pre=tax deduction allocation
srtoady
1 Post
anyone have a clue how do you allocate pre-tax deductions when an employee is paid in two states and has pretax deductions.
example: Employee has pre-tax medical deduction of $100 taken out. The employee is paid $200 in the state of Mass and $200 in the state of Maine. how would you figure the taxable income for each state. My guess is to pro-rate it so 50% of the deduction is taken ou tof each states taxable wages, but I can not find any proof that is this is valid. Other suggestions is the pre-tax is only taken out of the home state.
Any help will be appreciated,
Thanks,
SrToady
Comments
SrToady-
I worked for a firm with a similar issue--we operated in 12 states, Mass being one of them. Our comp structure essentially placed the deductions for the state in which, as defined by their job responsibilities, they performed the majority of their work. Now, whether or not this is correct, I am almost unsure, but we had zero issue with this structure both with the state reporting as well as federal reporting. I know this may not answer your question but hopefully give you some insight as to what some folks have done in the past.
While I agree with SubGrapHR that many companies do it that way, I would strongly suggest checking with each state that you are concerned about. It is possible that they either both allow you to not have it in there or they both require you to have it in there. There is not going to be one solid standard answer as it is going to depend on the combination of states involved. It might even get to a point where one wants the whole deduction in and the other is willing to do a partial deduction....such that it is truly being counted more than 100%!
There is a forum called PayrollTalk. They always suggest that those having employees in more than one state should subscribe to one of the large payroll subscription services like BNA or APA. Their documents have charts made for these types of situations. You could ask this question out there.