Vision Payroll

March 1, 2011

IRS Announces Revision To Withholding on Nonresident Alien Employees

IRS Announces Revision To Withholding on Nonresident Alien Employees
IRS Announces Revision To Withholding on Nonresident Alien Employees
In Notice 2011-12, Withholding on Wages of Nonresident Alien Employees Performing Services Within the United States the Internal Revenue Service (IRS) announced that Notice 2009-91 will not apply to wages paid after December 31, 2010.

Notice 2009-91 Modified Withholding Procedures for 2010

In Notice 2009-91, Withholding on Wages of Nonresident Alien Employees Performing Services Within the United States, the IRS modified the procedures for calculating the amount of federal income tax to be withheld from wages paid to nonresident aliens starting on January 1, 2010. Since nonresident aliens were not eligible for the Making Work Pay Tax Credit, the withholding procedures were modified to reflect this difference.

Making Work Pay Credit Unavailable in 2011

Since the “Making Work Pay Credit does not apply to taxable years beginning after December 31, 2010…the withholding tables for wages paid on or after January 1, 2011 will not reflect the Making Work Pay Credit, and Notice 2009-91 will not apply in determining the withholding on nonresident aliens.”

Withholding Rules for Nonresident Aliens for 2011

According to the IRS:

For wages paid on or after January 1, 2011, employers must determine the amount of income tax to withhold from wages paid to nonresident alien employees for services performed within the United States, using the procedure explained in Notice 2005-76, 2005-2 C.B. 947, together with the tables in the revisions of Publication 15 (Circular E), Employer’s Tax Guide, and Notice 1036 that are in effect when the wages are paid. This procedure is explained in Publication 15 and Notice 1036.

Contact Vision Payroll for Further Information

Contact Vision Payroll if you have any questions on Notice 2011-12.

February 11, 2011

Question of the Week: Why Did My Withholding Increase on My Pension?

This week’s question comes from Myrtle, a retired bookkeeper. I thought the income tax cuts were extended, but now the federal income tax withholding on my pension has increased. Why did my withholding Increase on my pension? Answer: The Internal Revenue Service (IRS) gave a detailed answer to this question in Special Edition Tax Tip 2011-01. The answer follows:

Why Employees and Retirees May See Changes in 2011 Payments and Withholding

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, enacted on December 17, 2010, included several changes impacting workers’ take-home pay and retirees’ net pension checks for 2011. The Tax Relief Act extended for two years the income tax rates that were scheduled to expire at the end of 2010; that extension prevented a large increase in federal income tax withholding.

However, the new law did not extend the Making Work Pay (MWP) credit that had been available for tax years 2009 and 2010. While most workers qualified for the maximum MWP credit, pension recipients did not qualify for any MWP credit unless they also had wages or other earned income.

In December 2010, the IRS published new federal income tax withholding information to reflect the impact of the Tax Relief Act. The fact that the MWP credit expired, by itself, would have resulted in increased withholding for most taxpayers. However, under the Tax Relief Act, withholding for social security tax for all wage earners was reduced from 6.2% to 4.2% (withholding for Medicare, at 1.45%, did not change). For most employees, the net effect of these two changes will result in less total tax being withheld from their checks. The social security tax reduction does not affect pension payments.

Due to the late enactment of these tax law changes, the IRS asked employers and plan administrators to adjust their systems as soon as possible but not later than January 31, 2011. This means employees and pension recipients may not have seen the full impact of these changes until their first paycheck in February, 2011.

Once employers implement the changes, there will be a net increase in take-home pay for most employees (excluding the impact of any other withholding amounts, such as withholding for health insurance, state income taxes, etc.).

Once pension plan administrators implement the 2011 changes, the retirement check payments for some pensioners may be lower depending upon the method that their plan administrators used to calculate withholding in 2010. Because the MWP credit did not apply to pensioners, the IRS published a table for 2009 and 2010 giving plan administrators the option of increasing withholding for their pension recipients. Not all plan administrators made the optional adjustment and instead allowed pensioners to make the adjustment when they filed their tax returns. Since the 2011 withholding tables do not reflect the expired credit, pension recipients in this situation are likely to see the withholding for their 2011 pension payments increase by approximately $7 to $50 per payment, depending on filing status, the amount of the payment, and how often the payment is made.

IRS encourages both employees and pensioners to review their withholding every year using the withholding calculator on IRS.gov and, if necessary, fill out a new W-4 or W-4P form and give it to their employer or pension plan administrator.

Contact Vision Payroll for Further Information

Contact Vision Payroll if you have any further questions on the changes in federal withholding.

January 14, 2011

Question of the Week: What Are 10 Hot Items for Payroll in 2011?

What Are 10 Hot Items for Payroll in 2011?
What Are 10 Hot Items for Payroll in 2011?
This week’s question comes from Seth, a company controller. It seems as if there are many changes in payroll recently. What are 10 hot items for payroll in 2011? Answer: The payroll industry and payroll departments have seen many changes as Congress uses the payroll and payroll tax system as a means to implement desired changes in social policy. Many items are new or revamped for 2011.

10 Hot Payroll Items in 2011

  1. 2011 Withholding Table Changes: Because of the recently passed Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Act), employers should implement the 2011 withholding tables as soon as possible, but not later than January 31, 2011.
  2. Reduced Social Security Tax Rate for Employees: For 2011, the employee tax rate for Social Security is 4.2%, down from 6.2% in 2010. The employer rate remains at 6.2%.
  3. Expiration of Making Work Pay Credit: The Making Work Pay credit expired on December 31, 2010, resulting in higher federal withholding from many employees in 2011.
  4. Extension of COBRA Premium Assistance Credit: The credit for COBRA premium assistance payments has been extended to include premiums paid for employees involuntarily terminated between September 1, 2008, and May 31, 2010, and to premiums paid for up to 15 months.
  5. Advance Payment of Earned Income Credit (EIC) Discontinued: The option to receive advance payroll payments of EIC expired on December 31, 2010.
  6. Federal Tax Payments Must Be Made by Electronic Funds Transfer: With the discontinuation of Forms 8109 and 8109-B, most federal tax payments must now be made by electronic funds transfer.
  7. FUTA Tax Rate Scheduled to Decrease: Under current law, the FUTA tax rate will decrease from 6.2% to 6.0%, effective July 1, 2011.
  8. Withholding Allowance Amount Set at $3,700: For 2011, the amount for one withholding allowance on an annual basis is $3,700, up from $3,650 for 2009 and 2010.
  9. Aggregate Form 940 and Form 941 Filers Must File Schedule R: Agents must complete the appropriate Schedule R when filling an aggregate Form 940 or Form 941.
  10. Choose to File Form 941 Instead of Form 944: Employers notified that they should file Form 944, but who want to file Form 941 instead, may notify the IRS and request to file Form 941.

More Changes Expected Throughout 2011

Check VisionPayroll.com regularly as the only certain thing about payroll and payroll taxes for 2011 is that many more changes can be expected.

January 7, 2011

Question of the Week: Why Did My Federal Income Tax Withholding Go Up in 2011?

Why Did My Federal Income Tax Withholding Go Up in 2011?
Why Did My Federal Income Tax Withholding Go Up in 2011?
This week’s question comes from Gabrielle, an office manager. I noticed that my federal income tax withholding increased for my first check of 2011 as compared to my last check of 2010. Several of my co-workers noticed the same thing. I thought the tax cuts were extended. Why did my federal income tax withholding go up in 2011? Answer: The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Act) did extend lower marginal rates for many taxpayers and some taxpayers will see lower federal withholding.

Expiration of Making Work Pay Credit Will Increase Withholding for Many

The expiration of the Making Work Pay credit meant an adjustment in the withholding tables that results in increased federal withholding for many taxpayers. Since taxpayers no longer may claim the Making Work Pay credit on their tax returns, the withholding tables have been adjusted

Taxpayers May File an Amended Form W-4 to Adjust Federal Withholding

Employees may complete a revised 2011 Form W-4, Employee’s Withholding Allowance Certificate or its Spanish equivalent, Formulario W-4(SP), Certificado de Exención de la Retención del Empleado, to adjust their federal withholding for 2011.

Many Taxpayers Have Reduced Social Security Tax Withholding

For taxpayers subject to social security tax withholding, the 2010 Tax Act reduced the rate of withholding in 2011 from 6.2% to 4.2%. This reduced withholding will generally result in higher net pay as it will more than offset the increase in federal income tax withholding.

Vision Payroll Has Implemented New Withholding Tables

Vision Payroll has already updated its tax tables and will calculate both the reduced Social Security and updated federal income tax withholding for all 2011 paychecks.

December 17, 2010

Question of the Week: How Does the 2010 Tax Act Affect Payroll Taxes in 2011?

How Does the New Tax Bill Affect Payroll Taxes in 2011?
How Does the New Tax Bill Affect Payroll Taxes in 2011?
This week’s question comes from Matt, a company president. I know the tax bill has passed the Senate and House and that President Obama has signed it. How does the new tax bill affect payroll taxes in 2011? Answer: The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Act) should give many employees an increase in their take home pay starting with their first check in 2011.

Social Security Withholding to Be Reduced To 4.2%

The biggest impact many employees will see is the reduction of Social Security withholding from 6.2% to 4.2%. According to the Internal Revenue Service (IRS) in Notice 1036, “Employers should implement the 4.2% employee social security tax rate as soon as possible, but not later than January 31, 2011. After implementing the new 4.2% rate, employers should make an offsetting adjustment in a subsequent pay period to correct any overwithholding of social security tax as soon as possible, but not later than March 31, 2011.” The new law also maintains the income-tax rates that have been in effect in recent years.

Making Work Pay Credit Set to Expire

The Making Work Pay credit expires on December 31, 2010. As a result:

  • The income tax withholding tables for 2011 are not adjusted for the Making Work Pay credit.
  • There is no longer an optional additional withholding adjustment for pensions.
  • The procedure for withholding on wages of nonresident aliens has been modified and is included in Notice 1036.

New Percentage Method Tables for Income Tax Withholding Now Available

Notice 1036 includes the 2011 Percentage Method Tables for Income Tax Withholding that were developed as a result of the 2010 Tax Act. Employers should implement the 2011 withholding tables as soon as possible, but not later than January 31, 2011. Vision Payroll has already updated its tax tables and will calculate both the reduced Social Security and updated federal income tax withholding for all 2011 paychecks.

August 1, 2010

IRS Releases Information Letter on Making Work Pay Tax Credit

Senator Amy Klobuchar questioned IRS on Making Work Pay tax credit and payroll withholding
Senator Amy Klobuchar (D-MN)
In response to a letter from Senator Amy Klobuchar (D-MN), the Internal Revenue Service (IRS) recently released Information Letter 2010-0144, which includes a response to her constituent about the effect of the Making Work Pay tax credit on his employees’ annual withholding for 2009. The constituent was concerned that the reduced withholding would either reduce his employees’ refunds or increase the tax they would owe when they filed their 2009 and 2010 income tax returns. The IRS recommended that concerned employees consult the IRS withholding calculator and submit a revised Form W-4, Employee’s Withholding Allowance Certificate or its Spanish equivalent, Formulario W-4(SP), Certificado de Exención de la Retención del Empleado. Additionally, they should consult Publication 919, How Do I Adjust My Tax Withholding? Vision Payroll recommends that employees regularly review their income tax withholding to ensure the proper amount is paid in so that underpayment penalties may be avoided.

January 22, 2010

Question of the Week: Why Did My Federal Income Tax Refund Go Down?

This week’s question comes from Rachael, a receptionist. I just filed my 2009 tax returns. Usually I get a big refund, but this year my refund was a lot less. My income and deductions are pretty much the same as in 2008. Why did my federal income tax refund go down? Answer: Your income tax refund is based on many factors, but one important factor to consider is the amount of federal income tax withheld. Last February, the Internal Revenue Service released revised withholding tables that increased most taxpayers’ take-home pay by reducing the amount of federal income tax withheld. These tables reflected changes mandated by the American Recovery and Reinvestment Act of 2009, including the Making Work Pay Credit. Contact Vision Payroll if you have any questions.

November 24, 2009

IRS Changes Nonresident Alien Withholding Procedures in Notice 2009-91

In Notice 2009-91, Withholding on Wages of Nonresident Alien Employees Performing Services Within the United States, the Internal Revenue Service (IRS) modified the procedures for calculating the amount of federal income tax to be withheld from wages paid to nonresident aliens starting on January 1, 2010. Since nonresident aliens are not eligible for the Making Work Pay Tax Credit, the withholding procedures must be modified to reflect this difference. According to Notice 2009-91:

First, employers need to add an amount to wages before determining withholding under the wage bracket or percentage method in order to offset the standard deduction built into the withholding tables. Second, employers need to determine an additional amount of withholding from a separate table applicable only to nonresident alien employees to offset the effect of the Making Work Pay Tax Credit built into the withholding tables. The specific steps to be followed for each of these two modifications will be set forth in Publication 15 and other IRS forms or publications.

Contact Vision Payroll if you have any questions on Notice 2009-91.

April 1, 2009

Tip of the Week: Use New Worksheet to Help Calculate Correct Withholding

The Internal Revenue Service (IRS) has released a revised version of Publication 919, How Do I Adjust My Tax Withholding?, to reflect changes from the Making Work Pay credit implemented as part of the American Recovery and Reinvestment Act of 2009 (ARRA). The IRS was concerned that two-earner families, employees with multiple jobs, and pension recipients may be under-withheld due to the changes in withholding tables mandated by ARRA. As a result, taxpayers could owe several hundred or thousands of dollars when filing their 2009 tax returns next year. The IRS recommends that taxpayers use new Worksheet 12, Making Work Pay Credit Worksheet (Including Special Credit for Government Retirees), from Publication 919 to adjust their withholding if necessary.

Contact Vision Payroll if you have questions on this topic.

March 4, 2009

Tip of the Week: IRS Releases Publication 15-T in Response to American Recovery and Reinvestment Act of 2009

The Internal Revenue Service (IRS) has released Publication 15-T, New Wage Withholding and Advance Earned Income Credit Payment Tables (For Wages Paid Through December 2009). Publication 15-T contains revised withholding tables to implement changes mandated by the American Recovery and Reinvestment Act of 2009 (the Act) as well as information on other changes required by the Act such as increased commuter exclusion amounts and changes required to the adjustment to taxes withheld on nonresident aliens.

The IRS recommends making a copy of the notice provided on page 73 of Publication 15-T available to all employees so that they may understand the change in withholding. Employees are not required to file a new Form W-4, Employee’s Withholding Allowance Certificate or its Spanish equivalent, Formulario W-4(SP), Certificado de Exención de la Retención del Empleado to see the impact of the tax law change, but may wish to do so to ensure the correct amount of tax is withheld.

Vision Payroll implemented the revised withholding tables last week and eligible employees should notice an increase in net pay with their current paycheck.

Over the next several days, Vision Payroll will be posting additional articles on changes to payroll and HR by other sections of the Act. We’re also planning a seminar on implementing these changes, so contact Vision Payroll if you’d like to attend.

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