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.

January 1, 2013

Social Security Tax Rate on Employees Reverts To 6.2% of Taxable Wages

Social Security Tax Rate on Employees Reverts To 6.2% of Taxable Wages
Social Security Tax Rate on Employees Reverts To 6.2% of Taxable Wages
The temporary decrease of the social security tax rate to 4.2% has expired with the end of 2012. Beginning in 2013, the social security tax rate on employees reverts to 6.2%.

Net Pay Will Decrease Approximately 2%

Employees will notice a decrease in net pay by about 2% of gross pay. For example, if gross pay is $1000, net pay would decrease by $20. An adjustment must be made for items that reduce social security taxable wages such as §125 cafeteria plans.

Employers Social Security Tax Rate Had Not Decreased

There will be no change in the tax rate on employers as there had not been a provision to reduce it. The rate on employers remained at 6.2% throughout 2011 and 2012.

2010 Tax Act Had Temporarily Reduced the Rate To 4.2%

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Act) reduced the social security tax withholding rate from 6.2% to 4.2 % effective with payments made after December 31, 2010. Although initially effective only for 2011, it was later extended to include 2012.

Contact Vision Payroll for Further Information

Contact Vision Payroll if you have any further questions on the social security tax rate.

December 24, 2010

Question of the Week: What is the Maximum Amount of Social Security Withholding Tax for 2011?

What is the Maximum Amount of Social Security Withholding Tax for 2011?
What is the Maximum Amount of Social Security Withholding Tax for 2011?
This week’s question comes from Adrienne, a sales manager. I normally earn in excess of the FICA limit ($106,800 in 2010 and 2011). I know the social security withholding rate has been reduced for 2011. What is the maximum amount of social security withholding tax  (sometimes called FICA tax)for 2011? Answer: The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Act) reduced the rate for social security withholding tax (sometimes called FICA tax) from 6.2% to 4.2%. Since the wage base remains at $106,800, the maximum social security withholding tax for 2011 by one employer from one employee will be $4,485.60 ($106,800 X 4.2%).

Employer Withholding Rate Remains at 6.2%

There was no change in the rate of social security tax paid by an employer on an employee’s wages. Since the rate remains 6.2%, the maximum employer social security tax for 2011 by one employer for one employee will be $6,621.60 ($106,800 X 6.2%).

Employees May Have More Withholding if They Have Two or More Jobs

The wage base is generally applied on an employer-by-employer basis. Employees who earn more than $106,800 combined at two or more jobs could have social security withholding in excess of $4,485.60 in 2011. Withholding will stop at a job only when the employee reaches the maximum at each individual job. There are exceptions to this rule for situations such as common paymasters and successor employers.

Employees Can Receive Credit on Form 1040 for Excess FICA Withholding

Even though the employer must pay the full tax and withhold it from the employee, amounts withheld above the maximum can be claimed as a credit on Form 1040. For tax year 2010, enter any excess FICA tax withheld by two or more employers on line 69 of Form 1040 and reduce your balance due or increase your overpayment by the amount of the excess.

Contact Vision Payroll for More Information on Social Security Withholding Tax

Contact Vision Payroll if you have any questions on social security withholding tax or visit our Important Facts and Figures page for further information.

December 19, 2010

Social Security Tax Reduction Will Have No Direct Impact on Benefits

Social Security Tax Reduction Will Have No Direct Impact on Benefits
Social Security Tax Reduction Will Have No Direct Impact on Benefits
The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Act) reduces the social security tax withholding rate from 6.2% to 4.2 % effective with payments made after December 31, 2010.

Transfers To Federal Old-Age And Survivors Insurance Trust Fund

According to the 2010 Tax Act, “There are hereby appropriated to the Federal Old-Age and Survivors Trust Fund and the Federal Disability Insurance Trust Fund established under section 201 of the Social Security Act (42 U.S.C. 401) amounts equal to the reduction in revenues to the Treasury by reason of the application of subsection (a). Amounts appropriated by the preceding sentence shall be transferred from the general fund at such times and in such manner as to replicate to the extent possible the transfers which would have occurred to such Trust Fund had such amendments not been enacted.”

Reduced Withholding of Employees Portion Will not Impact Future Benefits

This reduced social security withholding will have no effect on an employee’s future social security benefits.

Contact Vision Payroll for Further Information

Vision Payroll will be providing further information on the impact of the 2010 Tax Act.

March 17, 2010

Tip of the Week: Jobs Bill to Provide Tax Relief to Employers

HR 2847, An Act making appropriations for the Departments of Commerce and Justice, and Science, and Related Agencies for the fiscal year ending September 30, 2010, and for other purposes, was passed by Congress and sent to President Barack Obama who indicated he will sign it March 18, 2010. The law, also called the Hiring Incentives to Restore Employment Act or HIRE Act, allows employers who hire employees after February 3, 2010 (and before January 1, 2011) who were unemployed for sixty days in the period from February 3, 2010 to December 31, 2010 to not pay the employer portion of the social security tax (6.2% of taxable earnings). Employers must still collect and pay the employee portion of the social security tax. Additionally, the employer and employee portion of the Medicare tax must still be collected and paid for all employees. The Internal Revenue Service (IRS) is not planning to change the Form 941 for the first quarter 2010 (the three months ended March 31, 2010). Credits for taxes paid in this quarter will be available on the Form 941 filed for the second quarter 2010. The credit amount would be treated as an additional payment for the second quarter 2010. Employers who employ such qualifying individuals for a fifty-two week period would also be eligible for a $1,000 credit against income taxes. Contact Vision Payroll if you have any questions on the new law.

March 7, 2010

IRS To Honor Medical Resident FICA Refund Claims

In IR-2010-025, the Internal Revenue Service (IRS) announced that it “has made an administrative determination to accept the position that medical residents are excepted from FICA taxes based on the student exception for tax periods ending before April 1, 2005, when new IRS regulations went into effect.” According to the release, “[t]he IRS will…begin contacting hospitals, universities and medical residents who filed FICA (Social Security and Medicare tax) refund claims for these periods with more information and procedures. Employers and individuals with pending claims do not need to take any action at this time.”

Contact Vision Payroll if you have any questions on the FICA determination.

July 28, 2009

IRS Rules Distributions from Tip Jars Are Tips, Not Wages

In the recently released Chief Counsel Advice (CCA) 200929004, the Internal Revenue Service ruled that money distributed from a company’s tip jar should be considered tips, not wages.

The company requires that all its retail locations maintain a tip jar to collect cash to be distributed to certain employees. A non-management employee distributes the tip money according to a time sheet showing hours worked by eligible employees. Management employees are not eligible to share in the tips.

The company estimates an hourly amount that each employee earns and reports that amount times the number of hours worked as wages on Form W-2. The employer also instructs employees to report any amount received above this estimate as income.

Although under §3121(q) of the Internal Revenue Code of 1986 (IRC), tips are considered remuneration for FICA tax purposes (also known as OASDI or social security and Medicare), the remuneration is not deemed paid until the employee furnishes the employer with a written statement detailing the amount of tips received (see IRC §6053(a)). This notification is not supplied by the employees in this case. Since the procedures used by the company do not have the same level of control as described in Revenue Ruling 95-7, Q & A 2, the company is not liable for the employer share of FICA tax until the IRS makes a notice and demand for such taxes.

Contact Vision Payroll if you have any questions on taxation of distributions from tip jars.

July 10, 2009

Question of the Week: Is a Non-student Holding a J-1 Visa Exempt from FICA Tax Withholding?

Filed under: News — Tags: , , , , , , — Vision @ 8:36 pm

This week’s question comes from Norma, an HR manager. I know that students with J-1 visas are exempt from FICA tax withholding in certain circumstances. We hired a non-student with a J-1 visa. Is a non-student holding a J-1 visa exempt from FICA tax withholding? Answer: Non-resident aliens are exempt from paying FICA tax, variously known as social security tax, Medicare tax, or OASDI. Foreign scholars, teachers, researchers, trainees, physicians, au pairs, summer camp workers, and other non-students in J-1 nonimmigrant status who have been in the United States less than two calendar years are considered non-resident aliens during the first two calendar years of physical presence in the United States. After two years of physical presence, a non-student is considered a resident alien and therefore is subject to FICA tax withholding. Therefore, non-students with a J-1 visa are exempt from FICA tax during their first two years of physical presence and subject to FICA tax withholding thereafter. As with students, physical presence for non-students is tested on a calendar year basis; therefore, entry into the United States on December 31 is counted as presence in the United States for one calendar year. Contact Vision Payroll if you have any questions on FICA tax withholding for J-1 visa holders.

July 3, 2009

Question of the Week: Is a Student Holding a J-1 Visa Exempt from FICA Tax Withholding?

Filed under: News — Tags: , , , , , , — Vision @ 11:16 pm

This week’s question comes from Ron, a payroll department manager. We have a student who works for us who holds a J-1 Visa. He says that he should not have FICA tax withheld. Is a student holding a J-1 visa exempt from FICA tax withholding? Answer: Non-resident aliens are exempt from paying FICA tax, variously known as social security tax, Medicare tax, or OASDI. A foreign student who arrives in the United States on a J-1 visa is considered a non-resident alien during the first five calendar years of physical presence in the United States. After five years of physical presence, a student is considered a resident alien and therefore is subject to FICA tax withholding. Therefore, students with a J-1 visa are exempt from FICA tax during their first five years of physical presence and subject to FICA tax withholding thereafter. Contact Vision Payroll if you have any questions on FICA tax withholding for J-1 visa holders.

June 26, 2009

Question of the Week: Do FUTA Taxes Apply to Children of Sole Proprietor Who Are Age 18 or Older?

Filed under: News — Tags: , , , , , , , — Vision @ 10:48 pm

This week’s question comes from Debbie, a sole proprietor. I read that children under age 18 are not subject to federal employment taxes. My children are now in college and work part-time year-round. I know they are now subject to FICA taxes. Do FUTA taxes apply to children of sole proprietor who are age 18 or older? Answer: Sole proprietors who hire their own children under age 21 are not required to pay Federal Unemployment Tax Act (FUTA) tax on those children’s wages. Once the children reach age 21, the exemption no longer applies. Contact Vision Payroll if you have any questions on payroll taxes on children.

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