Tax Researcher

Volume XXV Issue 9 September 2008

CONNECTICUT, MARYLAND, MAINE AND NEVADA ANNOUNCE INCREASES IN THEIR MINIMUM RATES

Connecticut. Maryland, Maine and Nevada are increasing their rates:

Effective Min. Wage Minimum Maximum Date From To Cash Wage Hourly Tip Credit

CT 1/1/09 $7.65 $8.00 ** MD 7/24/08 $6.15 $6.55 $3.28 $3.27 ME 10/1/08 $7.00 $7.25 $3.625 $3.625 10/1/09 $7.25 $7.50 $3.75 $3.75 NV 7/1/08 $5.30 $5.85** N/A N/A 7/1/08 $6.33 $6.85 *** N/A N/A

* Connecticut recognizes three groups of tipped employees: (1) tipped waiters and waitresses at hotels and restaurants , for whom the maximum tip credit % will increase from 29.3% to 31%. Because of the minimum wage rate increase, the dollar of the maximum tip credit increases from $2.24 to $2.48 per hour, and the minimum cash wage rate increases from $5.41 to $5.52 per hour. (2) tipped bartenders , for whom the maximum tip credit % will increase from 8.2% to 11%. Because of the minimum wage rate increase, the dollar value of the maximum tip credit increases from $0.63 to $0.88 per hour, and the minimum cash wage rate increases from $7.02 to $7.12 per hour. (3) all other tipped employees , for whom the maximum tip credit remains unchanged at $0.35 per hour. Because of the minimum wage rate increase, the minimum cash wage rate increases from $7.30 to $7.65 per hour. Researcher

Nevada has a two-tiered minimum wage system: ** Employers who make a qualified plan available to their employees can pay a minimum wage of $5.85 per hour. *** Employers who don’t make a qualified health insurance plan available must pay at least $6.85 per hour. A qualified plan has to provide coverage for the employees and their dependents and the cost to the employee cannot exceed 10% of the employee’s gross taxable . These rates will be adjusted by the increases in the federal minimum wage over $5.15 per hour, or, if greater, by the cumulative increase in the cost of living. Additionally, employees who are paid less than 1 ½ times minimum wage must be paid when they work more than eight hours in a workday. Nevada does not have a tip credit or wage.

CITY OF PHILADELPHIA, PA REDUCES LOCAL WAGE TAX RATES

Resident Nonresident • 01/01/2008-06/30/2008 4.219% • 01/01/2008-06/30/2008 3.7242% • 07/01/2008-12/31/2008 3.98% • 07/01/2008-12/31/2008 3.5392% • 01/01/2009-12/31/2009 3.93% • 01/01/2009-12/31/2009 3.50%

DO BONUS AND OTHER SUPPLEMENTAL WAGE PAYMENTS HAVE SPECIAL WITHHOLDING TAX ALTERNATIVES?

Suppose an employee is paid non-recurring compensation in addition to regular . Because federal and withholding tables are “progressive,” they require a higher percentage of withholding as the compensation amount is increased. Therefore, an employee normally subject to a withholding rate of 15% may be withheld at 25% or more if one-time “supplemental wages” are included in the payment. Importantly, the amount of tax withheld might exceed the sum of the tax amounts calculated separately on EACH payment. Therefore, the I.R.S. and many states offer alternative withholding calculations when supplemental wages are paid.

The term “supplemental wages” applies to compensation paid in addition to the employee’s regular wages. For example, bonuses, commissions, overtime pay, payments for accumulated , severance pay, awards, prizes, back pay and retroactive pay increases for current employees, and payments for nondeductible moving expenses. Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a non-accountable plan.

Special rules apply to withholding on supplemental wages when an employee receives more than $1,000,000 of supplemental wages during the calendar year. The excess over $1,000,000 is subject to withholding at 35%, regardless of the withholding rate called for by the employee’s Form W-4. Tax Researcher

If the supplemental wages paid to the employee during the calendar year are less than or equal to $1,000,000 , the following rules apply in determining the amount of income tax to be withheld. There are only two possibilities. First, if the supplemental wages are COMBINED with regular wages in a single payment, without identifying the amount of each, income tax is withheld as if the total were a single payment for a regular period.

Alternatively, if the supplemental wages are PAID SEPARATELY (or combined in a single payment, but the amount of each is specified), the income tax withholding method depends partly on a second question: whether income tax is being withheld specifically from the regular wages.

1. Where income tax IS WITHHELD from regular wages, then one uses either of the following methods for the supplemental wages:

a. Withhold at a flat rate of 25%; no other flat rate is allowed,

OR

b. Add the supplemental to the regular wages for the most recent payroll period this year. Figure the income tax withholding as if the total were a single payment. Subtract the tax already withheld for the regular wages. Withhold the remaining tax from the supplemental wages.

2. Where income tax was NOT WITHHELD from the employee’s regular wages, income tax is withheld as if the total were a single payment for a regular payroll period.

Regardless of the method used to withhold income tax on supplemental wages, Social Security, Medicare and FUTA apply to such payments.

TAX RESEARCHER is distributed with the understanding that the publisher is not rendering legal, accounting or other professional services. If such advice or assistance is required, an attorney or accountant should be consulted. This newsletter is published monthly by Statutory Research, a department of the Employer Services Division. Address comments to: ADP, Inc., Statutory Research Department, One ADP Boulevard (M/S 364), Roseland, New Jersey 07068. Copyright 2008 ADP, Inc.

For more information, contact your local ADP representative The ADP Logo is a registered trademark of ADP, Inc. Go to www.adp.com or call 1 80 0 CALL ADP (1.800.225.5237) All other trademarks and marks are the of their respective owners. Tax Researcher

12-MONTH INDEX ADP’s Tax Researcher (October 2007 through September 2008 )

TOPIC MONTHLY ISSUE

Advance Payment of Earned Income Credit (SEE Earned Income Credit, advance payment of) Auto Mileage Rates (IRS) For 2008 ...... Jan-08 Ownership, Forms of ...... July-08 Cafeteria Plans (SEE Section 125 Plans) "Catch-Up" Contributions (SEE Plan Contribution Limits) Corporation ...... July-08 Deferred Compensation Plans ( SEE Pension Plan Contribution Limits) Earned Income Credit, advance payment of ...... Feb-08 Employer Identification Numbers ...... Nov-07 E-Verify Program ...... Nov-07 Federal Annual Amounts and Limits ...... Dec-07 Federal Mileage Rates —effective 7/1/08 ...... Aug-08 Federal Withholding Compliance ...... May-08 Flexible Spending Accounts ...... June-08 Household Workers ...... Apr-08 Identity Theft Scams, IRS Issues Warning of New ...... Aug-08 Limited Liability Company (LLC) ...... July-08 Maximum Wage Rate Changes (including maximum tip credit, if applicable) Federal—effective 7/24/07, 7/24/08 & 7/24/09 ...... July-07 & Aug-07 Federal Minimum wage increase affects various states...... July-07 & Aug-07 Arizona—effective 1/1/08 ...... Jan-08 Colorado—effective 1/1/08 ...... Jan-08 Florida—effective 1/1/08 ...... Jan-08 Missouri—effective 1/1/08 ...... Jan-08 Montana—effective 1/1/08 ...... Jan-08 Ohio—effective 1/1/08 ...... Jan-08 Oregon—effective 1/1/08 ...... Jan-08 Vermont—effective 1/1/08 ...... Jan-08 Virginia—effective 1/1/08 ...... Jan-08 Medicare Taxable Wages ...... Dec-07 Partnership ...... July-08 Pension Plan Contribution Limits 2008 and 2007 ...... Dec-07 Planning, Five Key Issues ...... Oct-07 “S” Corporation ...... July-08 Section 125 Plans ...... June-08 Social Security Taxable Wages ...... Dec-07 Sole Proprietorship ...... July-08 State Disability Insurance ...... Feb-08 State Insurance Multi-state workers ...... Mar-08 Taxable wage limits table for 2007 and 2008 ...... Jan-08 SUI (SEE State Unemployment Insurance) Tip Credits (SEE Maximum Wage Rate Changes)