Finance and Budget

University Controller’s Office

Payroll Tax

This page contains explanations of payroll tax terminology for university employee compensation and benefits.

Compensation

Per IRS and State Regulations all compensation is subject to Federal, Social Security, Medicare and State tax unless there is a provision within the IRC or state tax code that exempts the compensation. Different types of compensation carry different taxation rules.

Here are a few income types to keep in mind:

Regular Pay (Salary and Hourly): Taxable compensation for FED, FIC, MED and state tax. Taxed at the graduated tax tables.  This is where the Form W4 and State tax form come into play.

Supplemental Pay: These are lump sum payments that happen outside of or in addition to your regular salary and wages. These are pay types such as bonuses, leave payouts, retro payments. These are taxed at the supplemental wage rate. 2024 rates are: Federal: 22%(37% >$1 Million), Virginia: 5.75%, California: 6.6% (Bonuses: 10.23%)

FICA Tax Exemptions

Domestic Student FICA Exemption:  Students who are enrolled at least half-time and employed by the school in which they attend are eligible for an exemption from Social Security and Medicare tax. The exemption does apply to school breaks of 5 weeks or less. The exemption ends when the student is not enrolled, fall below half-time enrollment, or meets the definition of a career employee. The employment has to be secondary to the pursuit of study.

International Exemption*: Non-immigrant foreign persons who are temporarily in the US under a F-1, J-1, M-1, Q-1, or Q-2 visa and working for VCU are exempt from FICA (Social Security and Medicare) taxes as long as they have not exceeded the presence timeframe. (Students = 5 years, Non-students = 2 years)
*Internal Revenue Code (26 USC 3121 (b) (19))  *Social Security Act (42 USC 410 (a) (19))

Federal Tax and State Tax

For 2024, your compensation is taxed based on:

  • Filing Status (Single, Married Filing Single, Married, or Head of Household)
  • Pay Frequency (VCU pays semi-monthly)
  • Taxable wages (Gross pay minus any pretax deductions or non-taxable earnings)
  • Any additional items per the completed W-4 or state tax form such additional tax withholding requests

Using the tax tables provided by the IRS or States and loaded into Banner, your semi-monthly deductions are withheld and deposited to the Federal and State government on your behalf. 

Fringe Benefits — Social and Country Club Memberships

Procedures: The provision of a country club membership by an employer is specifically covered in Treasury Regulations §1.61-21(a)(1) as a fringe benefit which is normally subject to inclusion in income of an employee. The university has developed the following procedure to be followed by each university employee that receives social/country club membership benefits paid by the university.

Social Club Template

Accounts Payable

  1. Provides a copy of social club membership agreement signed by the university to the Controller’s Office if available, and the amount of initiation fee paid once the process is completed.
  2. Provides Controller’s Office with the names and total amount of benefit paid from Nov. 16 of the previous year through Nov. 15 of the current year and submitted to the Controller’s Office by Nov. 20 of the current year.
  3. Provides a link on the AP website to the procedure and log that is maintained on the Controller’s Office website.

Controller’s Office

  1. Sends social club membership procedure and log to the eligible employees when notice is received from AP and advise them to contact Controller’s Office if assistance is needed (see log template above).
  2. In October, sends eligible employees a reminder to complete the log up to Nov. 15.
  3. Receive completed (actual) Social Club Log from the employees by Nov. 20.
  4. Obtain total taxable benefit recorded in the employees' earning records from payroll office.
  5. Calculate any adjustment needed for each employee by comparing estimate recorded in the employee’s earning record to the actual taxable benefit received; then adjust accordingly. This adjustment would be reflected in the final paycheck of the year.
  6. Submit the adjustment to the Payroll Office by agreed upon date.
  7. Calculate estimated benefit for next year based on previous year amount, the annual amount would be divided by 24 pay periods.
  8. Inform Payroll Office of the new benefit amount by Jan. 8.
  9. Inform Payroll Office of any adjustment needed for terminated employees before their final pay.

Fringe Benefits — Social Club Dues

Employees

  1. Submit a copy of social club agreement to the Controller’s Office.
  2. Employee determines if controller’s office should use previous year taxable benefit to calculate current year estimated taxable benefit or submit new Social Club Log based on estimate.
  3. Submit actual Social Club Log to the University Controller’s Office by Nov. 20 of the current year; this should cover Nov. 16 of previous year to Nov. 15 of the current year.
  4. Review of final paycheck of the year by employee for accuracy.
  5. Terminated employee would complete final log and submit it to designated employee in the department who will submit it to controller’s office for process.

Payroll Office

  1. Receive estimated employee taxable benefit from the Controller’s Office by Jan. 8.
  2. Record estimated taxable benefit in employees’ earning record from Jan. 16 to Dec. 31.
  3. Adjust employee earning record based on data received from Controller’s Office. This adjustment would be reflected in employee’s Dec. 31 paycheck.
  4. Receive next year's estimated employee taxable benefit from the Controller’s Office by Jan. 8 and record accordingly.
  5. Resume new payroll deduction from Jan. 16.

Fringe Benefits — Taxable Tuition

Tuition benefits paid for by VCU on behalf of the employee is considered taxable income under federal regulations unless the course meets the criteria to be excluded from income.

Exclusion Criteria:

  • Undergraduate courses are excluded from tax reporting and withholding.
  • Graduate level courses are excluded up to $5,250 of benefits received. Any additional monetary value of tuition benefits received is taxable unless the courses taken meet the criteria to be classified as a working condition fringe benefit. To meet the working condition fringe benefit criteria, the following conditions must all be met:
    • A. The courses must not be necessary to meet the minimum education requirements of the current job.
    • B. The courses are not taken to qualify the employee for a promotion or transfer to a different type of work
    • C. The education must be related to the employee’s current job and must help maintain or improve the knowledge or skills required for that job (e.g., refresher or update courses). If the requirements change while the employee is working, employer-paid education designed to meet them is a working condition fringe.

The taxation of the benefit is assessed in late October/Early November via payroll. The Payroll Office proactively works with employees receiving tuition benefits to identify any tax liability and exclusions.

W4 Estimator for Employees

W4 Estimator:  Employees can use this calculator to monitor the impact their current Federal withholdings will have on their annual tax liability. The calculator is interactive, allowing the user to input their specific tax make-up for their household and receive results that display as to whether or not they are in-line to break even, owe taxes or receive a refund at the end of the year. The calculator will also provide a recommendation as how to complete the Form W4.