Income tax withholding methods which are allowed under the federal withholding system may be used for calculating withholding of Massachusetts income taxes.
Employers may use the following withholding methods: wage bracket method, percentage method, quarterly average wages method, annualized wages method, cumulative wages method, or an employer-devised alternative method. Prior approval of the Commissioner is not required to adopt any of these methods.
Wage Bracket Method - An employer may determine the amount of tax to be deducted and withheld from an employee's wages by using wage bracket tables contained in the current Circular M, issued by the Department of Revenue. Separate tables covering weekly, biweekly, semimonthly, monthly and daily or miscellaneous payroll periods are provided. The number of exemptions claimed on the employee's Form W-4 will govern the proper columns in the wage-bracket tables to be used by the employer.
Percentage Method - An employer may determine the amount of tax to be deducted and withheld from an employee's wages by applying the percentage method to the appropriate payroll period.
Under the percentage method the employer subtracts from the employee's total wages:
(1) the employee's contributions for Social Security, Massachusetts, United States or railroad retirement systems; and
(2) the employee's personal exemption factor for the applicable payroll period multiplied by the number of withholding exemptions claimed on the employee's Form W-4. The personal exemption factor for a weekly payroll period is $13.50 multiplied by the number of exemptions claimed, plus $25.00; biweekly - $27.00 multiplied by the number of exemption claimed, plus $50.00; semi monthly - $29.00 multiplied by the number of exemptions claimed, plus $54.00; monthly - $58.00 multiplied by the number of exemptions claimed, plus $109.00; daily or miscellaneous - $1.92 multiplied by the number of exemptions claimed, plus $3.56. (If the employee is claiming "0" exemptions omit step 2).

After subtracting the above amounts from the employee's total wages, the employer multiplies the balance by .05375 and withholds the resulting amount.
Quarterly Average Wages Method - An employer may determine the amount of tax to be deducted and withheld from an employee's wages by using the average wages method if the employee's wages are not composed solely of tips.
Under this method the employer estimates the wages that will be paid to the employee during the calendar quarter and divides the estimated amount by the number of payroll periods in the quarter; this determines the employee's average wages. If an employee's wages include tips, the employer may estimate the amount of tips that will be reported by the employee to the employer in the calendar quarter.

The percentage or wage bracket method is applied to the average wages to compute the amount to be withheld. If the total amount of tax withheld on the basis of average wages does not coincide with the amount that would have been withheld from the actual wages, adjustments shall be made during the quarter, and in the case of tips, within thirty days following the close of the quarter.
Annualized Wages Method - An employer may determine the amount of tax to be deducted and withheld from an employee's wages by annualizing the employee's wages in each payroll period and determining the amount of tax due for the payroll period involved.
Under this method the employer multiplies the amount of wages for one payroll period by the number of periods in the calendar year, computes the annual amount of withholding that would be required on that amount using the percentage or wage bracket method, and divides the annual withholding amount by the number of payroll periods. The employer withholds the resulting amount for the payroll period involved.
Cumulative Wages Method - An employer may determine the amount of tax to be deducted and withheld from an employee's wages using the cumulative wages method provided that such method is requested by the employee and the employee's wages since the beginning of the calendar year have been paid in payroll periods of the same length.

Under this method, the employer adds the amount of wages for a payroll period to the total amount of wages already paid during the calendar year. This aggregate amount of wages is divided by the number of payroll periods to which it relates and the amount of tax which would be withheld using the percentage method is computed. The excess of the amount of tax which would be withheld using the percentage method over the total amount of tax withheld during preceding payroll periods is the amount of tax due for the current payroll period.
Employer-Devised Method - If the withholding methods described above are not satisfactory for an employer's payroll system, he may devise any method of withholding which yields amounts which are substantially similar to amounts which would be produced under the percentage method of withholding for the payroll periods involved.

The results of an employer-devised method will be considered substantially similar if the amount of tax withheld comes within the following tolerances:
(1) If the tax which would be withheld using the annual percentage method is $10 to $100, the annual deviation, using the employer-devised method, shall not exceed $10, plus 10 per cent of the excess over $10;
(2) If the tax which would be withheld using the annual percentage method is $100 to $1,000, the annual deviation, using the employer-devised method, shall not exceed $19, plus 3 per cent of the excess over $100; and
(3) If the tax which would be withheld using the annual percentage method is $1,000 or over, the annual deviation, using the employer-devised method, shall not exceed $46, plus one per cent of the excess over $1,000.
Any amount which is within $10 per year of the amount which would be withheld using the annual percentage method will be acceptable.
Joyce Hampers
Commissioner of Revenue

September 17, 1980

TIR 80-3