August 2026 Payroll News

Please thoroughly review any medical support orders received for employees and respond accordingly. Child Support Services (CSS) is required to send a National Medical Support Notice (NMSN) and an Income Withholding Order within two business days after the date CSS is notified of an employee who is an obligor in a child support case. Additionally, you may receive an NMSN for an employee who is the custodian of a child if the child support order requires that person to provide health insurance for that child.

Employers and insurers must comply with the NMSN. The total amount withheld for child support, health insurance premiums and cash medical support cannot exceed the Consumer Credit Protection Act withholding limits unless an employee consents to pay the amount in excess of the withholding limit. Agencies should maintain documentation of the employee’s consent. The Oklahoma Department of Human Services Child Support Employer Services Employer Handbook provides guidance for employers when an NMSN is received. Once an agency receives the NMSN, please follow the instructions and process the notice promptly. Any delays in processing the notice could result in a follow-up from CSS and potentially put the agency at risk of sanctions for failing to comply with the notice.

Agencies with employees working outside Oklahoma should be aware that other states may have implemented a Paid Family Medical Leave plan or other state plan as required by their laws. Such a plan may involve the withholding of amounts in the form of an employee withholding, an employer withholding or a combination of both. If such amounts are included in the payroll results, do not adjust or refund the withholdings. We are required to withhold, remit and report in accordance with state laws. Agencies need to understand the withholding and reporting requirements for each state where employees are working.

Note: The IRS has determined any employee amount due that is not withheld from an employee but is paid by the employer is considered taxable income to the employee and must be included on their W-2. As an employer, the State of Oklahoma shall not pay an employee's share of required state tax or other withholdings on their behalf. All employee amounts must be withheld from their payroll.

When an employee reimburses a payroll overpayment, please complete and submit the OMES Form 94P as soon as possible after the reimbursement is made. Timely submission helps ensure corrections are reflected in the quarter in which they occurred for proper reporting and helps ensure the full recovery of OPERS retirement amounts. If the retirement system is not aware of an overpayment and the pending overpayment refund request, payouts to former employees may be incorrect, resulting in a loss to the agency. In addition, retirement calculations may be incorrect if the overpayment is not reported timely.

Please do not provide copies of personal checks or the payslip. The form allows the agency to enter the amount reimbursed. Additional backup data is not required. For the privacy and security of the employee, the form requires the state employee ID (EmplID) be entered; do not submit with the Social Security number or any other number.

All compensation to employees and former employees, regardless of the form, constitutes wages unless specifically excluded by the Internal Revenue Code. Examples include stipends, allowances, employee lawsuits and settlements, gifts, prizes, awards and fringe benefits. Before compensation is given to employees or former employees, agencies must determine the correct method of payment (payroll vs. accounts payable) and reporting required (W-2, 1099 or none). In an audit, the IRS will focus on the reason for the payment. 

Public school teacher payments

The IRS has determined that Oklahoma public school teachers receiving payments from a state agency are to be treated as employees of the state. As such, any payments to teachers must be evaluated to determine if the payments should be considered wages. If so, the amounts must be paid through the payroll system, not accounts payable, to be reported on Form W-2 by the paying agency. 

Attorney fees

Attorney fees paid on a settlement are reportable to the plaintiff if the settlement is a reportable settlement. For attorney fees paid through accounts payable, the amount must be reported to payrollreporting@omes.ok.gov. The attorney will automatically receive a 1099-MISC reporting the amount in Box 10 if the correct account code is used on the voucher payment. The plaintiff reporting requires a manual entry and must be reported to OMES. 

If a payment settles a lawsuit, the auditor will focus on the basis of the lawsuit. Agency payroll, finance, human resources and legal departments should obtain the knowledge needed to accurately process compensation to employees or former employees. Agencies are responsible for complying with IRS requirements for withholding and reporting. 

If the plaintiff is a current or former employee and the settlement or judgment payment is income that constitutes wages, the payment is reportable as compensation and included on the Form W-2 and all applicable taxes and deductions must be withheld. For any payment that is income but doesn’t constitute wages, the payment will be subject to reporting on Form 1099-MISC to the plaintiff in Box 3, Other Income.  

If an agency has a settlement agreement that requires the payment be processed through accounts payable instead of the payroll system to expedite processing and the payment is reportable as compensation, then applicable federal, state and FICA taxes must be remitted to OMES on the same day the settlement to the individual is processed. If taxes are not withheld on the payment, the agency must gross up the amount and pay both the employee and employer share of taxes. The employee’s record will be updated for year-end reporting. If additional guidance is needed, please email payrollreporting@omes.ok.gov.