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

October 2009

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