Deadline to Inform Employees About the Earned Income Credit
State Payroll Tax Update
The IRS has issued a December 2009 version of Notice 1015, Have You Told Your Employees About the Earned Income Credit (EIC)?
The earned income credit (EIC) is a tax credit available to low-income employees. The credit reduces taxes owed and is intended to offset living expenses and Social Security taxes paid. An eligible employee may either claim the whole credit on his or her federal income tax return, in which case it will be paid out in a lump sum by the federal government, or, in certain cases, the employee may choose to receive the credit incrementally (i.e., in advance) with each paycheck by providing the employer with a Form W-5.
Which Employees Must be Notified About the EIC
Employers must notify all employees who worked for them at any time during 2009, and from whom income tax was not withheld, about the EIC. In addition, employers are encouraged to notify each employee whose wages for 2009 were less than $48,279 that he or she may be eligible for the EIC. The IRS notes that an employer is not required to notify employees about the EIC if they claimed exemption from withholding on Form W-4, Employees Withholding Allowance Certificate.
How to Notify Employees About the EIC
Employees who meet the requirements above must be provided one of the following:
(1) Form W-2, which has the required EIC information on the back of Copy B.
(2) A substitute Form W-2 with the same EIC information on the back of the employee's copy that is on Copy B of Form W-2.
(3) A copy of Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC) .
(4) A written statement from the employer which has the same wording as Notice 797.
When to Notify Employees About the EIC
No further notice about the EIC is required if: (a) Form W-2 has the required information about the EIC on the back of the employee's copy, (b) the employee is required to receive Form W-2, (c) and the employer timely gives the employee Form W-2. If a substitute Form W-2 is given on time but does not have the required information about the EIC, the employer must notify the employee about the EIC within one week of the date that the substitute Form W-2 is issued. If Form W-2 is required, but is not given on time, the employer must give the employee Notice 797 or a written statement by the date that Form W-2 is required to be given to the employee. If the employee is not required to receive Form W-2, the employer must have notified the employee about the EIC by February 8, 2010.
The notice about the EIC must be handed directly to the employee or delivered to the employee by first-class mail to the employee's last known address. An employer will not meet the notification requirements by posting Notice 797 on an employee bulletin board or sending it through office mail.
States Requiring IRS EIC Notification
The following six states require employers to notify eligible employees about the federal EIC: California, Illinois, Louisiana, New Jersey, Texas, and Virginia.
New laws and developments are reported from the following states:
ALABAMA
Withholding. Form A-4, Employees Withholding Exemption Certificate, has been revised, effective December 2009, to include the withholding exemption for military spouses provided in the federal Military Spouses Residency Relief Act. To claim the exemption, the qualifying spouse must also attach Form DD-2058, State of Legal Residence Certificate, to Form A-4 [Alabama Department of Revenue website].
CALIFORNIA
Employment Taxes. Employers can now file the following forms using the Federal/State Employment Taxes (FSET) program: (1) Form DE 6, Quarterly Wage and Withholding Report, (2) Form DE 7, Annual Reconciliation Statement, (3) Form DE 34, Report of New Employee(s), and (4) Form DE 542, Report of Independent Contractor(s). FSET provides a standardized method for reporting federal and state employment tax and wage information as a file attachment over the Internet using eXtensible Markup Language (XML). [California Employer, Fourth Quarter 2009].
Employers in Humboldt County that were directly affected by the damage resulting from the earthquake may request up to a 60-day extension of time from the Employment Development Department (EDD) to file their State payroll reports and/or deposit State payroll taxes without penalty or interest. Written requests for extension must be received within 60 days from the original delinquent date of the payment or return [EDD Tax Branch News #94, 11/13/10].
CONNECTICUT
Withholding. The Employer's Tax Guide has been updated for the 2010 tax year. The guide includes withholding tax rules, forms, and tables [Connecticut Informational Publication 2010(1), 01/01/2010].
The Connecticut Department of Revenue Services (DRS) notes that while employers are not required to withhold Connecticut income tax from certain wages/compensation paid to nonresident employees who work less than 14 days in Connecticut during a calendar year, employers must still report the wages/compensation on Form CT-941, and in the state wage box of federal Form W-2, because the wages/compensation are still subject to Connecticut personal income tax [Connecticut Announcement 2010(3), 01/11/2010].
Married individuals and parties to a civil union who are both employed and file a joint Connecticut income tax return may need to increase or decrease the amount of Connecticut income tax withheld from one spouse's wage income to avoid the underwithholding or overwithholding that may result when both incomes are combined [Connecticut Announcement 2010(1),12/31/2009].
DELAWARE
Withholding. The Delaware Division of Revenue (DOR) has posted on its website a schedule that shows the 2010 tax deposit deadlines for monthly, eighth-monthly, and quarterly withholding filers. Returns must be mailed by the due date of the return. Electronic filers must initiate the transaction at least one day prior to the due date of the return and must use tax type code 01106 [Delaware DOR website].
DISTRICT OF COLUMBIA
Withholding. The Office of Tax and Revenue (OTR) has extended the deadline for filing 2009 annual withholding tax returns (FR-900A) and paying the withholding tax due from January 20th to February 1st, because of a delay in mailing Form FR-900A to employers. Interest and late payment penalties will not be assessed on returns and payments received by the extended due date [Office of Tax and Revenue News Release, 1/15/10].
LOUISIANA
Withholding. Military spouses whose wages are exempt from Louisiana income tax under the federal Military Spouses Residency Relief Act may file Form L-4E, Exemption from Withholding Louisiana Income Tax, with their employers to exempt that income from withholding. Form L-4E expires at the end of the year. Military spouses must file a new Form L-4E each year if they qualify for the exemption. To request a refund of Louisiana income tax withheld or paid for tax year 2009 on income that is exempt under the federal Act, eligible military spouses must file a Louisiana personal income tax return [Louisiana Information Bulletin 10-005,01/08/2010; Louisiana Information Bulletin 10-006, 01/08/2010].
MASSACHUSETTS
Withholding. The Massachusetts Department of Revenue (DOR) is following the federal Military Spouses Residency Relief Act. The DOR will not tax a taxpayer's spouse on income earned from services performed in Massachusetts if the spouse is a nonresident who only relocated to the State to be with the taxpayer while the taxpayer was stationed in Massachusetts. The DOR will provide additional information on how taxpayers affected by the Act need to file their taxes at a later date [Massachusetts Dept. of Revenue website].
NEW JERSEY
Employment Taxes. A newly-enacted law allows the State to revoke or suspend the business license of an employer who repeatedly fails to pay wages, benefits, or taxes as required by law, or who fails to properly maintain records or file required reports with the NJ Department of Labor & Workforce
Development [L. 2008, S2773, as amended on 1-7-10].
NEW YORK
Unemployment. Contribution rates for experienced employers in 2010 range from 1.5% to 9.9%. These rates includes a 0.075% reemployment tax, and a subsidiary tax that ranges from 0.525% to 0.925%, depending on the employer's account percentage. The tax rate for new employers is 4.1%.
This rate includes the reemployment tax (0.075%) and the subsidiary tax (0.625%). The taxable wage base remains at $8,500. Tax rate notices will be mailed out in March [NYS Department of Labor website].
OREGON
Withholding. The Oregon Department of Revenue is in the process of revising its withholding tables, effective March 1, 2010 [Payroll Tax-News, January, 2010].
Oregon does not tax military pay earned by a nonresident stationed in Oregon. Oregon will also not tax the taxpayer's spouse on income earned from services performed in Oregon if the spouse is a nonresident who only relocated to the State to be with the taxpayer while the taxpayer was stationed in Oregon [Oregon Circular 150-101-657, 1/1/10].
SOUTH DAKOTA
Unemployment. South Dakota State Labor Secretary Pam Roberts expects the 1.5% employer tax surcharge, that was scheduled to expire on June 30, 2010, to "continue through 2010 and into 2011." The surcharge is triggered when the trust fund reaches low levels and has been in effect since Oct. 1, 2009 [South Dakota Unemployment Insurance e-Iert, 1/20/10].
UTAH
Workers' Compensation. Effective Jan. 1, 2010, the Utah workers' compensation insurance premium tax rate has been reduced from 5.5% to 4.3% [Utah Tax Commission Bulletin 1-10 01/01/2010].
VIRGINIA
Withholding. The Virginia Department of Taxation (DOT) "Web Upload" system has been updated to accept W-2 and 1099-R data. Employers can upload their W-2 and 1099-R information electronically. Magnetic media (CDs and diskettes) will continue to be accepted, but the DOT encourages employers to use Web Upload instead. Employers who previously used magnetic media, or who have already created their 2009 magnetic media files, can still modify the files to meet the Web Upload requirements [DOT Announcement on Web Upload, 01/14/10].
WISCONSIN
Withholding. The Wisconsin reciprocity agreement with Minnesota ended on Jan. 1, 2010. Wisconsin residents working in Minnesota are subject to Minnesota withholding on their wage income. Under Wisconsin law, if the employer also does business in Wisconsin (has nexus in Wisconsin), the employer is also required to withhold Wisconsin income tax from the same wage income that is subject to the Minnesota withholding. The Wisconsin Department of Revenue (DOR) recognizes that this law may create a hardship for those employees who have both Minnesota and Wisconsin income tax withheld. Accordingly, the DOR has authorized a special withholding arrangement under which Wisconsin withholding will not be required under the following circumstances: (1) the employee is a legal resident of Wisconsin (i.e., domiciled in Wisconsin) when the wages are earned in Minnesota, and (2) the same wages earned by the Wisconsin resident and subject to Minnesota withholding would also be subject to Wisconsin income tax withholding [Wisconsin News for Tax Practitioners (Special Withholding Arrangement Related to Wisconsin Minnesota Income Tax Reciprocity Termination), 01/20/2010;Withholding and Tax Filing Information Related to Wisconsin-Minnesota Income Tax Reciprocity Termination, 1/20/10].
All registered employers should be using their 15-digit Wisconsin tax account number on all withholding correspondence, including W-2s, WT-6s, WT-7s, W2-Gs, 1099-Rs and 1099-Ms. The tax account number begins with 036 and vendor specifications require an entry field of 15 digits. Employers should contact their software vendor if the vendor does not provide a field large enough to accept 15 digits. The Wisconsin Department of Revenue will accept W-2s that have already been prepared with the short number. However, going forward, employers must use the 15-digit number [Wisconsin News for Tax Practitioners (Withholding Tax Account Number), 01/14/2010].
Taxpayers may file withholding deposit reports and annual reconciliations (Forms WT-6 and WT-7) using the Wisconsin Business Telefile system. To use the Telefile system, call (608) 261-5340 or (414) 227-3895. The system does not calculate late fees, penalties, and interest for withholding taxes [Wisconsin News for Tax Practitioners (Withholding Telefile Available), 01/12/2010]. |
