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July 3, 1986

COMPTROLLER'S MEMORANDUM NO. 01 (1986-87)

SUBJECT: CALCULATION PROCEDURES USED FOR SOCIAL SECURITY AND FEDERAL HOSPITAL INSURANCE TAXES


The Bureau of State Payrolls will revise the calculation procedure used for social security and Federal Hospital Insurance effective with the biweekly payroll warrants dated July 18, 1986. This revision is being made to more closely conform to the federal reporting standards.

The amounts remitted to the Social Security Administration for these taxes are required to be the product of the total covered wages times the combined employee and employer contribution percentages. The present procedure used computes the employee and employer share separately for each payment. This doubles any variance introduced by rounding the computation to whole cents. It also causes the rounding variance to aggregate with each payment. This procedure has resulted in a small under-collection of taxes.

The revised procedure will work in the following manner for social security.

  1. The year-to-date social security wages, including the current payment, will be determined.

  2. The year-to-date total social security will be calculated by multiplying the year-to-date social security wages by the total contribution rate. For 1986, this rate is 14.3 percent.

  3. The resulting total amount due will be split into the employee and employer shares. Any odd cent due will be assigned to the employer share. For 1986 this is divided into equal shares of 7.15 percent each.

  4. The amounts already paid by both the employee and employer will be subtracted from the respective year-to-date amounts due. The remainders will be the contributions charged to the current payment.

For Federal Hospital Insurance, the same procedures will be used; only the rate will be different. The total rate is 2.9 percent, 1.45 percent for employee and employer.

This procedure will result in employee deductions and employer contributions which are continually adjusted for rounding fractional cents. Both employing agencies and employees may notice some very minor changes. The employer contribution may not be exactly equal to the employee contribution. In both individual cases and for the total payroll it may be more or less, depending on the rounding variance being corrected from the previous payroll. The employee contribution may vary by one cent from pay period to pay period on a constant salary amount. Or, it may vary once in a while as the rounding aggregates to the point when there is a one cent rounding upward.

Upon initial implementation both agencies and employees may notice a difference of several cents the first time; this will be the result of correcting the rounding variances which have accumulated since January 1, 1986. It should be the only occasion when the difference exceeds one cent unless there have been errors made in the adjustment of employee records.

The procedure has been designed to assure that excess contributions will not be refunded as part of the payroll. In the rare case when an employee and employer have paid more than the maximum contribution, a manual refund still will be required.

Any questions regarding this procedure should be directed to Payroll Systems Section at 488-9395, SUNCOM 278-9395.