WITHHOLDING

AND 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, or

compensation attributable to, services performed by an employee for the

employee's employer, including the cash value of all remuneration paid in any

medium other than cash and the cost-of-living allowances and other payments

included in gross income by section 235-7(b), but excluding income excluded

from gross income by section 235-7 or other provisions of this chapter;

     (2)  "Employee" includes an officer or

elected official, or any other employee;

     (3)  "Employer" means (A) the person or

government for whom an individual performs or performed any service, of

whatever nature, as the employee of such person or government, and (B) the

person having control of the payment of the wages if the employer as heretofore

defined does not have control thereof, and (C) any person subject to the

jurisdiction of the State and paying wages on behalf of an employer as

heretofore defined if the employer is not subject to the jurisdiction of the

State; provided that the term employer shall not include any government that is

not subject to the laws of the State except as, and to the extent that, it

consents to the application of sections 235-61 to 235-67 to it.

     (b)  Every employer, as defined herein, making

payment of wages, as herein defined, to employees, shall deduct and withhold

from such wages an amount of tax determined as provided in this section.

     (c)  For each withholding period (whether

weekly, biweekly, monthly, or otherwise) the amount of tax to be withheld under

this section shall be at a rate which, for the taxable year, will yield the tax

imposed by section 235-51 upon each employee's annual wage, as estimated from

the employee's current wage in any withholding period, but for the purposes of

this subsection of the rates provided by section 235-51 the maximum to be taken

into consideration shall be eight per cent.  The tax for the taxable year shall

be calculated upon the following assumptions:

     (1)  That the employee's annual wage, as estimated

from the employee's current wage in the withholding period, will be the

employee's sole income for the taxable year;

     (2)  That there will be no deductions therefrom in

determining adjusted gross income;

     (3)  That in determining taxable income there shall be

a 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) the

taxpayer is married and the taxpayer's spouse is an employee receiving wages

subject to withholding, or (B) the taxpayer has withholding exemption

certificates in effect with respect to more than one employer.  For the

purposes of this section, any standard deduction allowance under this paragraph

shall be treated as if it were denominated a withholding exemption;

     (4)  That in determining taxable income there also

will be deducted the amount of exemptions and withholding allowances granted to

the employee in the computation of taxable income, as shown by a certificate to

be filed with the employer as provided by subsection (f); and

     (5)  If it appears from the certificate filed pursuant

to subsection (f) that the employee, under section 235-93, is entitled to make

a joint return, that the employee and the employee's spouse will so elect.

     (d)  Alternatively, at the election of the

employer, the employer may deduct and withhold from each employee an amount of

tax determined on the basis of tables to be prepared and furnished by the

department of taxation, which amount of tax shall be substantially equivalent

to the amount of tax provided by subsection (c) hereof.

     (e)  The department, by rule, may require the

deduction and withholding of tax from any remuneration or compensation paid for

or attributable to services that are not subject to the general excise tax

imposed by chapter 237, whether or not such withholding is provided for

hereinabove.  Every person so required to deduct and withhold tax, or from whom

tax is required to be deducted and withheld, shall be subject to sections

235-61 to 235-67, and every person so required to deduct and withhold tax shall

be deemed an employer for the purposes of this chapter.

     The department, by rule, may exempt any

employer from the requirement of deduction and withholding of taxes, even

though the requirement is imposed by this section, if and to the extent that

the department finds the requirement unduly onerous or impracticable of

enforcement.

     (f)  On or before the date of the commencement

of employment with an employer, the employee shall furnish the employer with a

signed certificate relating to the number of exemptions which the employee

claims, which shall in no event exceed the number to which the employee is

entitled on the basis of the existing facts, and also showing whether the

employee is married and is, under section 235-93, entitled to make a joint

return.  The certificate shall be in such form and contain such information as

may be prescribed by the department.

     If, on any day during the calendar year, there

is a change in the employee's marital status and the employee no longer is

entitled to make a joint return, or the number of exemptions to which the

employee is entitled is less than the number of exemptions claimed by the

employee on the certificate then in effect with respect to the employee, the

employee shall within ten days thereafter furnish the employer with a new

certificate showing the employee's present marital status, or relating to the

number of exemptions which the employee then claims, which shall in no event

exceed the number to which the employee is entitled on the basis of the

existing facts.  If, on any day during the calendar year, there is a change in

the employee's marital status and though previously not entitled to make a

joint return the employee now is so entitled, or the number of exemptions to

which the employee is entitled is greater than the number of exemptions claimed,

the employee may furnish the employer with a new certificate showing the

employee's present marital status, or relating to the number of exemptions

which the employee then claims, which shall in no event exceed the number to

which the employee is entitled on the basis of the existing facts.

     Such certificate shall take effect at the times

set forth in the Internal Revenue Code.

     (g)  In determining the deduction allowed by

subsection (c)(4) an employee shall be entitled to withholding allowances or

additional reductions in withholding under this subsection.  In determining the

number of additional withholding allowances or the amount of additional

reductions in withholding under this subsection, the employee may take into

account (to the extent and in the manner provided by rules) estimated itemized

deductions and tax credits allowable under this chapter; and such additional

deductions and other items as may be specified by the director in rules.  For

the purposes of this subsection a fractional number shall not be taken into

account unless it amounts to one-half or more, in which case it shall be

increased to the next whole number.

     (1)  As used in this subsection, unless the context

otherwise requires:

         (A)  "Estimated itemized deductions"

means the aggregate amount which the employee reasonably expects will be

allowed 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 and

those deductions required to be taken into account in determining adjusted

gross income under Internal Revenue Code section 62(a) (with the exception of

paragraph 10 thereof) for the estimation year.  In no case shall the aggregate

amount be greater than the sum of:

              (i)  The amount of the deductions reflected in

the employee's net income tax return for the taxable year preceding the

estimation year of (if a return has not been filed for the preceding taxable

year at the time the withholding exemption certificate is furnished the

employer) the second taxable year preceding the estimation year; or

             (ii)  The amount of estimated itemized deductions

and tax credits allowable under this chapter and any additional deductions to

which entitled; and

            (iii)  The amount of the employee's determinable

additional deductions for the estimation year.

         (B)  "Estimated wages" means the

aggregate amount which the employee reasonably expects will constitute wages

for the estimation year;

         (C)  "Determinable additional

deductions" means those estimated itemized deductions which:

              (i)  Are in excess of the deductions referred to

in subparagraph (A) reflected on the employee's net income tax return for the

taxable year preceding the estimation year; and

             (ii)  Are demonstrably attributable to an

identifiable event during the estimation year or the preceding taxable year

which can reasonably be expected to cause an increase in the amount of such

deductions on the net income tax return for the estimation year.

         (D)  "Estimation year", in the case

of 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 case

of an employee who files the employee's return on a basis other than the

calendar year, the employee's estimation year, and the amounts deducted and

withheld to be governed by the estimation year, shall be determined under rules

prescribed by the director of taxation.

     (2)  Under this subsection, the following special

rules shall apply:

         (A)  Married individuals.  The number of

withholding allowances to which a husband and wife are entitled under this

subsection shall be determined on the basis of their combined wages and

deductions.  This subparagraph shall not apply to a husband and wife who filed

separate returns for the taxable year preceding the estimation year and who

reasonably expect to file separate returns for the estimation year;

         (B)  Limitation.  In the case of employees

whose estimated wages are at levels at which the amounts deducted and withheld

under this chapter generally are insufficient (taking into account a reasonable

allowance for deductions and exceptions) to offset the liability for tax under

this chapter with respect to the wages from which the amounts are deducted and

withheld, the director may by rule reduce the withholding allowances to which

those employees would, but for this subparagraph, be entitled under this

subsection;

         (C)  Treatment of allowances.  For purposes of

this chapter, any withholding allowance under this subsection shall be treated as

if it were denominated a withholding exemption.

     (3)  The director may prescribe tables by rule under

chapter 91 pursuant to which employees shall determine the number of

withholding allowances to which they are entitled under this subsection.

     (h)  The director of taxation may adopt by rule

under chapter 91 the rules and regulations promulgated by the United States

Secretary of Treasury or a delegate of the Secretary relating to the provisions

of subtitle C, chapter 24 of the Internal Revenue Code operative in this

section. [L Sp 1957, c 1, pt of §2; am L Sp 1959 2d, c 1, §16; am L 1965, c

155, §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 L

1993, 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 sought

taxes that principal (subcontractor) failed to remit at the time it controlled

its funds and payment of wages; because unpaid taxes accrued when principal had

control over its payment of wages, plaintiff surety (which issued

subcontractor's performance and payment bond) may not be held liable for these

funds.  67 F. Supp. 2d 1183.