Vision Payroll

As a result of the recent law requiring changes to income tax withholding in California, new withholding tables have been released effective for November 1, 2009 to December 31, 2009. The new tables accelerate withholding and increase the rates for supplemental wages, stock options, and bonuses paid after October 31, 2009. Vision Payroll will automatically transition to the new withholding tables on November 1, 2009. Contact Vision Payroll if you have any further questions on the revised withholding tables in California.

As part of the recently-enacted California Assembly Bill No. 17, signed by Governor Arnold Schwarzenegger on July 29, 2009, the withholding rates will increase effective for wages paid after October 31, 2009. The wage withholding tables will be adjusted so that the amount to be withheld will be ten percent more than the sum that is calculated under the current withholding tables. Withholding on supplemental wages will increase from 6% to 6.6% and withholding on stock options and bonus payments will also increase from 9.3% to 10.23%. Changes were also made to the percentage of total estimated taxes that must be paid each quarter beginning in 2010.

Vision Payroll strongly recommends that California taxpayers consult their tax advisor to ensure that the proper amount of withholding tax be calculated and to calculate any adjustment to the number of withholding allowances claimed.

This week’s question comes from Jennifer, an office manager: A new employee gave me a Form W-4 claiming exemption from federal income tax withholding. Can I give him a paycheck without withholding federal income tax? Answer: An employee who gives you a valid Form W-4 claiming exemption from federal income tax withholding does not have to have federal income tax withheld from his check. An employee may claim exemption from federal withholding if the employee had no federal income tax liability last year and does not expect to have a liability this year. Being of a certain age, being a student, or getting a refund on a federal income tax return (Form 1040) does not necessarily entitle an employee to claim exempt status. Valid Forms W-4 generally expire on the first weekday after February 14 of the succeeding year. For example, 2008 Forms W-4 claiming exempt status will expire February 16, 2009. At that point, employers must either obtain an updated Form W-4 for the new year or withhold based on the last valid Form W-4 they have for that employee. If none be available, employers must withhold based on single and zero withholding allowances.

Employees who submit invalid Forms W-4 are not to be allowed exempt status. Invalid forms include forms developed by the employee, forms with the certification language deleted, forms with the word “exempt” on line 7 and a number on line 5 or an amount on line 6, and forms that the employee indicates in any way are false.

Exemption from federal withholding does not automatically entitle the employee to an exemption from Social Security, Medicare, or state withholding tax. There are limited exceptions to withholding of Social Security or Medicare tax that are unrelated to an employee’s exempt status. Also, state exempt status generally follows different rules and requirements and filing of a state withholding form claiming exempt status. Contact Vision Payroll if you have questions on an employee’s Form W-4.

This week’s question comes from Donna, an office manager. An employee wants to change the number exemptions (withholding allowances) claimed. What should I do? Answer: Have the employee complete and sign Form W-4, Employee’s Withholding Allowance Certificate. Always use the current year version of the form. By completing the Personal Allowances Worksheet attached to the form, the employee can calculate the correct number of allowances to claim to minimize any balance due or interest-free loan to the government. Remember that withholding allowances rarely equal the number of exemptions claimed on a tax return. If an employee is claiming an exemption from withholding, a new Form W-4 must be filed every year by February 15. Once you receive the new W-4, be sure to update your payroll records online or contact Vision Payroll with the updated information.