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he Connecticut Department of
Revenue Services (DRS) recent-
ly announced that it has become
aware of limitations in software used
for payroll processing that may impact
income tax withholding for certain
Connecticut taxpayers. According to
Commissioner Kevin B. Sullivan, the
problem affects taxpayers who have
requested on Form CT-W4 that addi-
tional income tax be withheld from their
Said Commissioner Sullivan, "We
began hearing ... about problems for
employers relying on automated pay-
roll processing software, including the
State of Connecticut. It appears that
these systems are unable to distin-
guish additional voluntary withholding
amounts from regular withholding
when calculating catch-up withholding
for the current tax year in accordance
in the state personal income tax.
Consequently, these taxpayers and
their employers may be at risk of
Commissioner Sullivan said, "The
income tax changes became effective in
early May and the Department promptly
provided necessary withholding instruc-
tions before the end of the month. This
problem only came to our attention after
the withholding went into effect this
month. We do not want this to affect tax-
payers and employers who are making
a good faith effort to comply."
Despite the payroll processing prob-
lem, Commissioner Sullivan advised
affected taxpayers that they can
protect themselves from the risk of
underpayment, penalty, and interest.
Taxpayers may make estimated pay-
ments in order to assure that 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 taxpayers pay, in with-
holding or timely estimated tax pay-
ments, or both, the lesser of 100 per-
cent of the income tax shown on their
2010 Connecticut income tax return
(provided they filed a 2010 Connecticut
income tax return that covered a 12-
month period) or 90 percent of the
income tax shown on their 2011
Connecticut income tax return (calcu-
lated using the new rates), they will not
be subject to interest on the underpaid
amount when they file their 2011
Connecticut income tax return.
In order to assist taxpayers who may
be dealing with or concerned about
this problem, the DRS is taking the
extraordinary step of making available
now the 2011 Estimated Income Tax
Worksheet and the updated 2011
Income Tax Calculation Schedule.
Taxpayers may use this information to
estimate their 2011 income tax and
take steps to assure that sufficient tax
is withheld or otherwise paid. This
information and more will be available
online at
Said Commissioner Sullivan, "Taxpayers
will rightfully ask whether they may
be subject to interest and penalty
because of underwithholding due to
this problem. I want to assure taxpay-
ers who find themselves in this situa-
tion that they will not be subject to
interest or penalty on such underpaid
amounts. 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."
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Payroll Processing Software Limitations
May Impact Income Tax Withholding
DRS Commissioner Outlines Options for Affected Taxpayers