Compliance Central

A preliminary draft of the 2011 Form 941, Employer’s Quarterly Federal Tax Return, was released by the Internal Revenue Service. The draft form is subject to changes and a final version of Form 941 for the first quarter is scheduled to be released by late February, occurring after the filing period for the fourth quarter of 2010. 

The draft form has several changes, including calculations to reflect the 2011 reduction of the employee portion of the Federal Insurance Contributions Act (FICA) tax. For wages earned in 2011, the employee Social Security tax rate is 4.2 percent and the Medicare tax rate is 1.45 percent.  The draft form warns employers not to complete lines 6a-6d, which are reserved for future use. On Form 941 for 2010, the lines deal with exempt wages and tips paid to qualified employees during a quarter.

 Visit the IRS website for more details.

Beginning with the first quarter of 2011, employers in California are required to file a Quarterly Contribution Return and Report of Wages (DE 9) (Form DE-9) and a Quarterly Contribution Return and Report of Wages (Continuation) (Form DE-9C) each quarter.  The change to quarterly reporting will allow the California Employment Development Department (EDD) and employers to identify overpayments more quickly, which will result in faster refunds. In addition, EDD will be able to promptly notify employers of any amounts due.

Employers will report their unemployment insurance, employment training tax, state disability insurance, and personal income tax withholding payments quarterly on Form DE-9 instead of annually on Form DE-7, the Annual Reconciliation Statement.   Detailed wage information for each worker will be reported on new Form DE-9C, instead of Form DE-6, Quarterly Wage and Withholding Report.  Even active employers who paid no wages during the quarter must sign and file a DE-9C.  Employers will still use the DE 6 and DE 7 to file for years prior to 2011.

Registered employers will receive the new forms automatically by mail starting in 2011. For more information about the new forms for 2011, please review the 2011 Payroll Tax Reporting Changes FAQs on the CA EDD website.

Form W-4

The IRS has released the 2011 version of Form W-4, Employee’s Withholding Allowance Certificate.  The instructions note that an employee cannot claim exemption from withholding if: (1) the employee’s income exceeds $950 (unchanged from 2009 and 2010) and includes more than $300 of unearned income (for example, interest and dividends), and (2) another person can claim the employee as a dependent on his or her tax return. Employers must withhold from the pay of any employee who had claimed exemption from withholding in 2010, but who does not provide a new Form W-4 to continue the exemption by February 15, 2011.

The IRS advises employees who have more than one job, or who are married and both spouses work, with combined earnings from all jobs exceeding $40,000 ($10,000 if married), to look at the Two-Earners/Multiple Jobs Worksheet on page 2 of the instructions to avoid having too little tax withheld. The above amounts have changed from $18,000 ($32,000 if married) in 2010.  

The IRS also advises employees to use the 2011 version of IRS Publication 919, How Do I Adjust My Tax Withholding?, after Form W-4 takes effect, to confirm that the amount they are having withheld is sufficient, particularly if the employee’s income is projected to exceed $130,000 (single) or $180,000 (married) in 2011.

Publication 15

The 2011 Publication 15 (Circular E), Employer’s Tax Guide is also available on the IRS website.  The publication covers employers’ employment tax responsibilities and includes the 2011 wage bracket and percentage method withholding tables.  Publication 15 also discusses recent changes affecting employers, including the 4.2 percent employee tax rate for Social Security, the expiration of the Making Work Pay credit, and the extension of the COBRA premium assistance credit.

Several states have made updates to their withholding tables or calculations for 2011.  Refer to the following state links for guidance on changes to withholding and to access the revised Employer Withholding Guides and/or tax tables.

• Arizona – http://www.azdor.gov/Business/WithholdingTax.aspx
• California – http://www.edd.ca.gov/Payroll_Taxes/Rates_and_Withholding.htm
• Colorado – http://www.colorado.gov/cms/forms/dor-tax/drp1098.pdf
• Hawaii – http://www6.hawaii.gov/tax/a2_4pubs.htm
• Kentucky – http://revenue.ky.gov/wht/
• Maine -  http://www.maine.gov/revenue/forms/with/2011/2011_wh_tables.pdf
• Maryland – http://business.marylandtaxes.com/taxinfo/withholding/default.asp
• Michigan – http://www.michigan.gov/taxes/0,1607,7-238-43531-155476–,00.html  
• Minnesota – http://taxes.state.mn.us/withholding/pages/index.aspx
• Missouri – http://dor.mo.gov/pdf/formula.pdf
• New Mexico – http://www.tax.newmexico.gov/Businesses/Wage-Withholding-Tax/Pages/Home.aspx
• New York (New York City only) – http://www.tax.ny.gov/pdf/publications/withholding/nys50_t2.pdf
• North Dakota – http://www.nd.gov/tax/indwithhold/pubs/guide/index.html
• Oklahoma – http://www.oktax.state.ok.us/
• Oregon – http://www.oregon.gov/DOR/BUS/payroll_updates.shtml
• Rhode Island – http://www.tax.state.ri.us/
• Vermont – http://www.state.vt.us/tax/businesswithholding.shtml

The following states have reported no state changes for 2011: Alabama, Arkansas, Connecticut, Delaware, District of Columbia, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Massachusetts, Mississippi, Montana, Nebraska, New Jersey, North Carolina, Ohio, South Carolina, Utah, West Virginia and Wisconsin.

Indiana released new county withholding rates, effective December 1, 2010 and a number of municipalities and school districts in Ohio have changed their tax rates for 2011. Withholding tables for New York state and Yonkers remain unchanged, but New York City released new tax tables, effective January 1, 2011.