Payroll Software – What’s New for 2009 Wage Withholding

As in past years the IRS issued a 2009 tax guide for employers. Below is a summary of the new changes for the new year.

1.  Social security and Medicare taxes (rate and cutoff)

Employers must stop withholding social security tax after an employee reaches $106,800 in social security wages in 2009. The maximum social security withholding amount in 2008 was $102,000. This change will require employers to update their accounting or payroll software, either by downloading a new version from the software vendor or by updating the tax tables in their existing payroll system. There is no limit on the amount of wages subject to Medicare tax. Medicare taxes also apply to the wages of household workers an employer pays $1,700 or more in cash. Social security and Medicare taxes apply to election workers who are paid $1,500 or more. The change in the social security withholding cutoff mainly affects employers who have high income employees, making more than 106,800 dollars each year.

 2.  New employment tax adjustment and claim for refund process

The IRS is introducing two new forms for the 2009 tax year: Form 941-X, Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund, and Form 944-X, Adjusted Employer’s ANNUAL Federal Tax Return or Claim for Refund.

To correct employment tax errors discovered on or after January 1st 2009, employers should use the new corresponding “X” forms to correct employment tax errors as soon as they are discovered. For example, employers should use the new Form 941-X, Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund, to correct errors on a previously filed Form 941.

For overpayments: Employers can choose to make an adjustment or claim a refund on the corresponding “X” form.

For underpayments: Employers correcting an underpayment must use the corresponding “X” form. Amounts owed must be paid by the receipt of the return. Payments can be made using EFTPS, by sending a check, or by credit card.

3.  Credit card payments

Employers can pay the balance due on Form 943 (Employer’s Annual Federal Tax Return for Agricultural Employees) and Form 945 (Annual Return of Withheld Federal Income Tax) by credit card. Employers can’t use a credit card to make federal tax deposits.

4.  Social Security Administration and magnetic media

Employers requesting verification of names and social security numbers between 51 and 250,000 employees can no longer use magnetic media to submit their requests to the Social Security Administration. Employers can upload a file through the Social Security Number Verification System (SSNVS). The Social Security will review usage of SSNVS to ensure that employers are using it for the proper purposes. It is not proper to use SSNVS for non-wage reporting purposes, such as identity, credit checks, mortgage applications, etc. The employer can verify up to 250,000 names/SSNs with a correctly formatted SSNVS file. Social Security will not be able to process a file that is not in the correct format. To create the file you will need one column that is at least 130 characters long. This column will hold all data for each record. To get specifications for the record layout, select “Submission File Format” from the SSNVS Handbook from the Social Security website.

5.  Paid preparers must sign Form 941 and Form 944

The paid preparer’s section is no longer optional and is included in Part 5 of Form 941(Employer’s QUARTERLY Federal Tax Return) and Form 944 (Employer’s QUARTERLY Federal Tax Return).

Employers using an up to date 2009 Payroll Software to do payroll and calculate withholding, shouldn’t have a problem dealing with any of these changes for tax year 2009.

Lisa Heather, small business owner, provides insightful tips into payroll software. You may also visit
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