Chapter 6: Contributions

Overview

Contributions and Federal Income Tax

Retirement contributions are always calculated on the member's reportable compensation. The amount on which federal withholding tax is calculated will vary according to whether contributions are taxed or nontaxed. Prior to September 1, 1984, retirement contributions were subject to withholding tax (except for JRS and JRF that have always been nontaxed). After August 31, 1984, retirement contributions are not subject to withholding tax if the employer participates in tax-deferral (nontaxed), or "pick up" (see RCW 41.04.440-455) of employee contributions. For more information on tax-deferred contributions, see the section in this chapter, "Nontaxed Contributions and Members."

The following examples show how contributions, which are taxed or nontaxed, affect a member's federal taxable income.

• If the member contributions are taxed, both federal withholding tax and retirement contributions are calculated on the reportable compensation.

  Example:

  a. Reportable compensation	$2000.00
  Multiplied by member rate	x .06
  = Member Contribution	$120.00
  b. Reportable compensation
  = Income subject to withholding tax	$ 2000.00

  
  

• If the member contributions are nontaxed, the member contributions are calculated on the reportable compensation and the contributions are subtracted before the federal withholding tax is calculated.

  Example:

  a. Reportable compensation	$2000.00
  Multiplied by member rate	x .06
  = Member Contribution	$120.00
  b. Reportable compensation	$2000.00
  Minus member contribution	-120.00
  = Income subject to withholding tax	$1880.00

Contributions and Federal Withholding Tax in Prior Periods

If you are an employer for whom participation in tax-deferral is optional, remember contributions may or may not have been taxed in prior periods. Be conscious of this issue when reporting contributions for periods between September 1, 1984, and the current period.