From: Carroll, Michael
To: DAS All
Sent: Wed 3/18/2009 4:43 PM

Subject: Federal Income Tax Withholding Changes **please open and read**

Employees of Administrative Services, Office of the Chief Information Officer and the Office of the Capitol Commission.

Outlined below is a memo from Paul Carlson, State Accounting Administrator, regarding the changes in federal income tax withholding that will begin to take effect next month for all State employees’ pay.  These changes are a result of the recently enacted American Recovery and Reinvestment Act of 2009. 

State Accounting has provided you with the following link to instructions to use a pay calculation form to enable you to see what effect the change in federal tax withholding tables will have on the amount of your federal income tax withheld based upon your current Form W-4: Payroll Calculation - ARRA 2009 Instruction

Please share this critical information with employees that do not have easy access to an email account.

MEMORANDUM

DATE:        March 13, 2009
TO:             All State Employees
FROM:       Paul Carlson
                  State Accounting Administrator

SUBJECT:   Federal Income Tax Withholding Changes

        *IMPORTANT TO READ – YOUR FEDERAL INCOME TAX WITHHOLDING WILL CHANGE IN APRIL, 2009*

The American Recovery and Reinvestment Act of 2009 (some incorrectly label it the stimulus package) signed by President Obama on February 17, 2009 provides income tax relief of $400 for an individual and $800 for a married couple filing a joint return.  Unlike in 2008 when federal money was provided to the populous by a federal government check, 2009 funds will be provided to employees via two steps: (1) less federal income tax being withheld during 2009 and (2) a credit on tax owed for 2009 income when employees file their 2009 tax returns in 2010.  As indicated further in this memorandum, these two items are interrelated but not added together.

The State of Nebraska will begin using revised federal income tax withholding tables for the April 8 biweekly pay date and the April 30 monthly pay date (a nine month period).  If a current employee works through the end of the year, an employee claiming “Single” on the Form W-4 will have around $350-400 less withheld and an employee claiming “Married” will have approximately $600 less withheld when compared to the current withholding tables.  The withholding tables give married employees just $600 of tax savings…$200 less than they are entitled to because the IRS wants to limit under withholding if both spouses work (see example below).  Because the tax credit begins to phase out for employees earning over a certain amount of modified adjusted gross income ($75,000 for singles and $150,000 for married filing jointly), the withholding reduction also begins to phase out at those higher income levels. 

When employees complete their 2009 tax returns early in 2010, they will compute their 2009 taxes owed using the current tax tables (which the IRS is NOT changing).  The employees will then subtract a credit of either $400 (filing single) or $800 (married filing jointly).  This is important to note because the reduced withholding may not exactly equal the amount of the credit to be claimed.

In some cases, the change in withholding amounts may cause an employee to want to revise their Form W-4 on file at their agency payroll department.  For example, consider the following facts:

· In the case of a married couple where both work and each claims “Married” on their Form W-4’s, their withholding will have been reduced $1,200 ($600 X 2) but they will only receive an $800 credit when they file, causing the couple to owe $400 more than what was withheld.

· Married couples with only one spouse working will only have reduced withholding of $600 but will receive an $800 credit, resulting in an additional $200 refund when they file their federal tax return. 

· If an employee can be claimed as a dependent on someone else’s tax return, that employee is not eligible to receive the credit, even though the State will be withholding at a lesser amount.

· If an employee (such as a temporary worker) is currently receiving Social Security, they may be eligible for a $250 payment this summer, which must be subtracted from the $400/800 credit.

· The Earned Income Credit has been increased.

Therefore, we encourage each employee to review their own specific tax situation in order to have the proper amount of federal tax withheld.

Mike Carroll

Personnel Administrator

Administrative Services - Human Resources Office

402.471.4605

new email address:  michael.carroll@nebraska.gov