Compliance Central

The New York Department of Taxation and Finance announced that effective for tax year 2011, the rate of the city of Yonkers resident income tax surcharge has been increased from 10% to 15% of the net state tax.  As a result, the city of Yonkers resident income tax rate will increase from 0.977% to 1.4655% for tax year 2011.  All wages paid to a Yonkers resident are subject to personal income tax withholding even though the services may have been performed outside of Yonkers.  The online Withholding Tax Jurisdiction Lookup may be used as a guide to determine if an individual’s address is in the city of Yonkers for purposes of withholding.

Effective May 1, 2011, new withholding tables for the Yonkers resident income tax surcharge will be issued to ensure that the correct amount of Yonkers tax will be withheld for tax year 2011. Therefore, taxpayers should not need to adjust their Yonkers withholding for tax year 2011 because of the rate change. However, taxpayers that have requested their employers to withhold additional amounts of Yonkers tax using Form IT-2104, Employee’s Withholding Allowance Certificate, may choose to increase the additional amount withheld to account for the increase in the Yonkers rate.

The Yonkers nonresident earnings tax rate was not changed and will continue to be imposed at the rate of .5% on wages and net earnings from self-employment.

http://www.tax.ny.gov/pdf/memos/income/m11_2i.pdf

In the case of Jefferson County v. Weissman, et al., the Alabama Supreme Court has ruled that Jefferson County’s 2009 occupational tax law is unconstitutional.  On March 22, 2011, Jefferson County announced that effective immediately, employers should stop withholding the Jefferson County occupational tax from their employees’ paychecks.

Any amounts that have been withheld from employees but not yet remitted to the County should be paid back to the employees from whose paychecks the amounts were withheld.  It has not yet been determined when the amounts previously levied and collected under the invalidated statute will be refunded to employees.  This determination will be made by the Circuit Court of Jefferson County at a later date.

http://jeffconline.jccal.org/home/jcinfo/occ-tax0311A.pdf

FUTA-covered employers currently are assessed a tax amounting to 6.2% on the first $7,000 of wages paid to each worker during a calendar year.  After June 30, 2011, the FUTA tax rate is scheduled to decrease to 6.0%.  The $7,000 is the federal wage base and each state may have a different wage base.

Generally, employers can take a credit against their FUTA tax for amounts paid into state unemployment funds. The credit may be as much as 5.4% of FUTA taxable wages.  If an employer is entitled to the maximum 5.4% credit, the FUTA tax rate after credit is 0.8% (this will decrease to 0.6% after June 30, 2011).

Employers are entitled to the maximum credit if they paid state unemployment taxes:

• in full,
• on time,
• on all the same wages as are subject to FUTA tax, and
• as long as the state is not determined to be a credit reduction state

Federal Form 940 can be used to help determine the credit.  The Circular E, Employer’s Tax Guide, has more information on FUTA rules.

The United States has entered into Totalization Agreements with several countries for the purpose of eliminating duplicate Social Security taxation on wages earned by individuals who spend part of their working life in two countries.  These agreements must be taken into account when determining whether any alien is subject to the U.S. Social Security/Medicare tax, or whether any U.S. citizen or resident alien is subject to the social security taxes of a foreign country.

Chief Counsel Advice 201105039, prepared by the Office of Chief Counsel, notes that employers may not elect to pay either U.S. or foreign Social Security tax if the employment is subject to U.S. FICA tax under a totalization agreement.  U.S. Social Security tax must be paid on subject wages and an employer’s failure to do so and issue W-2 forms when required could have an adverse effect on the employee’s Social Security coverage.

Congress has expressed some concerns about the IRS fully enforcing the U.S. FICA tax rules on employers when they have employees working oversees.  Chief Counsel believes that an IRS policy of FICA tax forgiveness where the employer pays foreign Social Security in error rather than U.S. Social Security taxes would be difficult to defend and would lack legal justification.

Section 3121(I) of the Internal Revenue Code allows employers to make a future election to pay U.S. FICA taxes in situations where foreign Social Security taxes would otherwise apply.

For more information visit http://www.irs.gov/businesses/small/international/article/0,,id=105254,00.html