DRS discovers tax glitch
The Connecticut Department of Revenue Services warned of limitations in payroll processing software that could impact income tax withholding for some state taxpayers, and pledged not to exact penalties from taxpayers or businesses if a software glitch results in erroneous tax payments.
The problem affects taxpayers who have requested on Form CT-W4 that additional income tax be withheld from their paychecks. The department did not specify which software programs might be affected.
“We began hearing (in early August) about problems for employers relying on automated payroll processing software, including the state of Connecticut,” said Kevin Sullivan, DRS commissioner, in a prepared statement. “It appears that these systems are unable to distinguish additional voluntary withholding amounts from regular withholding when calculating catch-up withholding for the current tax year in accordance with recent legislative changes in the state personal income tax. Consequently, these taxpayers and their employers may be at risk of underwithholding.”
Sullivan said taxpayers can protect themselves by making estimated payments to ensure enough tax is paid to meet the “safe harbor” of paying in at least as much as the amount of their last annual Connecticut income tax due. Generally, if state taxpayers pay either 100 percent of the income tax shown on their 2010 return or 90 percent of the income tax shown on their 2011 return, they will not be subject to interest on the underpaid amount when they file their 2011 return.
DRS is taking the “extraordinary step,” in its words, of making available now the 2011 Estimated Income Tax Worksheet and the updated 2011 Income Tax Calculation Schedule.
“Taxpayers who find themselves in this situation ”¦ will not be subject to interest or penalty on such underpaid amounts,” Sullivan said. “Similarly, employers who in good faith and solely due to this problem do not correctly withhold and pay in the taxes due for their employees will not be penalized in the event of audit.”
New standard for goodwill impairment
The Norwalk-based Financial Accounting Standards Board approved a revised accounting standard intended to simplify how an entity tests goodwill for impairment.
Goodwill is a term for intangible business assets such as the values of brands.
Until now, entities were required to test goodwill for impairment at least annually by first comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit was less than its carrying amount, then organizations had to take a second step by measuring the amount of impairment loss, if any.
Under new rules that kick in for fiscal years that begin after Dec. 15 (early adoption is allowed), organizations can first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity no longer will be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount.
IRS grounds travel expense calculation
The Internal Revenue Service is discontinuing the “high-low” method for substantiating expenses for meals, lodging and other tax-deductible expenses incurred in travel.
The high-low method allowed employers to create daily allowances for tax purposes covering travel expenses, rather than forcing workers to itemize expenses. The term refers to an IRS list of regions considered high-cost where the per diem rate maxes out at more than $230 and low-cost where the per diem rate totals $160.
The IRS is allowing the use of the high-low method through the end of this year and plans to issue a new guidance for calculating expenses later this year.
