Employers

Important Topics:
Annual Key Withholding Figures - UPDATED!
2011-2012 FICA Rate Change - UPDATED!
Act 32 - NEW!
2010 HIRE Act
Federal Tax Withholding for Exempt Employees
2011 EFT Requirement
2011 PA Unemployment Filing Change - UPDATED!
Information Reporting and Medicare Tax Rate Changes - UPDATED!
Union Rights Posting Requirement - NEW!
Accelerated PA Withholding Tax Payments
Section 125 Cafeteria Plan Requirements
Electronic Federal Tax Payment System
Local Services Tax
New Hire Reporting - UPDATED!
Employee vs. Independent Contractor
Tuition Reimbursement
Employer-Owned Life Insurance Policies - UPDATED!

KEY 2011 FIGURES

Standard Mileage (Jan - Jun)                                        51.0¢/mile
Standard Mileage (Jul - Dec)                                        55.5¢/mile
   Section 179 Expense Deduction                      $500,000.00

 

Standard Mileage (Jan - Jun)                                        55.5¢/mile
Standard Mileage (Jul - Dec)                                        55.5¢/mile
   Section 179 Expense Deduction                      $125,000.00

¹PLEASE NOTE: Employers must update their payroll software before beginning 2012 payroll transactions to account for changes in the Social Security tax. In 2012, the Social Security tax withheld from employee wages will remain 4.20% from January 1 through February 29.  As of March 1, the Social Security tax will return to 6.20% for employees.  Also effective January 1, the wage base increases to $110,100. Please note that further changes may occur. Be sure to check back for updated information.

²PLEASE NOTE: As of January 1, 2011 this rate had changed from prior years. As of July 1, 2011, the rate has changed again.  The tax base remains $7,000 per employee, but the tax collected on base wages after July 1 has been decreased to 0.9%.  This is especially important to note for employers with seasonal, part-time, or newly hired employees. Please also note, these rates only apply to employers in Pennsylvania.  PA has been subjected to a higher unemployment rate due to high claim rates. If you are an employer in Pennsylvania and are using a payroll function of a large nationally distributed software such as QuickBooks or Peachtree, you may need to alter the FUTA rate.  Many software providers are defaulting to the national standard of 0.6%.

Please note, this change in the Federal Unemployment Tax rate for Pennsylvania employers is continuing into 2012.

2011-2012 FICA Rate Change - UPDATED
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 granted a payroll/self-employment tax cut for 2011 of two percentage points for employees and self-employed individuals. This tax cut takes the form of a 2% reduction in employee Social Security tax withholdings. During 2011, employees will only have 4.2% of their first $106,800 withheld for Social Security Tax. In 2012, the employee rate will remain 4.2% on all wages earned between January 1 and February 29 but will then return to the 6.2% rate on March 1.

Please note that the 2010 Tax Relief Act does not affect the employer's portion of Social Security tax payments. In the past, employers were able to calculate the employee's withholding amount and then simply double the tax payment to account for the employer match of 6.2%. In 2011, that will no longer be possible. A new calculation will need to be performed to arrive at the employer's payroll tax expense.

One method of achieving this new calculation will be to calculate the employee's withholding for Social Security based on the new rate. Divide that amount by the employee rate and then multiply that amount by the employer rate. For example, let's assume employee John Doe has $42.00 withheld from his paycheck for Social Security tax. First, you will take the employee's withholding ($42.00) and divide it by the employee rate (4.2%) to arrive at the taxable wages. For John Doe, the taxable wages would be $1,000 ($42.00 / 0.042). You will then multiply the taxable wages by the employer rate (6.2%). For John Doe, the employer Social Security tax expense would be $62 ($1,000 x 0.062). The entire Social Security tax payment the employer would need to remit for John Doe during the pay period in this example would be $104 ($42 + $62).

This calculation can be simplified. If you take the Social Security tax withheld from employees, you can multiply that amount by 2.47619 (needed for clerical accuracy) to arrive at the total Social Security tax to be remitted along with Medicare and Federal Income Tax Withholding to the IRS. In the above example, you would take the employee withholdings ($42.00) times the factor (2.47619) to arrive at the total Social Security portion of the deposit ($104).

Please also note that the 2010 Tax Relief Act has not changed the Medicare portion of the employee's payroll tax withholdings. Employers who pay taxable wages less than $106,800 to each employee will no longer be able to use the standard 7.65% FICA tax rate when calculating employee withholding.

If you have any questions about the 2010 Tax Relief Act and how it will affect your payroll processing procedures, please call our office and ask to speak with a payroll specialist.

Act 32 - NEW!
Pennsylvania has enacted a new law that aims to reform and standardize the local earned income tax (EIT) system. Beginning on January 1, 2012, all PA employers will be required to withhold local EIT from employee wages. Employers are to withhold the higher of the employee’s resident EIT amount (where the employee lives) and the employee’s municipal non-resident EIT amount (rate of non-resident EIT where they are employed). To help with this determination, employers are required to obtain a Residency Certification Form from every employee. Additionally, Act 32 requires uniform withholding and remittance to a single local collector. Beginning with the 2012 W-2 forms (prepared and distributed in January 2013), employers will be required to note the local authority to which the local EIT was remitted, not necessarily the local authority for the employee’s residence.

As with any payroll related item, please call our office at (717) 336-3801 and ask to speak with a payroll specialist if you have any questions about Act 32 and how it will affect your local withholding policies.

2010 HIRE Act
During 2010, Congress introduced the Hiring Incentives to Restore Employment (HIRE) Act. This act provided various tax incentives for employers to hire previously unemployed workers. Although the social security tax break portion of the Act expired at the end of 2010, keep in mind that the Act also provided that employers that hire and keep an unemployed worker on payroll for 52 continuous weeks may be eligible for a non-refundable tax credit of up to $1,000 per eligible employee to be applied on their 2011 tax return.

In order for a business to qualify for the new hire benefits, the new eligible employee must complete the form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit. This form can be downloaded directly from the IRS website.

For more detail on the HIRE Act, please download and read this letter. You may also call our office at (717) 336-3801 and ask to speak with a payroll specialist.

Federal Tax Withholding for Exempt Employees
Beginning Feb. 16, 2011, all employers must begin withholding federal income taxes based on a marital status of "single" with zero withholding allowances for employees who claimed exemption from withholding in 2010, but who have not submitted a 2011 Form W-4.

2011 EFT Requirement
The U.S. Department of the Treasury has announced that businesses currently permitted to use paper Federal Tax Deposit (FTD) coupons will have to make those deposits electronically beginning in 2011 with few exceptions. The major exception to this rule will be for businesses with $2,500 or less in quarterly tax liabilities that pay their tax liability when they file their return. If you have any questions about the new EFT requirement or what it means for your business, please call our office and ask to speak with a payroll specialist.

For a quick link to the Federal EFTPS system, please visit our Payroll Center.

2011 PA Unemployment Filing Change - UPDATED
The Pennsylvania Department of Labor & Industry has developed the Employer Tax Services phase of the Unemployment Compensation Management System (UCMS), an online tool for employers to better manage their Unemployment Compensation filings. In 2011, the department intended to require electronic filing of quarterly UC tax and wage reports. This new requirement was postponed until the first-quarter filing of 2012, due on April 30, 2012. Paper reports forms will no longer be mailed to employers.

For more information on this new PAUC tax filing requirement, you can download and read this document, or you are always welcome to call our office at (717) 336-3801.

Information Reporting and Medicare Tax Rate Changes - UPDATED
As part of the Health Care and Education Reconciliation Act of 2010, employers were to encounter new information reporting and Medicare tax computation rates for high income wage earners. The legislation originally required the aggregate cost of employer-sponsored health insurance coverage to be reported on employee W-2s beginning with the 2011 tax year. However, due to various circumstances, the IRS has continually postponed and altered these requirements. Currently, only large employers are subject to the requirements that will begin with the 2012 W-2s, issued in January 2013. For the purposes of this legislation, a "large employer" is defined as one that filed 250 or more Form W-2s in the prior year. There is an additional transition relief period slated, but the IRS has not provided concrete details to date. If you have any questions about these requirements and how they may apply to your business, please call our office and ask to speak with a payroll specialist.

For a full details of the original Act, please download and read this letter. If you have additional questions, please call our office.

Union Right Posting Requirement
The National Labor Relations Board has issued a new posting rule regarding employee rights to unionize. All private-sector employers subject to the National Labor Relations Act have until January 31, 2012 to inform employees of their rights to form a labor union. The "right to union" posting must be easily accessible to all employees and will generally be included where the employer has posted other required employee notifications. Note: This posting deadline was originally set for November 14, 2011 but has been extended to January 31, 2012.

For more information on the posting requirement, including what employers are included in the requirement, please see the NLRB's FAQ section by clicking here

Accelerated PA Withholding Tax Payments
In October, Pennsylvania employers became subject to an accelerated withholding payment schedule.  The following chart can be used to determine when your new payment due dates are:

Annual Withholding Amounts	Tax Payment Due	Due Date
>= $20,000.00	Weekly	If payday is Wednesday, Thursday, or Friday: payment is due the following Wednesday. If payday is Saturday, Sunday, Monday, or Tuesday: payment is due the following Friday
>= $4,000 and < $20,000	Semi-Monthly	Within 3 banking days of semi-monthly period.
>= $1,200 and < $4,000	Monthly	15th day of succeeding month, except for December's payment, which is due by 1/31.
< $1,200	Quarterly	Last day for filing quarterly returns.

Section 125 Cafeteria Plan Regulations
In August 2007, the IRS proposed new regulations regarding Section 125 Cafeteria Plans, effectively updating the previous regulations. The proposed regulations became effective on January 1, 2009 and may be relied upon to comply with the requirements of Section 125. Some of the key provisions of the regulations include a written plan document and nondiscrimination requirements. The written plan must include descriptions of the benefits available and eligibility provisions; procedures for participants’ elections and for making contributions through salary reductions or nonelective contributions; an explicit prohibition against employees’ participation if they are not common law employees; a stated maximum contribution for each employee; and the plan year. Several types of plans fall under Section 125, including “flex” plans and premium-only plans. Be sure that your cafeteria plan complies with these new regulations; otherwise, all plan expenses may be included in your employees’ taxable income, which means less take home pay for them and higher payroll taxes for you!

Electronic Federal Tax Payment System
The Internal Revenue Service mandates that certain employers file taxes electronically. In 2000, the Electronic Federal Tax Payment System (EFTPS) was expanded to require that businesses making aggregate federal tax deposits of more than $200,000 during a calendar year must make all federal tax deposit payments electronically beginning in the second succeeding calendar year. For example, if you had more than $200,000 in total deposits in calendar year 2007, you will be required to use EFTPS beginning January 2009. This includes ALL payments previously made with a check and Form 8109. Deposits made at a local bank with Form 8109 will be considered late, resulting in a 10% penalty. Once a business meets the $200,000 threshold, you are required to continue using the system even if your deposits in future years drop below the threshold amount. For those of you under the threshold, you may still want to consider enrollment in EFTPS. The system is very easy to use and will eliminate numerous trips to the bank.

To comply, businesses must enroll in the EFTPS by completing IRS Form 9779. If you need assistance completing the enrollment form or determining whether you are required to comply, please feel free to contact us.

When you implement electronic filing of tax payments, remember to maintain a record of the following information for each payment: date of transaction, amount of deposit, type of tax remitted, reporting period to which the payment is applied, and acknowledgement number received from the treasury financial agent.

To access EFTPS, follow the link in our Payroll Center. 

Local Services Tax
In June of 2007, the State of Pennsylvania made various changes to the Emergency and Municipal Service Tax (EMS Tax). The tax was renamed to Local Services Tax (LST). Beginning January 1, 2008, employers located in municipalities that levy a Local Services Tax in an amount greater than $10.00 per person, must withhold the tax from employees' paychecks on a per pay basis and remit the withheld amounts on a quarterly basis. An exemption is available for employees who reasonably expect to earn less than $12,000 for the year. For more information regarding the local services tax as it relates to your particular county and related forms, please click here.

New Hire Reporting - UPDATED
All employers are required to comply with New Hire Reporting requirements. The New Hire Reporting requirements were enacted to improve the collection of child support payments and detect and prevent erroneous Medicaid, food stamp, and unemployment compensation claims.

Each New Hire Report should contain the employer’s name, address, federal employer identification number, and a contact name and telephone number. In addition, the employee’s name, address, social security number, date of birth, and date of hire are required.

New Hire Reports may be submitted via first class mail, via fax, or filed electronically.

NOTE: NEW HIRE INFORMATION MUST BE SUBMITTED WITHIN 20 DAYS OF HIRING THE EMPLOYEE.

Remember also to continue to maintain W-4 and I-9 forms for all employees. A new W-4 should be completed by every employee each year. These documents will generally be requested in the event of a payroll audit.

PLEASE NOTE: On October 21, 2011, the Trade Adjustment Assistance Extension Act of 2011 was signed into law. Included in the Act is a provision that will soon require all rehired employees to be included on new hire reports. A rehired employee is defined as any employee "who was previously hired by the employer but has been separated from employment for at least 60 consecutive days." The Act has set an April 21, 2012 deadline for employers to begin including rehired employees on new hire reports.

To submit New Hire Reports electronically or to obtain W-4 or I-9 forms, follow the links in our Payroll Center.

Employee vs. Independent Contractor
The Internal Revenue Service is continually looking at whether a particular worker is an employee or an independent contractor. Improperly classifying a worker as an independent contractor can have significant adverse consequences. It is important that all workers be properly classified and appropriately treated. There are numerous factors that should be considered in determining whether a worker should be included in the payroll. These factors fall into three major categories: behavioral control, financial control, and the type of relationship between the parties. To assist you in your consideration of this issue, we have provided you with several links that outline IRS guidelines. Please click here for further information. Failure to properly classify a worker could result in significant tax penalties.

Tuition Reimbursement
Tuition reimbursements provided to an employee for job-related educational expenses are excludible from the employee's income as a working condition fringe benefit. An expense is considered job-related if the education maintains or improves skills required by the individual's employment and/or is a condition of employment. However, if the education is required to meet the minimum educational requirements for the job, or will qualify the individual for a new trade or business, then the educational payments are includible in income and subject to taxation.

Legislation allows employers to exclude from income up to $5,250 annually in payments for educational assistance. To be excluded, the payments must be made as part of an accountable plan. This includes educational assistance benefits that are not job-related and the exclusion applies to graduate as well as undergraduate courses.

Employer-Owned Life Insurance Policies
The Pension and Protection Act of 2006 included changes to tax law regarding employer-owned life insurance policies issued after August 17, 2006. The proceeds of a life insurance policy may potentially be taxable if certain requirements are not met. The Act requires the employer to notify the employee in writing that they intend to insure the individual’s life and disclose the face amount of the policy. In addition, the employee must consent in writing to being insured and that the coverage may possibly continue after employment terminates. The Act also imposes an annual reporting requirement with respect to policies held. Form 8925 must be submitted annually with the policy holder's tax return (download form here).

Please contact us if you have any life insurance policies to which these provisions may apply.