The Military Spouses Residency Relief Act (P.L. 111-097) exempts from income tax any spouses of military personnel who move into a state to be with the service member.

Any income the spouses earn for services performed in a state will be exempt from state withholding.

That means the spouses won’t have to file an income tax return in the worked-in state because prior residency applies. No doubt some of the affected employees will come to you, confused about how they can adjust their withholding. Here are some important state updates that’ll help you answer their questions:

ALABAMA – To claim the withholding exemption for military spouses, employees must attach Form DD-2058 to Form A-4.

CALIFORNIA – The state revised Form DE 4, Employee’s Withholding Allowance Certificate, so military spouses may claim exempt from state tax withholding.

Cite: www.edd.ca.gov/pdf_pub_ctr/de4.pdf

DISTRICT OF COLUMBIA – A spouse of a service member whose wages are exempt from the District’s income tax under the new law may file a D-4 with their employer to claim exemption from withholding.

Cite: http://newsroom.dc.gov/show.aspx/agency/otr/section/2/release/18797

ILLINOIS – A spouse’s state of residence does not change when he or she moves to a new state because the service member is stationed there.

Cite: www.revenue.state.il.us/taxforms/IncmCurrentYear/Individual/Schedule-MR.pdf

IOWA – You’ll want a new copy of Form IA W-4. It’s been revised to allow military spouses to claim exempt.

Cite: www.iowa.gov/tax/forms/44019.pdf

KENTUCKY – For 2009, military spouses who fall under the federal law should file Form 740-NP, Kentucky Individual Income Tax Nonresident or Part-Year Resident Return, to request a refund of the Kentucky income tax withheld from his or her 2009 pay. The income would not be reported as taxable on the Kentucky income tax return. For 2010, military spouses should file a new Form K-4 with his or her employer to claim the exemption from withholding of state income tax.

Cite: http://revenue.ky.gov/Hot+Topics/AddHT.htm

LOUISIANA – Military spouses must file a new Form L-4E at the end of every year if they qualify for the exemption.

Cite: http://rev.louisiana.gov/forms/lawspolicies/RIB10006.pd

MARYLAND – The wages earned by a spouse of a nonresident service member may be exempt from state income tax under the Military Spouses Residency Relief Act, when the spouse isn’t a legal resident of Maryland. The exemption may be claimed by filing a revised Form MW507 with the employer.

Cite: http://individuals.marylandtaxes.com/incometax/military/default.asp

MASSACHUSETTS – The state’s following the federal Military Spouses Residency Relief Act.

NEW YORK – The payroll expense of a covered employee/military spouse must be included when computing the Metropolitan Commuter Transportation Mobility Tax. [Department of Taxation and Finance, TSB-M-10(1)(l); TSB-M-10(1)MCTMT, 1/11/10.] Also, Form IT-2104 has been revised to allow military spouses to claim exempt from state tax withholding.

Cite: www.tax.state.ny.us/pdf/2010/fillin/wt/it2104e_2010_fill_in.pdf

NORTH CAROLINA – The Department of Revenue is updating forms, publications and other tax info to provide guidelines. The NC-30 and Form NC-4 have been revised.

Cite: www.dor.state.nc.us/taxes/individual/armedforces/spouses.html

NORTH DAKOTA – You should continue withholding state income tax from the wages you pay military spouses. The state will develop forms to use for the exemption.

Cite: www.nd.gov/tax/indwithhold/pubs/specialedition.pdf

OREGON – Here, military pay earned by a nonresident stationed in Oregon isn’t taxed.

Cite: www.oregon.gov/DOR/PERTAX/docs/101-657.pdf

VIRGINIA – A spouse whose wages are exempt from state income tax under the Servicemember Civil Relief Act may claim an exemption from Virginia withholding tax. The state revised Form VA-4.

Cite: www.tax.virginia.gov/Documents/Military Spouses Residency Relief Act Tax Bulletin.pdf

As previously reported, the Internal Revenue Service was gearing up for the audits to uncover unpaid business and payroll taxes. IRS is still planning the nationwide audit, but is pushing it back to February.

Here’s what auditors will be looking at:

• Three federal taxes collected, paid and/or remitted by employers — employee income taxes deducted by the employer, FICA and FUTA.
• Employment taxes related to four areas — worker classification, fringe benefits, reimbursed expenses and compensation of owner employees.

The audits have been triggered by an IRS study that shows a “tax gap” in the billions of dollars for unpaid business and payroll taxes.

A study released by the Urban Institute and the University of Virginia has caught some lawmakers’ attention, mainly because the study revealed a tax goldmine for funding health care. For example, the study shows over the next 10 years:

• A 10% excise or sales tax on fattening foods could raise $522 billion.
• A 20% tax could raise $937 billion.

Not surprisingly,  industry groups strongly oppose the idea.

An organization called Americans Against Food Taxes — supported by, among others, the National Restaurant Association, the American Beverage Association and the National Grocers Association –  argues that such taxes are unfair and unneeded.

The Urban Institute study points out that not only would fat-food taxes raise money, but they also would discourage consumption of unhealthy foods.

Industry groups aren’t crazy about that prospect, either.

• you deposit less than your full tax liability, as long as you make the rest of the deposit on time,
• the shortfall isn’t more than the greater of $100 or 2% of the entire amount due, and
• you deposit the shortfall by the appropriate make-up date.

However, if your shortfall is more than $100,000, the one-day deposit rule applies  — and overrides the safe harbor.

Multiple deposits may = disaster, too
Watch out: This exception to the rule is also true if you have to make multiple deposits and the shortfalls accumulate to $100,000 or more. The one-day deposit rule applies in this case as well.

1. Repeal of some Bush tax cuts. Obama favors:

• reinstating the pre-2001 top individual tax rates of 39.6% and 36% for families making more than $250,000 ($200,000 for singles)
• making permanent the 10%, 15%, 25% and 28% individual tax rates, and
• restoring the personal exemption phaseout and itemized deduction limitation phaseouts at an increased threshold of $250,000 for joint filers ($200,000 for singles).

 
2. Higher FUTA wage base. Employers would have to contribute more into the federal unemployment tax system – especially those located in states that still have a $7,000 wage base.

3. Changes in healthcare financing. Although you probably won’t see a universal healthcare push, employers that don’t offer or make a “meaningful contribution” to the cost of employee health care will probably have to contribute a percentage of payroll toward the costs of a national plan. That could affect employee payroll deductions.

4. Increased payroll taxes. Maybe you’ve been hearing reports of additional Social Security taxes, but they likely wouldn’t take effect for years and they’d be phased in over a long period. Any such tax would be at a rate of between 2% and 4% (split between employer and employee). It would apply to income above $250,000 and:

• eliminate the $102,000 ceiling for the Social Security tax, and
• create a “donut hole” exemption for earnings between $102,000 and $250,000.

The official 2009 calendar is the one used by U.S. Office of Personnel Management. Although the schedule is specifically created for federal employees, most employers and banks also follow this calendar. 

Note that when a holiday falls on a nonworkday — Saturday or Sunday — the holiday usually is observed on Monday (if the holiday falls on Sunday) or Friday (if the holiday falls on Saturday).

• Thursday, January 1, New Year’s Day
• Monday, January 19, Birthday of Martin Luther King, Jr.
• Monday, February 16, Washington’s Birthday
• Monday, May 25, Memorial Day
• Friday, July 3, Independence Day
• Monday, September 7, Labor Day
• Monday, October 12, Columbus Day
• Wednesday, November 11, Veterans Day
• Thursday, November 26, Thanksgiving Day
• Friday, December 25 Christmas Day

While you’re filling out your calendar, it might also be helpful to get a copy of IRS’ Publication 509, Tax Calendars for 2009 from http://www.irs.gov/. That way you’ll be sure you never miss a tax deposit deadline.

The Social Security Administration just released its 2009 taxable wage base, which climbs $4,800 over the prior year. That means high-wage earners will pay Social Security taxes (6.2%) on the first $106,800 of their income before Payroll can stop withholding those taxes. The Medicare tax (1.45%) has no ceiling. 

To put that into real dollars, tell them the maximum Social Security tax employees will pay in 2009 is $6,621.60.

 And for those on the brink of retirement …

 Those nearing retirement may be interested in how much Social Security they’ll collect each month. The answer depends on what SSA determines is their “full retirement age.” For instance, someone retiring in January 2009 at SSA’s threshold age will receive a maximum monthly benefit of $2,323. 

To find help employees figure out their Social Security retirement benefits, direct them to the SSA retirement-planner Web page.