Below is the entire press release from the State of Connecticut Department of Revenue Services.  The release addresses the issue regarding additional tax withholding but still does not address the issue of overwithholding of taxes from new hires.

State of Connecticut Department of Revenue services Media Release

25 Sigourney Street                                                                  

 Contact:            Sarah E. Kaufman         

Hartford CT 06106-5032                                                                          (860) 297-5610                                                 Sarah.Kaufman@po.state.ct.us

DRS Home Page:       http://www.ct.gov/DRS

For Immediate Release:                                      Wednesday, August 10, 2011

Payroll Processing Software Limitations May Impact Income Tax Withholding

 DRS Commissioner Outlines Options for Affected Taxpayers

Hartford – The Connecticut Department of Revenue Services (DRS) today announced that it recently became 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 additional income tax be withheld from their paychecks. 

Said Commissioner Sullivan, “We began hearing late last week about problems for employers relying on automated payroll processing software, including the State of Connecticut. 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.”   

Commissioner Sullivan said, “The income tax changes became effective in early May and the Department promptly provided necessary withholding instructions 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 taxpayers and employers who are making a good faith effort to comply.”

Despite the payroll processing problem, Commissioner Sullivan advised affected taxpayers that they can protect themselves from the risk of underpayment, penalty and interest. Taxpayers may make estimated payments 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 withholding or timely estimated tax payments, or both, the lesser of 100% 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% of the income tax shown on their 2011 Connecticut income tax return (calculated 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, 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 www.ct.gov/drs. 

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 taxpayers who find themselves in this situation 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.”