Employers are required to withhold money from each employee’s paycheck for certain federal and state mandated purposes. They also have the option to withhold money from each employee’s paychecks for a few other purposes as long as the employee consents to it. For worker cooperatives, the law remains somewhat unclear.
Worker cooperatives and withholding from patronage dividends
An employer is required to withhold money from each employee’s paycheck for the following:
- Federal income tax
- State income taxes,
- Social security tax
- Medicare tax
- Unemployment tax
Employers have the option to withhold money from each employee’s paycheck, as long as the employees give their consent, for the following:
Health
Welfare
Pension contributions
There are different state rules for deductions.
For worker cooperatives, the law remains somewhat unclear as to whether the cooperative must withhold from and pay payroll taxes on patronage dividends. The IRS has yet to issue clear guidance on this, and in the meantime, most cooperatives do not treat patronage dividends as employment income for the purpose of withholding.
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