Did an employer have to include an employee's voluntary extra federal withholding when calculating Rhode Island income-tax withholding?

Plain-English summary

The employer had to calculate Rhode Island withholding from the employee's entire federal income-tax withholding amount, including any additional amount the employee voluntarily requested on the federal Form W-4. The employee could not remove that additional federal amount from the Rhode Island calculation by asking for no corresponding state “convenience withholding.”

The employer already withheld the regular amount intended to approximate tax attributable to the employee's wages. The request called that amount “statutory withholding.” Some employees also elected extra federal withholding for convenience but asked the employer not to make an analogous extra Rhode Island deduction.

R.I. Gen. Laws § 44-30-71 required employers to withhold an amount reasonably estimated to cover Rhode Island tax on wages and authorized the Tax Administrator to prescribe the calculation method by regulation. Regulation PIR 91-15 directed employers to apply the current Rhode Island withholding rate to the amount currently withheld for federal income-tax purposes.

Because the regulation referred to the amount actually being withheld, the Division rejected the proposed separation between regular and voluntary federal withholding. The Rhode Island rate applied to both together.

What this means for you

Payroll teams

Under the rule applied in 1996, use the total federal income-tax withholding amount in the Rhode Island calculation, including employee-elected additions.

Employers

An employee's preference not to add separate Rhode Island convenience withholding did not override the calculation method prescribed by the Tax Administrator's regulation.

Accountants and tax professionals

Treat this as historical guidance tied to the statute and regulation quoted in the order. Confirm the current Rhode Island withholding tables, forms, and rules before applying the same formula today.

Common questions

What was “convenience withholding”? It was the ruling request's term for additional federal income tax an employee voluntarily asked the employer to withhold above the regular amount.

Could the employer ignore that extra amount for Rhode Island purposes? No. The ruling required the current Rhode Island rate to be applied to the entire amount withheld for federal income-tax purposes.

Did an employee's request for no extra Rhode Island withholding control? No. The prescribed calculation still included the employee's additional federal withholding.

What law authorized the calculation method? R.I. Gen. Laws § 44-30-71 authorized the Tax Administrator to prescribe the withholding method by regulation.

Is the 1996 formula necessarily current? The order does not say that it remains current. Employers should verify today's Rhode Island payroll requirements before using it.

Citations and references

• R.I. Gen. Laws § 44-30-71 — employer withholding requirement and regulatory authority.
• Rhode Island Regulation PIR 91-15, “Employers' Withholding” — method quoted by the order; the discussion later prints the abbreviation as PIT 91-15.

Source

• Landing page: Rhode Island Declaratory Rulings
• Declaratory order: Declaratory Order 1996-03

Original ruling text

Ruling Request No. 96-03

Declaratory Rulings

Ruling Request No. 96-03

Re: Request for Declaratory Ruling Regarding Personal Income Tax Withholding on Amounts of Convenience Federal Withholding Requested by Employee

Request for Ruling

On behalf of your client, you request a declaratory ruling concerning the proper method for calculating Rhode Island personal income tax withholding on amounts of additional Federal income taxes withheld as requested by employees for convenience purposes.

Facts

Your client is "an employer maintaining an office...within this state and making payment of wages subject to Rhode Island personal income tax." Your client deducts and withholds from such wages for each payroll period a tax substantially equivalent to the tax reasonably estimated to be due resulting from the inclusion in the employee's Rhode Island income of his/her wages received during the calendar year. For the purposes of this ruling request, such withholding will be described as the "statutory withholding."

As part of each employee's for W-4, employees may, and have, elected to have additional amounts of Federal income taxes withheld [OVER AND ABOVE THE "STATUTORY WITHHOLDING"]. For the purposes of this ruling request, such withholding will be described as the "convenience withholding." Additionally, some employees who have elected "convenience withholding" for Federal purposes have elected NOT to have any "convenience withholding" for Rhode Island personal income taxes."

Ruling Requested

That given that the client's calculation and remittance of "statutory withholding" from its employees' wages is separate and apart from any "convenience withholding" election made by its employees for federal income taxes, such "convenience withholding" election, if made for federal purposes does not require that the client withhold Rhode Island personal income taxes calculated on the amounts of federal convenience withholding elected by the employee

Discussion

R.I.G.L. 44-30-71 reads in pertinent part as follows:

44-30-71. Requirement of withholding tax from wages.-- (a)General. Every employer maintaining an office or transacting business within this state and making payment of any wages subject to Rhode Island personal income tax to a resident or nonresident individual shall deduct and withhold from the wages for each payroll period a tax computed in such manner as to result, so far as practicable, in withholding from the employee's wages during each calendar year an amount substantially equivalent to the tax reasonably estimated to be due resulting from the inclusion in the employee's Rhode Island income of his or her wages received during the calendar year. The method of determining the amount to be withheld shall be prescribed by regulations of the tax administrator, with due regard to the withholding exemptions of the employee. (emphasis added)

(b) * * *

(1) * * *

(2) * * *

Regulation PIR 91-15 "Employers' Withholding" reads in pertinent part as follows:

III. COMPUTATION OF WITHHOLDING

A. Generally: An employer shall withhold using the current Rhode Island withholding rate which is set by the Tax Administrator and apply it to the amount currently being withheld from each employee's wages for Federal income tax purposes. (emphasis added)

R.I.G.L. 44-30-71, supra , authorizes the Tax Administrator to prescribe, by regulation, the method of determining the amount to be withheld. Regulation PIT 91-15 is clear and unequivocal in its requirement: The withholding rate is to be applied to the amount currently being withheld from the employee's wages for Federal income tax purposes. Therefore, in cases where the amount currently being withheld includes additional amounts over and beyond "statutory withholding" (as that term is described herein) the withholding rate applies to the entire amount being withheld for Federal purposes.

Ruling

In determining the amount of tax to be withheld from its employees' wages, the client shall apply the current Rhode Island withholding tax rate to the entire amount currently being withheld from each employees' wages for Federal income tax purposes.

**R.Gary Clark

Tax Administrator

March 28, 1996**