October/November 2006 Payroll & Tax News





Nevada increases minimum wage effective 11/28/06
During the November election, voters in Nevada supported an amendment to raise the minimum wage. Effective November 28, 2006, employers are required to pay $6.15 per hour; however, they can continue to pay $5.15 per hour to any employee for whom they make a qualified health insurance plan available. Some employees under age 18 may also be paid at the $5.15 per hour rate in specific circumstances.

Additional details are included in the Nevada Department of Business and Industry's minimum wage press release.

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Kentucky Withholding Tax Decrease, effective 1/1/07
Kentucky increased the annual standard deduction used in its computerized withholding formula by $80, from $1,970 to $2,050. This change will result in a modest withholding tax cut for Kentucky employees.

See the November 2006 Kentucky Tax Alert for details.

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California Withholding Tax Decrease, Effective 1/01/2007
California increased the annual amount allowed for each exemption credit by $4, from $87 to $91. In addition, the state increased employee standard deduction amounts, which vary depending on the employee's marital status. And finally, the top end of each of the withholding tax wage brackets was increased, except the highest earnings bracket, which is over $999,999. These changes result in modest withholding tax cuts for California employees.

The annual amount allowed for each additional allowance remains unchanged at $1,000 each.

Authoritative information on this change can be found on the California Economic Development Employment Tax web page.

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Philadelphia Local Tax Decrease, Effective 1/01/2007
Philadelphia reduced its resident withholding rate from 4.301 percent (.04301) to 4.260 percent (.0426) and cut the non-resident rate from 3.7716 percent (.037716) to 3.7557 percent (.037557).

This change is officially effective with checks dated 1/1/2007 and thereafter.

Authoritative information on this change can be found under For Your Information on the Philadelphia Department of Revenue's web site.

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Boone County, Kentucky, Ordinance Tax Increase for 2007
Boone County increased the maximum amount of wages that are subject to its occupational license tax by $2,004, from $48,072 to $50,076 for 2007. The withholding rate of 0.8 percent (.008) is unchanged. This results in a $16.03 increase in the maximum annual employee withholding tax, from $384.58 to $400.61.

Authoritative information on this change can be found by clicking the Tax Rates dropdown on the Boone County, Kentucky, Finance Department's web site.

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California Employee Disability Insurance (DI) Decrease for 2007
The California employee state disability insurance (SDI) withholding rate decreased from 0.8 percent (.008) to 0.6 percent (.006). The SDI wage base, which is the maximum amount of wages that are subject to SDI tax, increased by $3,971, from $79,418 to $83,389. As a result of the rate cut, the maximum annual amount of employee withholding tax decreased by $135.01, from $635.34 to $500.33 in spite of the increase in the wage base.

The California Paid Family Leave Tax is still administered through the state's SDI program. However, no portion of the employee withholding tax rate is increased to fund the Paid Family Leave program as it was in 2004 and 2005.

Authoritative information on this change can be found on the California Economic Development Employment Tax web page.

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Puerto Rico SIT Withholding Tax Decrease, Effective 1/01/07
Puerto Rico eliminated one wage bracket in each of its two percentage method withholding tables, modified the withholding tax rates, and increased the amount of wages in the first wage bracket, which has the lowest withholding tax rate. These changes result in lower withholding taxes for Puerto Rico employees.

The annual deduction amounts allowed for exemptions, dependents and allowances, which vary based on the employee's marital status, are unchanged.

This change is officially effective with checks dated 1/1/2007 and thereafter.

The complete, revised withholding tax booklet is published by the Puerto Rico Departamento De Hacienda on its bilingual Publicaciones web page.

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Nebraska SIT Withholding Decrease, Effective 1/01/07
Nebraska increased the annual deduction allowed for each exemption by $40, from $1,490 to $1,530. In addition, the state cut the rates in each of its withholding tax brackets. These changes result in lower withholding taxes for Nebraska workers. Withholding for employees who do not claim exemptions and have very low income may be unchanged.

This change is officially effective with checks dated 1/1/2007 and thereafter.

The Nebraska Department of Revenue has provided official information on these withholding tax changes on its web site near Hot Topics at the top of the page.

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Oregon Tri-Met Transit District Tax Increase for 2007
The Oregon Tri-Metropolitan Transit District increased its employer only transit district tax rate by .01 percent (.0001), from .6418 percent (.006418) to .6518 percent (.006518).

This change, as well as rate increases that are slated for future years, are documented in Chapter 13 (page 2) of the TriMet Code, which is archived on the Oregon TriMet transit district's official web site.

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New Mexico Tax Withholding Decrease, Effective 1/01/07
New Mexico increased the annual deduction allowed for each exemption by $100, from $3,350 to $3,450. In addition, the state increased the upper wage threshold in each of its withholding tax brackets while retaining the preexisting withholding tax rates. These changes result in lower withholding taxes for New Mexico workers.

This change is officially effective with checks dated 1/1/2007 and thereafter.

The New Mexico Taxation & Revenue department has included the withholding tax updates on its Publications web page.

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Alabama Changes Standard/Dependent Deduction Amounts, Effective 1/1/07
The Alabama Department of Revenue increased the standard deduction allowed for some employees in its annualized withholding tax formula. Under the new method, the standard deduction amount decreases incrementally as annual wages increase within a defined threshold. The state also increased the annual deduction allowed for each dependent for employees with annual earning of $100,000 or less. The withholding tables and graduated withholding rates remain unchanged for 2007.

The Alabama Department of Revenue has released authoritative information on this change in its withholding tax booklet, at: http://www.ador.state.al.us/Withholding/whbook0107.pdf.

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Hawaii Income Tax Withholding Decrease, Effective 1/1/07
Hawaii increased increased the wage threshold in each of its annual percentage method withholding tax brackets. These changes, which are effective with checks dated on or after January 1, 2007, result in lower withholding taxes for most Hawaii workers. Withholding for employees have very low income may be unchanged.

Details of the changes can be found in the Employer's Tax Guide Booklet A.

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Minnesota Income Tax Withholding Decrease, Effective 1/1/07
Minnesota increased increased both the annual amount allowed for each exemption and the wage threshold in each of its annual percentage method withholding tax brackets. These changes, which are effective with checks dated on or after January 1, 2007, may result in lower withholding taxes for some Minnesota workers.

Details of the changes can be viewed on the Minnesota Department of Revenue website at:
http://www.taxes.state.mn.us/taxes/withholding/index.shtml

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Michigan Income Tax Exemption Change, Effective 1/1/07
Michigan increased the annual amount allowed for each exemption by $100, from $3,300 to $3,400. The withholding rate on taxable income remains 3.9%. This change is effective with checks dated on or after January 1, 2007, and may result in lower withholding taxes for some Michigan workers.

Details of the changes can be found in the 2007 Michigan Income Tax Withholding Guide.

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Maine Income Tax Withholding Decrease, Effective 1/1/07
Maine increased increased the wage threshold in each of its annual percentage method withholding tax brackets. These changes, which are effective with checks dated on or after January 1, 2007, result in lower withholding taxes for most Maine workers. Withholding for employees have very low income may be unchanged.

Details of the changes can be in the 2007 Maine Income Tax Withholding
Supplement To Withholding Tables Booklet.

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Standard Mileage Rate for 2007 is 48.5 Cents Per Mile
The Internal Revenue Service announced that as of Jan. 1, 2007, the standard mileage rate for the business use of a car will be increased to 48.5 cents per mile. Employers can use the standard business mileage rate to reimburse employees for the business use of their personal automobiles, or to value the personal use by an employee of a company car in 2007.

In addition, the rate for miles driven for medical or moving purposes will increase to 20 cents per mile from 18 cents per mile; and the rate for miles driven in service of charitable organizations will remain at 14 cents-per-mile.

Additional detail can be found on the IRS Web site at http://www.irs.ustreas.gov/pub/irs-drop/rp-06-49.pdf.

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North Dakota Income Tax Withholding Decrease, Effective 1/1/07
North Dakota increased the annual deduction allowed for each exemption by $100, from $3,300 to $3,400. In addition, the state increased the wage threshold in each of its annual percentage method withholding tax brackets.

These changes, which are effective with checks dated on or after January 1, 2007, result in lower withholding taxes for most North Dakota workers. Withholding for employees who do not claim exemptions or have very low income may be unchanged.

Details of the changes can be in the North Dakota 2007 Income Tax Withholding booklet.

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Utah State Income Tax Withholding Decrease, Effective 1/01/07
Utah increased the wage threshold in each of its withholding tax brackets while retaining the existing tax rates. In addition, the state increased the annual deduction allowed for each exemption by $240, from $1,800 to $2,040.

These changes, which are effective with checks dated January 1, 2007 and thereafter, result in lower state income tax withholding for Utah employees.

Authoritative information on these changes can be found in the Utah Withholding Tax Guide, which was released in October of 2006.

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IRS Announces Pension Plan limits for 2007
On October 18, 2006, the Internal Revenue Service announced pension plan limitation amounts for 2007. Some of the key elements are listed below:

The limit on the exclusion for elective deferrals under 401(k), 403(b) and 457 plans is increased from $15,000 to $15,500 for 2007. In addition, the annual SIMPLE retirement account deferral limit increased from $10,000 to $10,500 for 2007.

The limit for catch-up contributions to 401(k), 403(b), and 457 plans for individuals age 50 or over remains unchanged at $5,000, and the limit for catch-up contributions to an employer's SIMPLE plan for individuals age 50 or over remains unchanged at $2,500.

The general annual compensation limit increased from $220,000 to $225,000 for 2007. However, the limitation used in the definition of highly compensated employee remains unchanged at $100,000.

Click here to view the complete IRS announcement including Internal Revenue Code references.

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New York State Waives Penalties for Taxpayers Affected by Snowstorm
In a press release dated October 13, 2006, New York State Commissioner of Taxation and Finance Andrew S. Eristoff announced that taxpayers who are unable to meet their tax return filing and payment obligations because of extreme inclement weather in parts of western New York may qualify for a waiver of certain penalties.

This includes those personal income tax filers whose extended due date is October 16.
Provisions of the New York State Tax Law provide for the waiver of late filing and late payment penalties when the delay is due to reasonable cause rather than willful neglect.
"As with previous disaster relief efforts, the Tax Department will consider the late filing of applicable tax returns and late payment of taxes, including estimated taxes, to have been due to reasonable cause and not willful neglect if the reason for the delay is attributable to the snowstorm in western New York State," Commissioner Eristoff said.

Businesses and individuals affected by the snowstorm in Erie, Niagara, Genesee and Orleans Counties, and their contiguous areas, may qualify for waivers of late filing and payment penalties. Affected taxpayers should write "October Snowstorm"
at the top of their New York State tax return when they file it, and attach an explanation of the specific facts and circumstances related to the delay caused by the snowstorm.
In the event penalties are imposed, taxpayers should notify the Tax Department that they qualify for the waiver of penalties because of the snowstorm.

This relief does not extend the due date for paying any tax, and interest will continue to accrue on any unpaid balance until payment is received.

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Social Security Announces Key Figures for 2007
3.3 Percent Benefit Increase
On October 18, 2006, the Social Security Administration announced that monthly Social Security and Supplemental Security Income benefits for more than 53 million Americans will increase 3.3 percent in 2007, the Social Security Administration announced today.

Social Security and Supplemental Security Income benefits increase automatically each year based on the rise in the Bureau of Labor Statistics' Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), from the third quarter of the prior year to the corresponding period of the current year. This year's increase in the CPI-W was 3.3 percent.

The 3.3 percent Cost-of-Living Adjustment (COLA) will begin with benefits that nearly 49 million Social Security beneficiaries receive in January 2007. Increased payments to more than 7 million Supplemental Security Income beneficiaries will begin on December 29.

Maximum Taxable Wages
Some other changes that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $97,500 from $94,200. Of the estimated 163 million workers who will pay Social Security taxes in 2007, about 11 million will pay higher taxes as a result of the increase in the taxable maximum in 2007.

Medicare Changes
Information about Medicare changes for 2007 can be found at www.cms.hhs.gov.

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IRC 409A, Nonqualified Plan Requirements, Transition Relief Extended To January 1, 2008
The United States Treasury Department and the Internal Revenue Service (IRS) have extended the previously available transition relief of the requirements under Internal Revenue Code (IRC) Section 409A pertaining to nonqualified plans reporting and documentation. As a result, compliance with many aspects of Section 409A is now extended from January 1, 2007 until January 1, 2008. Good-faith operational compliance with the statutory requirements continues to be required. The IRS has reiterated that it will issue final 409A regulations by the end of 2006.

The Treasury Department's announcement, including a link to IRS Notice 2006-79 which has details of the transition relief provided, can be found in the Treasury Department's press release.

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Florida Minimum Wage Increase
The state of Florida will be increasing its minimum wage from the current rate of $6.40 per hour to $6.67 per hour, effective Jan. 1, 2007. For tipped employees eligible for the tip credit under the FLSA, employers must pay a direct wage in an amount equal to $6.67 minus $3.02, or $3.65 per hour as of Jan. 1, 2007.

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Washington Minimum Wage Increase
The state of Washington will be increasing its minimum wage from the current rate of $7.63 per hour to $7.93 per hour, effective Jan. 1, 2007.

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