NOTICE

Federal Income Tax Withholding

Effective immediately, payroll checks are reflecting the increase in the personal exemption value for each federal tax allowance from $126.92 to $130.77. Based upon provisions in the Jobs and Growth Tax Relief Reconciliation Act of 2003, the six tax percentages remain at 10, 15, 25, 28, 33, and 35 percent, respectively. All information in this article is based upon both a biweekly pay period (PP) and the withholding tables contained in IRS Publication 15.

Federal Income Tax Withholding Table

* Wages are determined after subtracting withholding allowances, FSA, FEHB, CPP, and TSP contributions from your gross earnings.

Federal Employees Health Benefits (FEHB), Commuter Program Pretax (CPP), Flexible Spending Accounts (FSA), and Thrift Savings Plan (TSP) contributions made by employees are treated as pretax monies (unless the employee has signed a pretax waiver for FEHB benefits). When calculating your taxes, remember to subtract your allowances and all of these contribution amounts from your gross earnings.

To determine the amount of withholding, follow the steps listed below:

1. Determine normal biweekly gross wages from earnings statement.

2. Determine normal biweekly TSP contributions from earnings statement.

3. Determine normal biweekly FSA contributions from earnings statement. If applicable, add the amounts from both the FSA Dependent Child (FSADC) Sub- Account and the FSA Health Care (FSAHC) Sub- Account.

4. Determine normal biweekly FEHB pretax employee contribution from earnings statement (abbreviated as HP).

5. Determine normal CPP employee contribution from earnings statement.

Note: This program is administered on a monthly basis. The CPP contribution is deducted in every second PP.

6. Multiply the number of exemptions claimed by the new biweekly exemption value of $130.77 (withholding allowance). The federal tax line on the earnings statement shows the number of exemptions claimed (e.g., S1 = Single with One Exemption, M3 = Married with Three Exemptions).

7. Subtract the amounts in Step 2 (TSP), Step 3 (FSA), Step 4 (FEHB), Step 5 (CPP), and Step 6 (Exemptions) from Step 1 (biweekly gross wages). The remainder is the amount that is subject to withholding.

8. Determine which range this amount falls into on the Federal Income Tax Withholding Table, and follow the instructions listed in the table.

The following is an example of how to compute federal income taxes for a Federal Employee Retirement System (FERS) employee who claims Married with Three Exemptions and makes pretax contributions to the TSP, FSA, FEHB, and CPP.

Example:

A FERS employee receives $3,596.85 as gross biweekly wages. The employee makes the following contributions: 11 percent of gross salary per PP to the TSP; $60.00 per PP to the FSADC Sub-Account; $90.00 per PP to the FSAHC Sub-Account; $134.73 per PP for FEHB ($134.73 is the actual cost for a Postal ServiceTM employee paying for High Option Self and Family with the GEHA Benefit Plan); and, $100.00 for this PP to the CPP. The employee claims Married with Three Exemptions (M3 on the Federal Tax line of the earnings statement). Using the information provided above in the Federal Income Tax Withholding Table, federal taxes are computed as follows:

Computation continues as follows:

To complete the computation, refer to the Married/Biweekly segment of the Federal Income Tax Withholding Table. The amount of wages subject to withholding, $2,424.16, falls within the "over $898 but not over $2,719" range. Using the information provided within that range, the final computation is as follows:

— Payroll,
Finance, 2-1-07