Be sure to review our Newsletters as additional updates can be found there.

June 2010 Updates

City Update – Philadelphia Wage Tax Rates to Decrease effective July 1, 2010, Job Creation Tax Credit Increased for Jobs Created in 2010-11.
The City of Philadelphia Department of Revenue has announced that the wage tax rates are being reduced effective July 1, 2010 through December 31, 2010.  As of July 1, 2010, the rate for Philadelphia residents will decrease from 3.9296% to 3.928% and Philadelphia non-residents will decrease from 3.4997% to 3.4985%.

The Wage Tax is applied to wages when they are paid.  The City of Philadelphia Wage Tax (also known as Earnings Tax) is a tax on salaries, wages, commissions and other compensation paid to an employee who is employed by or renders services to an employer.  All Philadelphia residents owe the Wage Tax regardless of where they actually perform services.  Non-residents who perform services in Philadelphia must also pay the Wage Tax.  Employers who have a place of business within Pennsylvania are required to register with the City of Philadelphia within 30 days of becoming an employer of a resident of Philadelphia and they are required to withhold and remit the Wage Tax at the rate for all residents of Philadelphia in its employ.

Job Creation Tax Credit – The Department of Revenue for Pennsylvania has also released the revised application businesses must use to apply for the Philadelphia 2010-11 job creation tax credit.  The tax credit is applied by eligible businesses against their Business Privilege Tax Liability (application for Job Creation Tax Credit, released May 20, 2010).  Every individual, partnership, association and corporation engaged in a business, profession or other activity for profit within the city of Philadelphia is required to file a Business Privilege Tax Return regardless whether or not they earned a profit during the preceding year.  The tax is based on both gross receipts and net income.

Eligibility – Businesses must demonstrate the ability to create at least 25 new full-time jobs (or at least increase the full-time workforce by 20% or more within the required 5-year period) to qualify for the tax credit.  The new job opportunity must be full-time and pay the average hourly rate of at least 150% of the federal minimum wage.  There are other qualification requirements that apply.  When the business’s application is approved, the Department issues a commitment agreement.

April 2010 Updates

COBRA Premium Subsidy Extended Further
The 65% health insurance subsidy for involuntarily terminated employees has been extended through May 31, 2010.  President Obama signed it into law on April 15, 2010.  The law provides for certain transitional relief due to a March 2010 lapse of the previously extended premium subsidy provision.

Federal HIRE Act – Payroll Tax Exemption
The Hiring Incentive to Restore Employment Act (HIRE Act) was enacted on March 18, 2010.  There are two tax credits available to employers for hiring workers who have be unemployed after February 3, 2010 and before January 1, 2011.  The first tax credit is a payroll tax exemption for qualified employers.  This exempts employers from paying the 6.2% social security tax on wages paid to qualified workers in 2010.  The second credit is the new hire incentive credit which is a business tax credit of the lesser of 6.2% of wages paid to qualified employees over the 52 consecutive weeks of retention or $1,000.
The Payroll Tax Exemption – Employers who hire qualified employees (employees who became unemployed after February 3, 2010 and before January 1, 2011) may qualify for exemption from the employer’s portion of social security tax (6.2%) effective with wages paid to qualified employees on and after March 19, 2010.  Employers are required to withhold employees’ social security, Medicare, and federal income taxes and to pay the employer’s portion of Medicare tax.

March 2010

Health Insurance Reform Bills Enacted
On March 23, President Obama signed the Patient Protection and Affordable Care Act (PPACA) into law, then followed up on March 30 by signing the Health Care and Education Reconciliation Act of 2010 (HCERA), which added some provisions and amended others.

Among other things, the bills roll out a variety of new reporting requirements, including expanded 1099-MISC reporting. The general information reporting requirements regarding services provided to a trade or business are modified. The exception for payments to corporations is eliminated. In addition, the class of payments for which information reporting is required is expanded to include gross proceeds for both property and services. The current regulatory exception for payments to tax-exempt organizations is not affected. The changes will take effect for payments made after December 31, 2011.

Go to http://www.americanap.org/newsroom/ for details on how PPACA/HCERA provisions will impact your operations.

January 2010

2010 Supplemental Withholding Tax Rate Option for States (as of January 1, 2010)
Please note rates are subject to change without notice.  Review each states rate prior to using.

Notes:

There is no supplemental rate of withholding for Arizona, Connecticut, Delaware, District of Columbia, Hawaii, Louisiana, Mississippi, New Jersey, Puerto Rico, or Utah.
Maryland:  For lump sum distribution, withhold at 7.50% for nonresidents; 3.00% for residents employed in Delaware and 6.25% plus local rate for residents working in Maryland.
New York:  For state withholding tax purposes, effective January 1, 2010, the supplemental withholding rate is 9.77%.  For New York City residents, the supplemental withholding rate is 4.00%.  For City of Yonkers: the resident supplemental withholding rate is 0.977% and for nonresident, 0.50%.
Oregon:  The supplemental rate could increase for 2010 if Ballot Measure 66 is approved by the voters on January 26, 2010.  If the measure is approved, revised withholding tables could be issued in February 2010.
Vermont:  Effective for calendar year 2010, the supplemental withholding rate changed to 27% of the federal withholding amount for non-periodic payments.  For periodic payments, the tax is computed using the wage-bracket tables or percentage method.

State Update – New York Withholding Certificate Revised
A revised version of Form IT-2104-E, Certificate of Exemption from Withholding has been released by the New York State Department of Revenue and Finance.  This revised form is in effect on and after January 1, 2010.  The revision includes changes to allow an exemption from New York State withholding for military spouses who qualify under the Military Spouses Residency Civil Relief Act (SCRA).
The Military Spouses Residency Civil Relief Act (SCRA) was signed into law on November 11, 2009 by President Obama.  Effective for the tax year of 2009, SCRA provides that income derived from wages or other earnings provided by a U.S. military servicemember’s spouse is not treated as subject to income tax within the state if the spouse is not treated as a resident of that state.  Also, SCRA provides the spouse of a servicemember will neither lose nor acquire residence or domicile in a state when (1) the spouse is present in another state solely to be with the servicemember in compliance with the servicemember’s military orders and (2) the residence or domicile is the same for both the servicemember and spouse.

2010 W-4 Form Available with the IRS
The IRS released the Form W-2, Wage and Tax Statement and instructions for tax year 2010.  There are no changes to the layout or instructions.  The form is available on the IRS website (www.irs.gov).

IRS Issues Reminder About Military Pay – Taxation and Reporting
The 2010 Form W-2 reporting instructions from the IRS advises employers that military differential pay paid to employees while they are on active duty in the U.S. uniformed services are wages subject to federal income tax withholding.  Guidance provided in Revenue Ruling 2009-11 (2009-18 I.R.B. 896) states that military differential wage payments made to employees while on active duty in the U.S. uniformed services for more than 30 days are subject to federal income tax withholding (FITW) but are excluded from wages subject to Social Security and Medicare taxes (FICA) and exempt from federal unemployment insurance (FUTA).  The wages are to be reported in Box 1 (Federal Wages) and 2 (Federal Income Tax Withheld) only on the W-2.
If on active duty for 30 days or less, military differential wage payments made to employees are subject to FITW, FICA and FUTA and are reported in boxes 1, 3 and 5.  Social Security and Medicare taxes would be reported in box 4 and 6.

State Update – District of Columbia Provides Guidance to U.S. Military Servicemembers’ Tax Exemption
The District of Columbia’s Office of Tax and Revenue (OTR) has issued guidance regarding to spouses of U.S. military servicemembers who are exempt from DC income tax.  Following the signing of the Military Spouses Residency Civil Relief Act (SCRA) by President Obama on November 11, 2009, a spouse of a servicemember whose wages are exempt from DC income tax under the new law may claim exemption from DC income tax withholding by filing a Form D-4 with their employer.
For 2009, any servicemember or spouse who had DC income tax withheld can request a refund.  If the servicemember or spouse is required to file a District of Columbia D-40 individual income tax return, the following guidelines will apply:
1. If a servicemember’s home of record is not DC but the servicemember and spouse reside in DC due to military orders, the military compensation and the non-military spouse’s compensation should be deducted on Schedule I, line 15.  If this applies, a copy of the Department of Defense form providing the servicemember’s home of record should be kept with the taxpayer’s record.
2. If a servicemember’s home of record is not in DC but the servicemember resides in DC due to military orders and then marries a DC resident, the servicemember’s military compensation should be deducted on Schedule I, line 15.  However, the non-military spouse’s income is not exempt in this case since the non-military spouse is a DC resident and did not moved to DC to be with a transferred servicemember.  If this applies to a taxpayer, a copy of the Department of Defense form providing the servicemember’s home of record should be kept with the taxpayer’s records.
3. 3. If a servicemember’s home of record is in DC and the servicemember and spouse reside in DC in compliance with the servicemember’s military orders, they must file form D-40 and will report all their income in DC, as either married filing jointly or married filing separately.
Contact the OTR’s Customer Service Center at 202-727-4TAX (4829), if you have additional questions.

State Update – California Franchise Tax Foard Clarifies Filing and Tax Payment Instructions for Certain Domestic Partners
The California Franchise Tax Board (FTB) has clarified that beginning this year individuals who have entered into a same-sex marriage outside of California and that marriage is valid under the laws of that jurisdiction are required to file their California income tax returns showing either a joint or separate filing status.
Marriage between two persons who have entered into a same-sex marriage outside California prior to November 5, 2008 and was valid by the laws of the jurisdiction in which the marriage was contracted is valid in California.  A marriage between two persons who have entered into a same-sex marriage outside of California on or after November 5, 2008 and was valid by the laws of the jurisdiction in which the marriage was contracted have the same rights and responsibilities as spouses with the sole exception of the designation of “marriage.”
The impact is individuals covered by the provisions of SB54 may need to modify their withholding or estimated tax payments for the 2010 tax year. 

State Update – Wisconsin Withholding Will Not Be Required on Certain Minnesota Workers
Starting with the 2010 Tax Year, Minnesota terminated the reciprocal agreement with Wisconsin that gave taxpayers the option of not having income tax withheld in both states if the taxpayer was a resident of one state and working in the other.  The Wisconsin Department of Revenue added a Frequently Asked Question (FAQ) section to their website further explaining to employers and taxpayers how Wisconsin income tax would be implemented without the reciprocal agreement for state withholding.
Under the new withholding requirements effective January 1, 2010, Wisconsin residents working in Minnesota are subject to withholding of Minnesota income tax from their wages.  However, if the employer also does business in Wisconsin and has nexus in Wisconsin, the employer would also be required to withhold Wisconsin income tax from the same wages that are subject to Minnesota withholding.
However, due to feedback from employers and employees, the department concluded that these new withholding requirements cause a hardship for employees with both Minnesota and Wisconsin withholding.  Therefore, under the authority given the Secretary of Revenue under Sec. 71.64(7), Wis. Stats, a special withholding arrangement is now in effect under which Wisconsin income tax withholding will not be required under the following circumstances:
• The employee is a legal resident of Wisconsin when the wages are earned in Minnesota, and
• The same wages earned by the Wisconsin resident and subject to withholding of Minnesota income tax would also be subject to the withholding of Wisconsin income tax.
The department cautions that employees who do not have Wisconsin income tax withheld from wages they earned in Minnesota will be required to make regular estimated tax payments if they expect to owe $200 or more with their Wisconsin income tax return for the year and employers may want to inform their employees of this requirement.
For more information, there is a FAQ document available on the department’s website (Withholding and Tax Filing Information Related to Wisconsin-Minnesota Income Tax Reciprocity Termination).  Or contact the Wisconsin Department of Revenue at 608-2696-2776 or by email at sales10@revenue.wi.gov.

December 2009

IRS Announces New Procedure for Withholding From Nonresident Alien Employees

For 2010, the IRS announced that a new procedure applies to calculating the amount of income tax to withhold from the wages of nonresident alien employees who are performing services in the United States.  Nonresident aliens are not eligible for the "Make Work Pay" credit and they are not entitled to the statndard deduction built into the IRS withholding rables.

Notice 1036 provides instructions on how to determine the amount to withhold from nonresident alien employees.  Employers must first add an amount to wages before determining withholding under the wage bracket or percentage method to offset the deduction built into the withholding tables.  Employers must then determine an additional amount of withholding from a separate table to offset the effect of the "Making Work Pay" credit.  If an employer fails to make those adjustments, withholding for non-resident alien employees will be understated.

Non-resident aliens are directed to pay attention to lines 2, 3, 5, 6, and 7 on the 2010 W-4.

Further information can be found in Notice 1036.

IRS Releases Forms, Publications for 2010 As Payroll Departments Gear Up for Year-End
The Internal Revenue Service recently released several forms, publications, and rates for 2010 as payroll departments prepare for the year-end process.

The 2010 standard mileage rates for the use of a car will be 50 cents per mile for business miles driven, 16.5 cents per mile driven for medical or moving purposes,and 14 cents per mile driven in service of charitable organizations.

The rates, released Dec. 3 in Information Release 2009-111 and Revenue Procedure 2009-54, are used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes, IRS said.

Under an automobile reimbursement plan that pays fixed and variable rate allowances, the standard automobile cost in 2010 may
not exceed $27,300 ($27,200 in 2009), the revenue procedure said.

The 2010 Form W-4, Employee’s Withholding Allowance Certificate, also was released Dec. 3. Employees claiming a full exemption from federal income tax in 2010 must file a new form to maintain the exemption, which expires Feb. 16, 2010.

If a new form is not filed, employers are to begin withholding as if the employee were single and claiming no withholding allowances until the employee submits a new Form W-4.

Individuals cannot claim the exemption if income exceeds $950, which is unchanged from 2009, and includes more than $300 in unearned income (interest and dividends), and if they can be claimed as a dependent on another person’s tax return.

Instructions for the form, which is available at the IRS website, tell nonresident aliens to see Notice 1392, Supplemental Form Instructions for Nonresident Aliens, before completing the form. Notices 2009-91 and 1036 provide information on nonresident alien withholding. Notice 1392 is to be released soon.

The 2009 Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, and the accompanying instructions were released Dec. 2. IRS also released Schedule A (Form 940) for 2009.

Employers that paid their state unemployment tax in more than one state or that paid wages in any state that is subject to credit reduction are required to use the schedule.

IRS has designated Michigan as a creditreduction state for 2009, with the FUTA offset credit reduced by 0.3 percent. The offset applies to all state employers, except nonprofit organizations, governmental entities, and Native American tribes.

Starting with the payment due by Jan. 31, 2010, Michigan employers will owe an extra $21 per employee; an additional $21 will apply in each succeeding year that outstanding federal loans remain unpaid.

A new edition of Publication 15-B, Employer’s Tax Guide to Fringe Benefits, was released Dec. 8. The publication covers the tax exclusion rules for two dozen types of fringe benefits and includes the 2010 cents-per-mile amount. The full text of Publication 15-B is available at the IRS website.

Federal Withholding Tables for 2010 Released
Percentage method withholding tables for 2010 have been released by the Internal Revenue Service in Notice 1036, along with special withholding calculations for nonresident aliens and the 2010 Advance Earned Income Credit tables.

While the withholding allowance amounts by payroll period have not changed for 2010, changes to the percentage method tables will result in more tax being withheld as the Making Work Pay Credit is factored in over the full calendar year. (In 2009, the full year amount of the Making Work Pay Credit was applied to federal withholding tables issued that were effective for the last nine months of the year.)

Employers must implement the revised federal withholding tables and percentage method tables for wages and compensation paid to employees on Jan. 1, 2010, or after, IRS said.
The maximum Advance Earned Income Credit Payment for 2010 will be $1,830.

Below is a chart listing the 2010 withholding allowance amounts to be used when calculating withholding using the percentage method. One annual withholding allowance in 2010 is $3,650.
Other amounts announced by IRS for one withholding allowance are as follows:
Weekly..............................................................$70.19
Biweekly.........................................................$140.38
Semimonthly.................................................$152.08
Monthly..........................................................$304.17
Quarterly........................................................$912.50
Semiannually...................................................$1,825
Annually............................................................$3,650
Daily or miscellaneous....................................$14.04
(each day of the payroll period)

Obama Signs Military Spouse Tax Relief Legislation Into Law
President Obama Nov. 11 signed into law the Military Spouses Residency Relief Act (S. 475), permitting the spouse of a servicemember—for income and personal property tax purposes—to retain
residency in a tax jurisdiction from which the spouse is absent.

The newly signed law prohibits a servicemember’s spouse from either losing or acquiring a residence or domicile for tax purposes because he or she is absent or present in any U.S. tax jurisdiction solely to be with the servicemember in compliance with the servicemember’s military orders, if the residence or domicile is the same for the servicemember and the spouse.

The law also prohibits a spouse’s income from being considered income earned in a tax jurisdiction if the spouse is not a resident or domiciliary of such jurisdiction when the spouse is in that jurisdiction solely to be with a servicemember serving under military orders Obama in a statement said the law will alleviate tax and other burdens on military families. He added: “As the Congress has recognized, and as the legislative history reflects, this legislation is an important means of maintaining the morale and readiness of our Armed
Forces and significantly enhances the ability of our military to effectively recruit and retain these highly valued service personnel.”

IRS Ruling Illustrates Adjustment,Refund Claim Process for Certain Employment Taxes
Revenue Ruling 2009-39, which deals with interest-free adjustments and refund claims under Treasury Decision 9405, was released Dec. 10 by the Internal Revenue Service.

TD 9405 was developed in connection with IRS’s news X forms for corrections, including Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, and Form 945-X,
Adjusted Annual Return of Withheld Federal Income Tax or Claim for Refund.

The proposed revenue ruling refers to corrections of employment tax reporting errors using the interest-free adjustment and refund claim processes under sections 6205, 6402, 6413, and 6414 of
the Internal Revenue Code. The proposal also includes 10 situations that illustrate how the new process works.

Rev. Rul. 2009-39 will appear in the Dec. 28 Internal Revenue Bulletin 2009-52.

Employer Transition Period for H-2A Rule Is Extended
The Department of Labor’s Employment and Training Administration published an interim final rule in the Nov. 17 Federal Register extending the transition period for employers to comply with pre-filing recruitment procedures. The transition period will be extended to include all employers with a date of need before June 1, 2010 for an H-2A temporary agricultural worker. The final rule will provide a transition period allowing employers to gradually change their worker recruitment process and become accustomed to new filing procedures.

Vehicle Fair Market Value Limits for 2010 Calculated
The Bureau of Labor Statistics released its index for calculating the fair market value threshold for cars and trucks. Employers may use the fair market value limit of $15,300 for cars in 2010, up from $15,000 in 2009, and $16,000 for trucks, up from $15,200. Fleet owners may use the fair market value limit of $20,300 for cars in 2010, up from $19,900 in 2009, and $21,000 for trucks, up from $20,800. Owners can make annual lease value determinations based on the average fair market value for vehicles. The calculations by BNA, based on Internal Revenue Service regulations, were made using the consumer price index for October.

IRS Requires W-2 Reporting for Military Differential Pay
Military differential payments that began in 2009 must be reported only on Form W-2, the Internal Revenue Service said in Rev. Rul. 2009-11. Differential pay, which employers pay employees who leave a job to go on active military duty, is subject to income tax withholding, but not FICA or FUTA taxes. Employers may use the aggregate procedure or optional flat-rate withholding to calculate the amount of income taxes required to be withheld on the differential payments for reporting on Form W-2.

IRS Pilot Program Allows Abridged Social Security Numbers
A pilot program that allows filers of information returns to use shortened versions of a Social Security number,IRS individual taxpayer identification number, or IRS adoption taxpayer
identification number was begun Nov. 19 by the Internal Revenue Service. The program, announced in IRS Notice 2009-93, applies only to paper payee statements in the Form 1098 series, Form 1099 series, and Form 5498 series and in calendar years 2009 and 2010.

Bill Would Extend Tax-Free Benefits for Unemployment Insurance
A bill to extend unemployment insurance benefits includes a one-year extension of a stimulus provision that exempted the first $2,400 in such compensation from taxes. The bill (S. 2831), introduced Dec. 3 by Sen. Jack Reed (D-R.I.) and three other Democratic senators, would extend the provision from the American Recovery and Reinvestment Act (Pub. L. No. 111-5) through 2010. Authorization for the emergency UI benefits is set to expire Dec. 31. The new bill would push the expiration date to Dec. 31, 2010. President Obama, in a speech Dec. 8, supported an extension of the benefits.

IRS Extends Deadline on Attributed Tip Reporting
The Attributed Tip Income Program (ATIP), a reporting alternative for employers in the food and beverage industry, was extended for two years, the Internal Revenue Service said in Revenue Procedure 2009-53. The program promotes compliance with the Internal Revenue Code by employers and employees by reducing disputes during audits and easing the filing and recordkeeping process, IRS said. Employers that participate in the program must have at least 20 percent of gross receipts as charged receipts that reflect a charged tip, must have at least 75 percent of tipped employees agree to participate in the program, and must report the tip income of employees based on a formula that uses a percentage of gross receipts, IRS said.

Senate Bill Would Extend, Increase COBRA Subsidy
Sens. Robert Casey (D-Pa.) and Sherrod Brown (D-Ohio) want Senate leaders to bring to the floor a bill to expand the COBRA subsidy program. President Obama also pushed for extending the
program in a speech Dec. 8. The senators are co-sponsors of the COBRA Subsidy Extension and Enhancement Act (S.2730), which would extend and increase the subsidy. The bill would extend
the nine-month subsidy period to 15 months, extend the qualification period deadline to June 30, 2010, from Dec. 31, 2009, and increase the subsidy amount to 75 percent of the cost of a COBRA premium from 65 percent. The bill also would extend eligibility to include employees who lose health insurance coverage because of reduced working hours and employees who are eligible for retiree health coverage.

SSA Plans Changes for Electronic Wage Reporting
The Social Security Administration has made several changes related to its electronic wage reporting process starting this month. The administration has redesigned its home page to include a more user-friendly interface with access to W-2 and W-2C Online and Resubmission Acknowledgement applications. Access to the updated redesigned electronic wage reporting suite of services still requires a user ID and password. The administration also has updated the Electronic Wage Reporting Handbook to contain a new format and content that is easier to read. On Dec. 7, W-2c Online began accepting prior year W-2c reports. Employers should note that W-2c Online will no longer accept tax year 2006 W-2c reports after April 15, 2010.

October 2009

New York State Update
New York Metropolitan Commuter Transportation Mobility Estimated Tax Payments Due November 2

The Metropolitan Commuter Transportation Mobility Tax (MCTMT) is a tax applied to employers operating within the Metropolitan Commuter Transportation District (MCTD).  It includes self-employed resident and non-resident individuals when the net self-employment earnings exceeds $10,000 for the tax year.

The tax rate is 0.34% and the first estimated payments are due November 2, 2009.  For more information about the MCTMT, please refer to their website at:  http://www.tax.state.ny.us/mctmt/default.htm.

2010 OASDI Wage Base Remains at $106,800
The Social Security Administration announced Oct. 15 that there will be no change in the Social Security Old Age Survivor's and Disability Insurance taxable wage base for 2010. In addition, there are few other cost-of-living adjustments for 2010 because the consumer price index did not increase in the third quarter of 2009, compared with the same quarter in 2008.

This will be the first year without an automatic cost-of-living adjustment since COLAs went into effect in 1975, SSA said.

With the Social Security wage base unchanged at $106,800 for 2010, the maximum 2010 OASDI tax payable by each employee is $6,621.60, or 6.2 percent of the wage base. The employer matches the amount with an equal contribution.

The Medicare portion of the Federal Insurance Contributions Act tax continues to apply to all taxable wages earned, and the rate remains at 1.45 percent.

The Social Security fact sheet on this and other cost of living figures is available at the SSA website.

IRS Releases 2010 Pension Plan Limits
The limitation on the exclusion for elective deferrals described in Section 402(g)(3), for 401(k)-type plans, and Section 457 remains at $16,500 for 2010. Many other pension plan limit amounts are unchanged, according to the Internal Revenue Service said in an information release (IR-2009-94).

For 2010, the limitation for defined contribution plans under section 415(c)(1)(A) is unchanged at $49,000; the general definition of a highly compensated employee remains at $110,000; and the definition of a key employee in a “top-heavy plan” remains at $160,000. IRS also said that the limited compensation amount under Treasury Regulations and Internal Revenue Code Section 1.61-21(f)(5)(iii) will remain at $195,000 and the general annual compensation limit will remain at $245,000.

The full text of IRS's announcement is in the IRS Newsroom.

Few Increases in 2010 for Inflation-Adjusted Items
A revenue procedure for inflation-adjusted items for 2010 was released Oct. 15 by the Internal Revenue Service.

The procedure (Rev. Proc. 2009-50) lists these 2010 adjustments along with the 2009 amount in parentheses:

Adoption assistance programs: $12,170 ($12,150)

Qualified transportation fringe: $230 (unchanged) per month for a transit pass or qualified parking.

Personal exemption: $3,650 (unchanged)

Medical savings accounts: $2,000 to $3,000 annual deduction for single coverage (unchanged), with out-of-pocket expenses not exceeding $4,050 ($4,000); and $4,050 to $6,050 for family coverage ($4,000 to $6,050), with out of pocket expenses not exceeding $7,400 ($7,350).

Foreign earned income exclusion: $91,500 ($91,400).

Earned income credit, taken on individual return: $8,970 ($8,950) for one child; $12,590 ($12,570) for two or more children; and $5,980 ($5,970) for none.

The revenue procedure is available at the IRS website.

July 2009

New Minimum Wage Takes Effect July 24
The federal minimum wage increases to $7.25 an hour, effective July 24, marking the third and final increase scheduled from legislation signed by President George Bush in 2007.
The maximum tip credit an employer is allowed to take against the minimum wage increases to $5.12 per hour July 24, with the minimum cash wage employers can pay tipped employees remaining at $2.13 per hour.

Many State Minimum Wages Linked to Federal Rate
More than a dozen states will increase minimum wages July 24 to match the federal minimum wage increase: Delaware, Idaho, Indiana, Maryland, Missouri, Montana, Nebraska, New Jersey, New York, North Carolina, North Dakota, Oklahoma, Pennsylvania, South Dakota, Texas, Utah, Virginia, and Wisconsin. The District of Columbia sets its minimum wage at the federal minimum rate plus $1, bringing the rate to $8.25, effective July 24. Puerto Rico also adopts the new federal rate.

Ohio’s minimum wage for employers with annual gross receipts of up to $267,000 per year will increase to $7.25 an hour, effective July 24. The minimum wage rate for other employers in Ohio will remain at $7.30 an hour.

Employers of tipped employees in many of these states will also comply with changes in either the tip credit, the minimum cash wage paid to tipped employees, or both.

The state minimum wage increased in Illinois, Kentucky, and Nevada, effective July 1, 2009.

Change Affects Garnishment Limits
Federal law limits creditor garnishments to the lesser of 25 percent of wages or the amount of wages in excess of 30 times the minimum wage. At the new federal minimum wage rate of $7.25 per hour, 30 times the minimum wage rate is $217.50.
Employees with disposable earnings of up to $217.50 per week cannot have any wages garnished. Employees with disposable earnings of $217.50 to $290 per week can have wages garnished in an amount equal to the difference between weekly disposable earnings and $217.50.
Employees with disposable earnings of more than $290 per week can have 25 percent of weekly disposable earnings garnished. 

Current I-9 Form to Remain Valid
Employers should continue using the I-9 employment eligibility verification form currently on the Department of Homeland Security's Citizenship and Immigration Services Web site despite the form's stated expiration date of June 30, the agency said June 26.
The Immigration and Nationality Act requires that employers complete an I-9 for all newly hired employees to verify their identity and authorization to work in the United States. A new version of the I-9 form is under review at the Office of Management and Budget. While OMB reviews the new form, the current I-9 form will not expire, CIS said.
The latest version of the I-9 form was released Feb. 2, 2009, after CIS published an interim final rule in December to revise the I-9 form so that only unexpired documents can be presented during the verification process and eliminating several currently acceptable documents that are no longer issued by CIS (240 DLR A-6, 12/15/08).
CIS will update the I-9 form after OMB completes its review, the agency said. Employers will then be able to use either the form with the new revision date or the current form with the Feb. 2, 2009, revision date.

IRS Urges Elimination of Cell Phone Use Tax
Internal Revenue Service Commissioner Doug Shulman said he and Treasury Secretary Timothy Geithner want Congress to ensure that there will be no tax consequence to employers or employees for personal use of employer-provided cell phones. “The passage of time, advances in technology, and the nature of communication in the modern workplace have rendered this law obsolete,” he said.
He denied that the agency is getting tough on employees who use employer-provided cell phones for personal calls, saying that recent IRS proposals to value personal use for tax purposes were necessary because the “current law, which has been on the books for many years, is burdensome, poorly understood by taxpayers, and difficult for the IRS to administer consistently.” (See the June 10 PAG Newsletter for details of the proposal.)
“Some have incorrectly implied that the IRS is 'cracking down' on employee use of employer-provided cell phones. To the contrary, the IRS is attempting to simplify the rules and eliminate uncertainty for businesses and individuals,” Shulman said in a statement, made available on the IRS Web site.
Legislation (H.R. 690 and S. 144) introduced this year in the House and Senate seek to remove cell phones and similar devices as listed property.
 
IRS Issues Revised Form 941-X
Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund, has been revised to reflect reporting related to COBRA premium assistance. Lines 17a and 17b have been added to adjust, respectively, errors to line 12a of Form 941, where COBRA premium assistance payments are reported, and line 12b, where the number of individuals provided such assistance are reported. Form 941-X can be found on IRS's Web site.


February 2009

Revised Federal Withholding Tables Released
New federal income tax withholding tables reflecting changes from the recently enacted Making Work Pay tax credit were released electronically by the Internal Revenue Service (Notice 1036).

The withholding allowance amounts remain the same under the new tables, which were adjusted to account for the $400 credit for single filers and $800 for joint filers. Using the percentage method tables included in the notice, a single wage earner receiving from $200 to $696 a week will have $8.70 less in federal income tax deducted per check using the revised tables.

IRS instructs employers to implement the updated withholding amounts as soon as possible, but no later than April 1.

The tax credit will be calculated at a rate of 6.2 percent and will phase out for taxpayers with an adjusted gross income of more than $75,000, or $150,000 for married couples filing jointly.
Notice 1036 is an early release of the new wage withholding tables, and it also includes updated Advance Earned Income Credit Payment tables. The tables will be published in Publication 15-T, New Wage Withholding and Advance Earned Income Credit Payment Tables (For Wages Paid Through December 2009), expected to be available in March.

The full text of IRS Notice 1036 is available at the IRS Web site.

Revised Form 941 Reflects COBRA Premium Assistance Payments
The 2009 Form 941, released electronically, has been modified to account for COBRA health care continuation premium assistance required in the recently signed American Recovery and Reinvestment Act.

Under the provision, payroll plays a large role in helping the federal government subsidize up to 65 percent of the cost of nine months' worth of health insurance premiums for workers involuntarily separated after Aug. 31, 2008, and before Jan. 1, 2010.

Lines 12 and 13 have been modified so employers can account for monies withheld and remitted to cover health premium payments instead of withholding taxes.

IRS has posted both the revised Form 941 and the form instructions to its Web site.

Payroll Provisions in Final Stimulus Bill
The final languate of the American Recover and Investment Act (H.R. 1), expected to pass both houses of Congress and be approved by President Obama, contains several payroll-related provisions that will be effective for the remainder of 2009:

• Federal income tax withholding tables will change soon to account for the “Making Work Pay” tax credit. The bill calls for a $400 credit to be applied to individuals for 2009 and 2010 ($800 for joint filers). The credit phases out at higher incomes. Employees would receive the benefit through a reduction in the amount of federal income tax withheld from pay. For 2009, the Internal Revenue Service is instructed to factor in the full annual benefit in the revised 2009 withholding tables. The “revised income tax withholding tables would be designed to reduce taxpayers' income tax withheld for the remainder of 2009 in such a manner that the full annual benefit of the provision is reflected in income tax withheld during the remainder of 2009,” a House-Senate conferee statement said.
• Payroll will play a large role in implementing the provision that will have the federal government subsidize health premium payments under COBRA to those involuntarily terminated from employment. The bill provides a subsidy equal to 65 percent of the cost of nine months' worth of COBRA health insurance premiums for workers involuntarily separated from employers after Aug. 31, 2008, and before Jan. 1, 2010. Employers would be required to use employment tax money withheld from existing employees to make the COBRA payments directly to insurers instead of remitting those amounts to the federal government. Employers would be eligible to receive a federal cash payment if reducing withholding-tax remittances do not cover the subsidy. There is an income threshold as a condition the entitlement of the subsidy.
• To be effective for 2009, the maximum tax-free amount employers can provide employees for subsidizing public transportation will increase to $230 a month, matching the monthly employer-provided parking tax-free fringe benefit amount. This amount will continue to be indexed annually for inflation.
• Other provisions of interest to payroll: the Earned Income Tax Credit will be expanded to account for families with three or more children, federal taxation of unemployment benefits will be suspended temporarily, two new targeted groups of prospective employees are added for the Work Opportunity Tax Credit, and cuts to federal funding for state administration of child support programs will be repealed.

January 2009

IRS Issues New 2009 Form 941-X
The Internal Revenue Service has issued the new 2009 Form 941-X, Adjusted Employers Quarterly Federal Tax Return or Claim for Refund, and instructions.

The form, which is to make the process easier and less confusing, replaces Form 941C and Form 843 for employers to request a refund or abatement of overreported employment taxes. Employers are to continue using Form 843 for requests dealing with assessed interest or penalties.

The text of the instructions and Form 941-X are available at the IRS Web site.

2009 Edition of Publication 15-A Is Released
The 2009 edition of Publication 15-A, Employer's Supplemental Tax Guide, has been released by the Internal Revenue Service. The publication is a supplement to Publication 15, Circular E, Employer's Tax Guide.

Specific sections in Publication 15-A cover how to correct an error in a previously filed employment tax return, worker status issues, employees of exempt organizations and how to handle third-party sick pay.

The publication also contains alternative withholding tables. The full text of Publication 15-A is available at the IRS Web site.

IRS Releases Form W-4, Publication 15 for 2009
The 2009 Form W-4, Employee's Withholding Allowance Certificate, was released electronically by the Internal Revenue Service. Employees claiming a full exemption from federal income tax in 2008 must file a new form to maintain the exemption, which expires on Feb. 16, 2009. If no new form is filed, employers are to begin withholding as if the employee were single claiming no withholding allowances until the employee submits a new Form W-4.

Individuals cannot claim the exemption if income exceeds $950 ($900 in 2008) and includes more than $300 in unearned income (interest and dividends), and if they can be claimed as a dependent on another person's tax return.

The IRS also released the 2009 edition of Publication 15 (Circular E), Employer's Tax Guide, which explains employers' employment tax responsibilities, provides wage bracket and percentage method withholding tables, and discusses recent changes affecting employers.

The 2009 Form W-4 and Publication 15 can be found at the IRS Web site.

Advance Earned Income Credit Form W-5 for 2009 Is Released
The maximum advance payment a qualified Earned Income Credit recipient can receive through an employer next year is $1,826, according to the 2009 Form W-5, Earned Income Credit Advance Payment Certificate, released electronically by the Internal Revenue Service.

An employee eligible for advance EIC payment must submit a completed Form W-5 to his or her employer to receive the credit in advance. After the form is filed, it remains in effect until the end of the year, unless the employee revokes it or files another. Employees now receiving the advance credit via payroll must file a 2009 Form W-5 for the advance credit to continue into the new tax year, as the 2008 form expires Dec. 31.

The 2009 form W-5 is available at the IRS Web site.

DHS Revises Form I-9 in Interim Final Rule
The U.S. Department of Homeland Security issued an interim final rule, which is effective Feb. 2, 2009, that revises federal Form I-9, which is used to verify the employment eligibility of new hires, and the list of documents that can be used to satisfy Form I-9 requirements.

Among the new changes to the I-9 form, Forms I-688, I-688A, and I-688B are eliminated from the list of documents that can verify identity and employment authorization and the employee attestation section is updated.

The full text of the interim final rule is available at the U.S. Citizenship and Immigration Services Web site.

IRS Releases 2009 Publication 15-B, Employer's Guide to Fringe Benefits
A new edition of Publication 15-B, Employer's Tax Guide to Fringe Benefits, has been released by the Internal Revenue Service. The publication includes the 2009 cents-per-mile amount as well as an explanation of the new qualified bicycle commuting reimbursement.

The full text of Publication 15-B is available at the IRS Web site.

2008 Legislative Updates