Vision Payroll

January 4, 2013

Question of the Week: Why Did My Paycheck Go Down in 2013?

Filed under: News — Tags: , , , , , — Vision @ 4:24 pm

This week’s question comes from Courteney, an office manager.

Courteney asks:

I just received my first 2013 paycheck and it is a lot less than my last check from 2012. Why did my paycheck go down in 2013?

Answer: The biggest impact most employees will see is the impact of the social security tax rate reverting to 6.2% after being 4.2% for 2011 and 2012.

Net Pay to Decrease 2% for Many Employees

For employees whose wages are subject to social security tax, many will see net pay decrease by 2% of gross pay. Employees who participate in a §125 cafeteria plan must reduce gross wages by the amount allocated to the cafeteria plan. Other adjustments to gross pay that reduce social security wages may also impact the calculation.

Social Security Wage Base Increases To $113,700 for 2013

The social security wage base increased from $110,100 in 2012 to $113,700 in 2013. Combined with the increase in the rate to 6.2%, the maximum social security tax withholding went from $4,624.20 in 2012 to $7,049.40 in 2013, or an increase of over 52%.

Federal Withholding Essentially Unchanged for Most Employees in 2013

With the release of Notice 1036 in January 2013, Vision Payroll has revised its withholding to comply with the guidance from the Internal Revenue Service (IRS). Most employees will see a small decrease of anyway from a few cents to just under $10 on a weekly paycheck, depending on federal taxable wages. Employees who earn more than $7,991 on a weekly basis will see federal withholding gradually increase over 2012 amounts. Since the highest rate is now 39.6% in 2013 compared to 35% in 2012, the differential will increase as taxable wages increase.

Vision Payroll Now Using Revised 2013 Withholding Tables for Federal Income Tax Withholding

As noted above, Vision Payroll has implemented the revised 2013 withholding tables for federal income tax withholding that were released by the IRS in Publication 1036.

March 1, 2011

IRS Announces Revision To Withholding on Nonresident Alien Employees

IRS Announces Revision To Withholding on Nonresident Alien Employees
IRS Announces Revision To Withholding on Nonresident Alien Employees
In Notice 2011-12, Withholding on Wages of Nonresident Alien Employees Performing Services Within the United States the Internal Revenue Service (IRS) announced that Notice 2009-91 will not apply to wages paid after December 31, 2010.

Notice 2009-91 Modified Withholding Procedures for 2010

In Notice 2009-91, Withholding on Wages of Nonresident Alien Employees Performing Services Within the United States, the IRS modified the procedures for calculating the amount of federal income tax to be withheld from wages paid to nonresident aliens starting on January 1, 2010. Since nonresident aliens were not eligible for the Making Work Pay Tax Credit, the withholding procedures were modified to reflect this difference.

Making Work Pay Credit Unavailable in 2011

Since the “Making Work Pay Credit does not apply to taxable years beginning after December 31, 2010…the withholding tables for wages paid on or after January 1, 2011 will not reflect the Making Work Pay Credit, and Notice 2009-91 will not apply in determining the withholding on nonresident aliens.”

Withholding Rules for Nonresident Aliens for 2011

According to the IRS:

For wages paid on or after January 1, 2011, employers must determine the amount of income tax to withhold from wages paid to nonresident alien employees for services performed within the United States, using the procedure explained in Notice 2005-76, 2005-2 C.B. 947, together with the tables in the revisions of Publication 15 (Circular E), Employer’s Tax Guide, and Notice 1036 that are in effect when the wages are paid. This procedure is explained in Publication 15 and Notice 1036.

Contact Vision Payroll for Further Information

Contact Vision Payroll if you have any questions on Notice 2011-12.

February 11, 2011

Question of the Week: Why Did My Withholding Increase on My Pension?

This week’s question comes from Myrtle, a retired bookkeeper. I thought the income tax cuts were extended, but now the federal income tax withholding on my pension has increased. Why did my withholding Increase on my pension? Answer: The Internal Revenue Service (IRS) gave a detailed answer to this question in Special Edition Tax Tip 2011-01. The answer follows:

Why Employees and Retirees May See Changes in 2011 Payments and Withholding

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, enacted on December 17, 2010, included several changes impacting workers’ take-home pay and retirees’ net pension checks for 2011. The Tax Relief Act extended for two years the income tax rates that were scheduled to expire at the end of 2010; that extension prevented a large increase in federal income tax withholding.

However, the new law did not extend the Making Work Pay (MWP) credit that had been available for tax years 2009 and 2010. While most workers qualified for the maximum MWP credit, pension recipients did not qualify for any MWP credit unless they also had wages or other earned income.

In December 2010, the IRS published new federal income tax withholding information to reflect the impact of the Tax Relief Act. The fact that the MWP credit expired, by itself, would have resulted in increased withholding for most taxpayers. However, under the Tax Relief Act, withholding for social security tax for all wage earners was reduced from 6.2% to 4.2% (withholding for Medicare, at 1.45%, did not change). For most employees, the net effect of these two changes will result in less total tax being withheld from their checks. The social security tax reduction does not affect pension payments.

Due to the late enactment of these tax law changes, the IRS asked employers and plan administrators to adjust their systems as soon as possible but not later than January 31, 2011. This means employees and pension recipients may not have seen the full impact of these changes until their first paycheck in February, 2011.

Once employers implement the changes, there will be a net increase in take-home pay for most employees (excluding the impact of any other withholding amounts, such as withholding for health insurance, state income taxes, etc.).

Once pension plan administrators implement the 2011 changes, the retirement check payments for some pensioners may be lower depending upon the method that their plan administrators used to calculate withholding in 2010. Because the MWP credit did not apply to pensioners, the IRS published a table for 2009 and 2010 giving plan administrators the option of increasing withholding for their pension recipients. Not all plan administrators made the optional adjustment and instead allowed pensioners to make the adjustment when they filed their tax returns. Since the 2011 withholding tables do not reflect the expired credit, pension recipients in this situation are likely to see the withholding for their 2011 pension payments increase by approximately $7 to $50 per payment, depending on filing status, the amount of the payment, and how often the payment is made.

IRS encourages both employees and pensioners to review their withholding every year using the withholding calculator on IRS.gov and, if necessary, fill out a new W-4 or W-4P form and give it to their employer or pension plan administrator.

Contact Vision Payroll for Further Information

Contact Vision Payroll if you have any further questions on the changes in federal withholding.

January 1, 2011

2010 Form W-2 Tips, Part 3, Box 2 Federal Income Tax Withheld

This is one in a continuing series on the 2010 Form W-2, Wage and Tax Statement, which employers must generally furnish to employees no later than January 31, 2011. Forms mailed on the due date are considered furnished if properly addressed. Employers unable to meet that deadline may file a request for extension of time to furnish the forms. Today we review Box 2, federal income tax withheld.

Box 2 Amount Is Entered on Form 1040

Box 2 shows the amount employees must enter on line 62 of Form 1040, US Individual Income Tax Return. Employers determine the amount of withheld federal income tax each pay period by the amount of taxable wages, the pay frequency, and the number of withholding allowances claimed on Form W-4, Employee’s Withholding Allowance Certificate. Spanish-speaking employees may complete Formulario W-4(SP), Certificado de Exención de la Retención del Empleado. Employers may use either the percentage method or the wage bracket method to calculate the amount of tax to withhold. Both methods are explained in Publication 15, (Circular E) Employer’s Tax Guide. Employers should not accept “reverse withholding” where employees write checks to the employer to pay withholding tax. Employees should make such payments using Form 1040-ES. Also, any amounts that employers pay toward an employee’s withholding to “gross-up” non-cash payments such as taxable fringe benefits must also be included as wages in boxes 1, 3, 5, and 7 as required.

Box 3, Social Security Wages Is the Next Topic

The next topic in this continuing series will be Box 3, social security wages. Contact Vision Payroll with any questions on 2010 Form W-2.

January 22, 2010

Question of the Week: Why Did My Federal Income Tax Refund Go Down?

This week’s question comes from Rachael, a receptionist. I just filed my 2009 tax returns. Usually I get a big refund, but this year my refund was a lot less. My income and deductions are pretty much the same as in 2008. Why did my federal income tax refund go down? Answer: Your income tax refund is based on many factors, but one important factor to consider is the amount of federal income tax withheld. Last February, the Internal Revenue Service released revised withholding tables that increased most taxpayers’ take-home pay by reducing the amount of federal income tax withheld. These tables reflected changes mandated by the American Recovery and Reinvestment Act of 2009, including the Making Work Pay Credit. Contact Vision Payroll if you have any questions.

December 29, 2009

2009 Form W-2 Tips, Part 3, Box 2 Federal Income Tax Withheld

This is one in a continuing series on the 2009 Form W-2, Wage and Tax Statement, which employers must generally furnish to employees no later than February 1, 2010. Forms mailed on the due date are considered furnished if properly addressed. Employers unable to meet that deadline may file a request for extension of time to furnish the forms. Today we review Box 2, federal income tax withheld.

Box 2 shows the amount employees must enter on line 62 of Form 1040, US Individual Income Tax Return. Employers determine the amount of withheld federal income tax each pay period by the amount of taxable wages, the pay frequency, and the number of withholding allowances claimed on Form W-4, Employee’s Withholding Allowance Certificate. Spanish-speaking employees may complete Formulario W-4(SP), Certificado de Exención de la Retención del Empleado. Employers may use either the percentage method or the wage bracket method to calculate the amount of tax to withhold. Both methods are explained in Publication 15, (Circular E) Employer’s Tax Guide. Employers should not accept “reverse withholding” where employees write checks to the employer to pay withholding tax. Employees should make such payments using Form 1040-ES. Also, any amounts that employers pay toward an employee’s withholding to “gross-up” non-cash payments such as taxable fringe benefits must also be included as wages in boxes 1, 3, 5, and 7 as required.

The next topic in this continuing series will be Box 3, social security wages. Contact Vision Payroll with any questions on 2009 Form W-2.

November 24, 2009

IRS Changes Nonresident Alien Withholding Procedures in Notice 2009-91

In Notice 2009-91, Withholding on Wages of Nonresident Alien Employees Performing Services Within the United States, the Internal Revenue Service (IRS) modified the procedures for calculating the amount of federal income tax to be withheld from wages paid to nonresident aliens starting on January 1, 2010. Since nonresident aliens are not eligible for the Making Work Pay Tax Credit, the withholding procedures must be modified to reflect this difference. According to Notice 2009-91:

First, employers need to add an amount to wages before determining withholding under the wage bracket or percentage method in order to offset the standard deduction built into the withholding tables. Second, employers need to determine an additional amount of withholding from a separate table applicable only to nonresident alien employees to offset the effect of the Making Work Pay Tax Credit built into the withholding tables. The specific steps to be followed for each of these two modifications will be set forth in Publication 15 and other IRS forms or publications.

Contact Vision Payroll if you have any questions on Notice 2009-91.

May 29, 2009

Question of the Week: How Does an Employee Increase the Amount of Federal Income Tax Withholding?

This week’s question comes from Burt, an office manager. An employee filled out a Form W-4 and now is not having any federal income tax (FIT) withheld from his check. He wants to have $20 withheld each week since he thinks he’ll owe about $1,000 in FIT. How does an employee increase the amount of FIT withholding? Workers who wish to adjust their withholding should file a revised Form W-4, Employee’s Withholding Allowance Certificate or its Spanish equivalent, Formulario W-4(SP), Certificado de Exención de la Retención del Empleado to adjust their withholding. Line 6 may be used to increase the amount withheld for FIT from each paycheck. If the employee files Form W-4 and claims the same exemption and enters $20 on line 6, $20 will be withheld each paycheck unless earnings increase such that FIT must be withheld. In that case, the withholding will be the calculated amount, plus $20. Contact Vision Payroll if you have any question on FIT withholding.

March 13, 2009

Question of the Week: Do Employees Need to File a Revised Form W-4?

This week’s question comes from Jerri, an HR director. I know federal income tax withholding is supposed to change because of the new tax law. Do employees need to file a new Form W-4? Answer: Employees are not required to file a revised Form W-4, Employee’s Withholding Allowance Certificate or its Spanish equivalent, Formulario W-4(SP), Certificado de Exención de la Retención del Empleado to see the impact of the American Recovery and Reinvestment Act of 2009 (ARRA). The Internal Revenue Service (IRS) provided new tax tables in Publication 15-T that adjust withholding for most workers. Employers must begin using the tables no later than April 1, 2009.

Workers may file a new Form W-4 or Formulario W-4(SP) if they do not wish to have their withholding reduced. Employees may wish to review Publication 919, How Do I Adjust My Tax Withholding or use the IRS withholding calculator. The IRS also recommends that employers provide a copy of the notice on page 73 of Publication 15-T to employees to help them understand the changes.

Contact Vision Payroll if you have further questions on the impact of ARRA on federal income tax withholding.

January 23, 2009

Question of the Week: Why Did My FIT Withheld Go Down?

This week’s question comes from Greg, a part-time accounts payable clerk. I made almost the same amount of money in 2008 as I did in 2007, but the amount of my federal income tax (FIT) withheld is significantly lower. Why did my FIT withheld go down? There are several reasons why your FIT withheld could be significantly lower, even though your income was almost the same.

  1. Inflation creep. Each year, as inflation reduces the value of the dollar, tax tables in Publication 15 (Circular E) are adjusted so that less tax would be withheld on the same amount of income. This is to adjust for the reduced buying power of the same dollar amount of income.
  2. Reduced income. At certain low-income levels, no tax is withheld if the withholding allowances claimed are greater than zero. Even FIT withholding of a few dollars each week can add up to a few hundred-dollar difference at year-end compared to no withholding at certain low-income levels.
  3. Increased withholding allowances. Many employees file a revised Form W-4, Employee’s Withholding Allowance Certificate or Formulario W-4(SP), Certificado de Exención de la Retención del Empleado. If the number of withholding allowances claimed increases, the amount of FIT withheld will decrease. Instead of receiving a big refund when a Form 1040 is filed, the employee receives a small net pay increase each week. Some employees also file Form W-4 claiming exemption from all FIT withholding.
  4. Claiming Earned Income Credit. Many employees file a new or revised Form W-5, Earned Income Credit Advance Payment Certificate. As in the case of increased withholding allowances, claiming an advance EIC payment will increase net pay received each week, but could reduce the amount of FIT withheld.
  5. Increase in pre-tax deductions. Employees who increase the amount of a §125 election or elect to contribute more money to a pre-tax retirement plan such as a SIMPLE plan or §401(k) plan, could have a significantly reduced amount of FIT withheld on the same amount of gross pay. Since those amounts are deducted before FIT withholding is calculated, the FIT deduction should be reduced.

Employees should work with their CPA to project their FIT liability for the current year then assess their progress toward meeting that liability each quarter. If the projected FIT withholding be less than the annualized projected liability a revised Form W-4 or Form W-5 should be filed or the need to pay quarterly estimated tax payments using Form 1040-ES should be considered. Employers should update the allowances claimed by logging in to their company file or providing Vision Payroll with the updated information.

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