tax withholding method. The amount of income tax withheld from periodic payments is calculated in the same manner as withholding from wages. The amount of income tax withheld from nonperiodic payments is a flat withholding rate as determined and published in the Circular EN by the Tax Commissioner. The recipient may also select an additional fixed amount to be withheld per periodic or nonperiodic payment. See Reg-21-004.04. 004.07 The amount of income tax withheld from payments for personal services performed or to be performed substantially in Nebraska by a nonresident individual other than an employee is determined under this section. 004.07A If the individual provides a statement of ordinary and necessary business expenses reasonably related to providing the service, the amount of expenses may be deducted for purposes of determining the amount of income tax withholding. The amount claimed for expenses may not exceed 50% of the total amount paid for personal services performed or substantially performed in Nebraska (Nebraska Withholding Certificate for Nonresident Individuals, Form W-4NA). 004.07B For amounts less than $28,000, paid throughout any calendar year for the same personal services, the rate of income tax withholding is four percent of the total amount after deduction of allowable expenses, if any. 004.07C For amounts of $28,000 or more, paid throughout any calendar year for the same personal services, the rate of income tax withholding is six percent of the total amount after deduction of allowable expenses, if any. 004.07D If the amount to be paid throughout the calendar year for the same personal services was expected to be less than $28,000 at the beginning of the calendar year, and the amount withheld was four percent, but the amount paid for the same personal services becomes $28,000 or more during the calendar year, the amount of income tax withholding for amounts greater than $28,000 must be increased until the total amount withheld equals six percent for all payments. 004.08 Corporate Directors. Except as provided in Reg-21-004.08B, if a corporation or other entity pays members of its board of directors fees for serving on its board, any amounts paid to nonresident directors is subject to income tax withholding. 004.08A If all meetings are held in Nebraska, the total amount taxable under the I.R.C. is subject to income tax withholding as calculated under this section. If the corporation or other entity holds its meetings both within and outside Nebraska, the total amount taxable under the I.R.C. to the nonresident board member must be multiplied by a fraction, the numerator of which is the number of meetings physically attended by the director in Nebraska or via electronic means while the director is physically located in Nebraska, and the denominator of which is all board meetings attended by the director either physically or electronically. The result is subject to income tax withholding as calculated under Reg-21-004.07. 004.08B The corporation or other entity may, in lieu of withholding under Reg-21-004.07, remit income tax withholding to the Department on behalf of the nonresident directors on the total paid, including the amounts remitted on behalf of the nonresident directors, multiplied by the highest individual income tax rate. 004.08B(1) If all meetings are held in Nebraska, the amount remitted to the Department is equal to the total amount taxable under the I.R.C., including the amount remitted to the Department on behalf of the nonresident director, multiplied by the highest individual income tax rate. 004.08B(2) If the corporation or other entity holds its meetings both within and outside Nebraska, the total amount taxable under the I.R.C. must first be multiplied by a fraction, the numerator of which is the number of meetings physically attended by the director in Nebraska or via electronic means while the director is physically located in Nebraska, and the denominator of which is all board meetings attended by the director either physically or electronically. The amount remitted to the Department is this result including the amount remitted to the Department on behalf of the nonresident director, multiplied by the highest individual income tax rate. 004.08B(3) If the corporation or other entity elects this option, the nonresident board member may choose not to file a return, and the amount remitted as income tax withholding will be retained in satisfaction of the liability. The nonresident board member may also choose to file a return and claim the withholding as a credit against any Nebraska income tax liability. 004.09 The amount of income tax to be withheld from payments made by a contractor for construction services performed in Nebraska to any contractor or any person that is not an employee is five percent of the total payments. A payment is exempt from withholding under this subsection if: 004.09A The payments made during the year to the person or contractor total less than $600; 004.09B The contractor making the payment determines that the contractor receiving the payment is registered in the Contractor Database; or 004.09C The contractor or person receiving the payment is not subject to tax on the payment because of a treaty obligation of the U.S. 004.10 Alternative Methods of Withholding . An employer using a federally-approved alternative method of calculating withholding may use the same method for computing the income tax withheld. These methods include annualized wages, average wages, cumulative wages, and other methods allowed under I.R.C. § 3402(h). (Neb. Rev. Stat. § 77-2753. October 26, 2014.)