Everyone knows about withholding—it’s the money taken out of our paycheck. It is an attempt bythe government, on a pay-as-you-go basis, to collect from you over the course of the year, the amount of tax you would owe for that year.
The various taxing authorities provide specific rules to employers as to how to withhold on regularpaychecks. There are special rules or withholding on bonuses, and other forms of pay (stock option exercises, taxable fringe benefits, etc.) that are over and above regular pay. Commonly, withholding on bonuses are at a fixed statutory rate, normally near the maximum tax bracket of the jurisdiction.
But during the Cuomo years, NY State decided that they could ease their annual budget problems by requiring withholding on bonuses and special payments at a rate approximately 1/2% higher thanthat maximum tax bracket. For those with large bonusesthis could commonly lead to large refunds at tax filing time, but in general amounts tended to be small and no major aberration results.
For those employers paying very large bonuses and/or special payments, it is not uncommon foremployers to reduce the withholding so that withholding actually approximates the employees realtax obligation. After all, the objective of withholding is to have your liability paid on an ongoingbasis.
But apparently NY State has lost sight of this. It is spending our tax dollars to send examiners into the field in order to go after those who are trying to withhold the correct amount of tax.
In a case with which I am familiar, the State Department of Taxation is attempting to fine an employee for not withholding taxes at levels that would have caused the taxpayer to have a $300,000 overpayment. This is not pay-as-you-go, this is extortion pure and simple.
Whose money is it anyway?