Federal Income Tax Deductions
Federal Tax Calculation
Federal income taxes are generally based on the marital status and number of allowances you claim on your W-4 form. They are withheld from pay using the IRS percentage method.
To update your W-4 marital status and allowances: Log in to the My Pay tab in MyU. Then click on W-4 Tax Information.
To help determine the number of allowances to claim on your W-4 form: See the IRS’s Withholding Estimator.
Supplemental Tax Withholding
Although income taxes on wages are generally withheld using the IRS percentage method and the Minnesota (or other state) rate formulas or tables, some taxes are withheld at "supplemental" rates. Currently, the IRS flat supplemental rate is 22%. The Minnesota rate is 6.25%; other states' rates vary. The taxes may be calculated at either the percentage method or flat rate method, depending on how the supplemental wages are paid—combined with regular wages or paid out separately.
IRS defines supplemental wages as compensation paid in addition to the employee's regular wages. It includes such things as severance or dismissal pay, vacation pay, back pay, bonuses, moving expenses, overtime, taxable fringe benefits, and commissions. That rate (currently at 22%) is subject to change annually. The University applies the supplemental rate of withholding to these types of supplemental wages:
- Athletic contract supplement
- Late pay
- Layoff, non-renewal
- Moving expenses taxable benefit
- Non-qualified deferred compensation
- Relocation lump sum
- Retirement contribution
- Settlement awards
- Special payment (as defined by the Office of Tax Reporting and Compliance)
- Termination agreement
- Vacation payout
In addition, Social Security and Medicare taxes (currently 7.65%) may also be withheld from supplemental wages, if applicable.
Earned Income Credit
Earned Income Credit (EIC) is a refundable IRS tax credit for certain workers. To see if you're eligible to receive a federal tax refund due to EIC, read IRS Notice 797 (pdf).
For general tax information, see these IRS web pages:
State Income Tax Deductions
Minnesota follows federal rules for determining the number of allowances to claim for Minnesota tax withholding purposes. According to Minnesota regulations, the number of allowances you claim for Minnesota withholding cannot exceed the number you claim for federal withholding. Minnesota taxes are calculated using the Minnesota Withholding Tax Tables (pdf).
If you claim the same number of allowances for both state and federal taxes, you can use the federal Form W-4. If you fill out your W-4 online (from the My Pay tab in MyU, click on W-4 Tax Information), you will automatically complete both forms.
If you claim different allowances, or an additional tax amount, you should complete Minnesota Form W-4MN in addition to a W-4.
To update your W-4 marital status and allowances, log in to the My Pay tab in MyU, then click on W-4 Tax Information near the bottom of the page.
For more information about Minnesota withholding and individual income tax, see the following:
- Minnesota residency and filing requirements
- Part-year residents
- Foreign income exclusion for Minnesota residents
- Nonresident foreign national employees and Minnesota taxes
- Minnesota reciprocity and filing status
Minnesota has income tax reciprocity agreements with two states: North Dakota and Michigan. If you are a resident of North Dakota or Michigan and you do not want Minnesota taxes withheld from your University of Minnesota wages, you must complete Form MW-R Reciprocity Exemption/Affidavit of Residency (pdf) each year and send it to Payroll Services. The University will withhold your taxes from the reciprocal (resident) state.
Annual Filing Deadline Date
If you file an MW-R Reciprocity Exemption/Affidavit of Residency, the document expires on February 28 of the following year. (For example, if you complete the affidavit in 2020, it will expire February 28, 2021.) To continue your reciprocity in the new tax year, you will need to fill out a new form at the beginning of the year—no later than February 15—to continue tax withholding in the reciprocal state. If Payroll Services hasn’t received your new MW-R Reciprocity Exemption/Affidavit of Residency (pdf) form by that date, Minnesota tax will be withheld from your wages until a new form is filed.
- If you are a resident of North Dakota and want to have North Dakota tax withheld, please send a statement to Payroll Services along with your Form MW-R indicating that North Dakota tax should be withheld.
- North Dakota information: Resident of ND but living in MN
- North Dakota tax information for individuals
- MW-R Reciprocity Exemption/Affidavit of Residency (pdf)
- If you are a resident of Michigan, please file Form MI-W4 with Payroll Services, along with form MW-R, if you want to claim Michigan tax allowances other than zero exemptions.
- For forms and information about Michigan reciprocity, visit the Income Tax Forms page of the Michigan Department of Treasury.
The University of Minnesota withholds the following states' income taxes for employees working in these states:
- California (pdf)
- Wisconsin (pdf)
Call 4-UOHR (612-624-8647 or 800-756-2363) for more information.
Social Security and Medicare (FICA) Tax Deductions
FICA refers to the combined taxes withheld for Social Security and Medicare (FICA stands for the Federal Insurance Contributions Act). On your pay statement, Social Security taxes are referred to as OASDI, for Old Age Survivor and Disability Insurance. Medicare is shown as Fed Med/EE.
Your FICA withholdings depend on the employee group you belong to:
Nonstudent employees are generally subject to FICA tax withholding. Social Security (OASDI) is withheld on taxable gross income up to a certain wage limit each year, but there is no wage limit for Medicare withholding. The current rates of withholding are 6.2% for OASDI and 1.45% for Medicare. However, some federal employees and police department employees only have Medicare taxes withheld. When an employee's wages exceed $200,000, an additional .9% Medicare tax is withheld beginning with the pay period when the wages go over $200,000 through the end of the calendar year.
FICA wage limits and tax rates: FICA taxes are taken on earnings up to a certain limit. This limit may change from year to year. For more detail on FICA wage limits, visit the Social Security website and search "OASDI and SSIProgram Rates & Limits."
Students generally do not have to pay FICA taxes. The University follows IRS rules in determining a student's exemption from FICA withholding.
To be eligible for a student exemption from FICA taxes, an employee must be regularly attending classes, and the student's job must be "incident to and for the purpose of pursuing a course of study," according to IRS rules.
Number of Credit Hours
Employees will qualify for a FICA exception if they meet the minimum criteria for a half-time student:
Undergraduate: 6 credit hours
Graduate student: 3 credit hours
Ph.D. candidate: 1 credit hour
Advanced master's candidate: 1 credit hour (as long as they have completed their coursework and are working on a thesis or dissertation for credit)
Employees Not Eligible for Student FICA Exemption
Full-time employees: Those with a normal work schedule of 40 hours a week
Professional employees: Defined as employees whose work:
- Requires advanced knowledge in a field of science or learning
- Requires the consistent exercise of discretion and judgment
- Is predominantly intellectual and varied in character
Some exceptions may be made after considering all the facts and circumstances.
Career employees: Defined as those eligible for:
- Retirement plans
- Vacation, sick leave, and paid holidays
- Tuition benefits
- Life insurance, dependent care, and other considerations
Postdoctoral students and fellows
Medical residents and interns
Students Working at Beginning or End of an Academic Term
If the academic term begins or ends at any point within a pay period, the entire pay period is eligible for the exemption from FICA.
Breaks of Under or Over 5 Weeks
If the student is registered for the following semester, the student will be eligible for the FICA exemption if the break is less than five weeks. If the student works during a school break of more than five weeks (over the summer, for example), the student will not be eligible for a FICA exemption if the student is not attending classes during the break.
For More Information
For more details or questions about student FICA exemption and IRS Revenue Procedure 2005-11, contact Payroll Services at 4-UOHR (612-624-8647, or 800-756-2363 in Greater Minnesota).
Nonresident Foreign National Employees
Students and scholars temporarily in the U.S. on F-1, J-1, M-1, and Q-1 visas are usually exempt from FICA taxes. (They must be nonresidents for income tax purposes under section 7701(b) of the IRS tax code.) This exemption applies to wages for work in the U.S. that is allowed by INS and "performed to carry out the purposes for which such visas were issued to them."
This exemption applies to:
- F-1 and J-1 student visa holders for the first five calendar years
- J-1 scholars (including teachers, professors, researchers, and alien physicians) for the first two calendar years
This exemption does not apply to:
- Spouses and children on F-2, J-2, M-2, and Q-2 visas
- Nonresident aliens who have become resident aliens for tax purposes (Internal Revenue Code section 7701(b))
- Nonresident aliens who have changed to any visa status other than F-1, J-1, M-1, or Q-1
Definition of Calendar Year
For IRS exemption rules, IRS uses the period from January 1 to December 31, not 12 consecutive months. No matter what part of the year the F-1 or J-1 visa holder originally entered the country, it is counted as a full calendar year when determining the exemption for FICA withholding.