WITHHOLDINGAND COLLECTION OF TAX AT SOURCE

 

§235-61  Withholding of tax on wages. (a)  As used in this section:

(1)  "Wages" means wages, commissions, fees,salaries, bonuses, and every and all other kinds of remuneration for, orcompensation attributable to, services performed by an employee for theemployee's employer, including the cash value of all remuneration paid in anymedium other than cash and the cost-of-living allowances and other paymentsincluded in gross income by section 235-7(b), but excluding income excludedfrom gross income by section 235-7 or other provisions of this chapter;

(2)  "Employee" includes an officer orelected official, or any other employee;

(3)  "Employer" means (A) the person orgovernment for whom an individual performs or performed any service, ofwhatever nature, as the employee of such person or government, and (B) theperson having control of the payment of the wages if the employer as heretoforedefined does not have control thereof, and (C) any person subject to thejurisdiction of the State and paying wages on behalf of an employer asheretofore defined if the employer is not subject to the jurisdiction of theState; provided that the term employer shall not include any government that isnot subject to the laws of the State except as, and to the extent that, itconsents to the application of sections 235-61 to 235-67 to it.

(b)  Every employer, as defined herein, makingpayment of wages, as herein defined, to employees, shall deduct and withholdfrom such wages an amount of tax determined as provided in this section.

(c)  For each withholding period (whetherweekly, biweekly, monthly, or otherwise) the amount of tax to be withheld underthis section shall be at a rate which, for the taxable year, will yield the taximposed by section 235-51 upon each employee's annual wage, as estimated fromthe employee's current wage in any withholding period, but for the purposes ofthis subsection of the rates provided by section 235-51 the maximum to be takeninto consideration shall be eight per cent.  The tax for the taxable year shallbe calculated upon the following assumptions:

(1)  That the employee's annual wage, as estimatedfrom the employee's current wage in the withholding period, will be theemployee's sole income for the taxable year;

(2)  That there will be no deductions therefrom indetermining adjusted gross income;

(3)  That in determining taxable income there shall bea standard deduction allowance which shall be an amount equal to one exemption(or more than one exemption if so prescribed by the director) unless (A) thetaxpayer is married and the taxpayer's spouse is an employee receiving wagessubject to withholding, or (B) the taxpayer has withholding exemptioncertificates in effect with respect to more than one employer.  For thepurposes of this section, any standard deduction allowance under this paragraphshall be treated as if it were denominated a withholding exemption;

(4)  That in determining taxable income there alsowill be deducted the amount of exemptions and withholding allowances granted tothe employee in the computation of taxable income, as shown by a certificate tobe filed with the employer as provided by subsection (f); and

(5)  If it appears from the certificate filed pursuantto subsection (f) that the employee, under section 235-93, is entitled to makea joint return, that the employee and the employee's spouse will so elect.

(d)  Alternatively, at the election of theemployer, the employer may deduct and withhold from each employee an amount oftax determined on the basis of tables to be prepared and furnished by thedepartment of taxation, which amount of tax shall be substantially equivalentto the amount of tax provided by subsection (c) hereof.

(e)  The department, by rule, may require thededuction and withholding of tax from any remuneration or compensation paid foror attributable to services that are not subject to the general excise taximposed by chapter 237, whether or not such withholding is provided forhereinabove.  Every person so required to deduct and withhold tax, or from whomtax is required to be deducted and withheld, shall be subject to sections235-61 to 235-67, and every person so required to deduct and withhold tax shallbe deemed an employer for the purposes of this chapter.

The department, by rule, may exempt anyemployer from the requirement of deduction and withholding of taxes, eventhough the requirement is imposed by this section, if and to the extent thatthe department finds the requirement unduly onerous or impracticable ofenforcement.

(f)  On or before the date of the commencementof employment with an employer, the employee shall furnish the employer with asigned certificate relating to the number of exemptions which the employeeclaims, which shall in no event exceed the number to which the employee isentitled on the basis of the existing facts, and also showing whether theemployee is married and is, under section 235-93, entitled to make a jointreturn.  The certificate shall be in such form and contain such information asmay be prescribed by the department.

If, on any day during the calendar year, thereis a change in the employee's marital status and the employee no longer isentitled to make a joint return, or the number of exemptions to which theemployee is entitled is less than the number of exemptions claimed by theemployee on the certificate then in effect with respect to the employee, theemployee shall within ten days thereafter furnish the employer with a newcertificate showing the employee's present marital status, or relating to thenumber of exemptions which the employee then claims, which shall in no eventexceed the number to which the employee is entitled on the basis of theexisting facts.  If, on any day during the calendar year, there is a change inthe employee's marital status and though previously not entitled to make ajoint return the employee now is so entitled, or the number of exemptions towhich the employee is entitled is greater than the number of exemptions claimed,the employee may furnish the employer with a new certificate showing theemployee's present marital status, or relating to the number of exemptionswhich the employee then claims, which shall in no event exceed the number towhich the employee is entitled on the basis of the existing facts.

Such certificate shall take effect at the timesset forth in the Internal Revenue Code.

(g)  In determining the deduction allowed bysubsection (c)(4) an employee shall be entitled to withholding allowances oradditional reductions in withholding under this subsection.  In determining thenumber of additional withholding allowances or the amount of additionalreductions in withholding under this subsection, the employee may take intoaccount (to the extent and in the manner provided by rules) estimated itemizeddeductions and tax credits allowable under this chapter; and such additionaldeductions and other items as may be specified by the director in rules.  Forthe purposes of this subsection a fractional number shall not be taken intoaccount unless it amounts to one-half or more, in which case it shall beincreased to the next whole number.

(1)  As used in this subsection, unless the contextotherwise requires:

(A)  "Estimated itemized deductions"means the aggregate amount which the employee reasonably expects will beallowed as deductions under sections 235-2.3, 235-2.4, 235-2.45, and 235-7,other than the deductions referred to in Internal Revenue Code section 151 andthose deductions required to be taken into account in determining adjustedgross income under Internal Revenue Code section 62(a) (with the exception ofparagraph 10 thereof) for the estimation year.  In no case shall the aggregateamount be greater than the sum of:

(i)  The amount of the deductions reflected inthe employee's net income tax return for the taxable year preceding theestimation year of (if a return has not been filed for the preceding taxableyear at the time the withholding exemption certificate is furnished theemployer) the second taxable year preceding the estimation year; or

(ii)  The amount of estimated itemized deductionsand tax credits allowable under this chapter and any additional deductions towhich entitled; and

(iii)  The amount of the employee's determinableadditional deductions for the estimation year.

(B)  "Estimated wages" means theaggregate amount which the employee reasonably expects will constitute wagesfor the estimation year;

(C)  "Determinable additionaldeductions" means those estimated itemized deductions which:

(i)  Are in excess of the deductions referred toin subparagraph (A) reflected on the employee's net income tax return for thetaxable year preceding the estimation year; and

(ii)  Are demonstrably attributable to anidentifiable event during the estimation year or the preceding taxable yearwhich can reasonably be expected to cause an increase in the amount of suchdeductions on the net income tax return for the estimation year.

(D)  "Estimation year", in the caseof an employee who files the employee's return on the basis of a calendar year,means the calendar year in which the wages are paid; provided that in the caseof an employee who files the employee's return on a basis other than thecalendar year, the employee's estimation year, and the amounts deducted andwithheld to be governed by the estimation year, shall be determined under rulesprescribed by the director of taxation.

(2)  Under this subsection, the following specialrules shall apply:

(A)  Married individuals.  The number ofwithholding allowances to which a husband and wife are entitled under thissubsection shall be determined on the basis of their combined wages anddeductions.  This subparagraph shall not apply to a husband and wife who filedseparate returns for the taxable year preceding the estimation year and whoreasonably expect to file separate returns for the estimation year;

(B)  Limitation.  In the case of employeeswhose estimated wages are at levels at which the amounts deducted and withheldunder this chapter generally are insufficient (taking into account a reasonableallowance for deductions and exceptions) to offset the liability for tax underthis chapter with respect to the wages from which the amounts are deducted andwithheld, the director may by rule reduce the withholding allowances to whichthose employees would, but for this subparagraph, be entitled under thissubsection;

(C)  Treatment of allowances.  For purposes ofthis chapter, any withholding allowance under this subsection shall be treated asif it were denominated a withholding exemption.

(3)  The director may prescribe tables by rule underchapter 91 pursuant to which employees shall determine the number ofwithholding allowances to which they are entitled under this subsection.

(h)  The director of taxation may adopt by ruleunder chapter 91 the rules and regulations promulgated by the United StatesSecretary of Treasury or a delegate of the Secretary relating to the provisionsof subtitle C, chapter 24 of the Internal Revenue Code operative in thissection. [L Sp 1957, c 1, pt of §2; am L Sp 1959 2d, c 1, §16; am L 1965, c155, §31(d); Supp, §121-16; HRS §235-61; am L 1981, c 138, §1; am L 1982, c 23,§1; am L 1983, c 206, §2; gen ch 1985; am L 1987, c 239, §1(17), (18); am L1993, c 73, §4; am L 1995, c 92, §7; am L 1996, c 187, §6; am L 2001, c 199,§5]

 

Case Notes

 

  Statute did not apply, where defendants United States,director of taxation, and director of labor and industrial relations soughttaxes that principal (subcontractor) failed to remit at the time it controlledits funds and payment of wages; because unpaid taxes accrued when principal hadcontrol over its payment of wages, plaintiff surety (which issuedsubcontractor's performance and payment bond) may not be held liable for thesefunds.  67 F. Supp. 2d 1183.