Vision Payroll

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.

February 26, 2011

IRS Releases Draft Form 941

IRS Releases Draft Form 941
IRS Releases Draft Form 941
The Internal Revenue Service (IRS) recently released a draft Form 941, Employer’s QUARTERLY Federal Tax Return. The revised Form 941 will be used for reporting information for the first quarter of 2011 and later quarters. It cannot be used to report information for 2010.

Social Security Rate Is Changed on Draft Form

Since the employee social security tax rate for 2011 is 4.2%, the rate used to calculate tax on both taxable social security wages and taxable social security tips has been changed from 12.4% to 10.4%.

New Line 5e Has Been Added

The draft form includes a new line 5e to report §3121(q) notice and demand—tax due on unreported tips. Under §3121(q), when notice and demand is made for such taxes, the remuneration is deemed to be paid on the date of the notice.

Lines 6a-6d Made Inactive

Lines 6a, 6b, 6c, and 6d have been made inactive on the draft Form 941. These lines were used to report on qualified employees and exempt wages under the HIRE Act.

Contact Vision Payroll for Further Information

Contact Vision Payroll for further information on the changes in the draft Form 941.

January 14, 2011

Question of the Week: What Are 10 Hot Items for Payroll in 2011?

What Are 10 Hot Items for Payroll in 2011?
What Are 10 Hot Items for Payroll in 2011?
This week’s question comes from Seth, a company controller. It seems as if there are many changes in payroll recently. What are 10 hot items for payroll in 2011? Answer: The payroll industry and payroll departments have seen many changes as Congress uses the payroll and payroll tax system as a means to implement desired changes in social policy. Many items are new or revamped for 2011.

10 Hot Payroll Items in 2011

  1. 2011 Withholding Table Changes: Because of the recently passed Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Act), employers should implement the 2011 withholding tables as soon as possible, but not later than January 31, 2011.
  2. Reduced Social Security Tax Rate for Employees: For 2011, the employee tax rate for Social Security is 4.2%, down from 6.2% in 2010. The employer rate remains at 6.2%.
  3. Expiration of Making Work Pay Credit: The Making Work Pay credit expired on December 31, 2010, resulting in higher federal withholding from many employees in 2011.
  4. Extension of COBRA Premium Assistance Credit: The credit for COBRA premium assistance payments has been extended to include premiums paid for employees involuntarily terminated between September 1, 2008, and May 31, 2010, and to premiums paid for up to 15 months.
  5. Advance Payment of Earned Income Credit (EIC) Discontinued: The option to receive advance payroll payments of EIC expired on December 31, 2010.
  6. Federal Tax Payments Must Be Made by Electronic Funds Transfer: With the discontinuation of Forms 8109 and 8109-B, most federal tax payments must now be made by electronic funds transfer.
  7. FUTA Tax Rate Scheduled to Decrease: Under current law, the FUTA tax rate will decrease from 6.2% to 6.0%, effective July 1, 2011.
  8. Withholding Allowance Amount Set at $3,700: For 2011, the amount for one withholding allowance on an annual basis is $3,700, up from $3,650 for 2009 and 2010.
  9. Aggregate Form 940 and Form 941 Filers Must File Schedule R: Agents must complete the appropriate Schedule R when filling an aggregate Form 940 or Form 941.
  10. Choose to File Form 941 Instead of Form 944: Employers notified that they should file Form 944, but who want to file Form 941 instead, may notify the IRS and request to file Form 941.

More Changes Expected Throughout 2011

Check VisionPayroll.com regularly as the only certain thing about payroll and payroll taxes for 2011 is that many more changes can be expected.

January 7, 2011

Question of the Week: Why Did My Federal Income Tax Withholding Go Up in 2011?

Why Did My Federal Income Tax Withholding Go Up in 2011?
Why Did My Federal Income Tax Withholding Go Up in 2011?
This week’s question comes from Gabrielle, an office manager. I noticed that my federal income tax withholding increased for my first check of 2011 as compared to my last check of 2010. Several of my co-workers noticed the same thing. I thought the tax cuts were extended. Why did my federal income tax withholding go up in 2011? Answer: The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Act) did extend lower marginal rates for many taxpayers and some taxpayers will see lower federal withholding.

Expiration of Making Work Pay Credit Will Increase Withholding for Many

The expiration of the Making Work Pay credit meant an adjustment in the withholding tables that results in increased federal withholding for many taxpayers. Since taxpayers no longer may claim the Making Work Pay credit on their tax returns, the withholding tables have been adjusted

Taxpayers May File an Amended Form W-4 to Adjust Federal Withholding

Employees may complete a revised 2011 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 federal withholding for 2011.

Many Taxpayers Have Reduced Social Security Tax Withholding

For taxpayers subject to social security tax withholding, the 2010 Tax Act reduced the rate of withholding in 2011 from 6.2% to 4.2%. This reduced withholding will generally result in higher net pay as it will more than offset the increase in federal income tax withholding.

Vision Payroll Has Implemented New Withholding Tables

Vision Payroll has already updated its tax tables and will calculate both the reduced Social Security and updated federal income tax withholding for all 2011 paychecks.

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.

December 17, 2010

Question of the Week: How Does the 2010 Tax Act Affect Payroll Taxes in 2011?

How Does the New Tax Bill Affect Payroll Taxes in 2011?
How Does the New Tax Bill Affect Payroll Taxes in 2011?
This week’s question comes from Matt, a company president. I know the tax bill has passed the Senate and House and that President Obama has signed it. How does the new tax bill affect payroll taxes in 2011? Answer: The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Act) should give many employees an increase in their take home pay starting with their first check in 2011.

Social Security Withholding to Be Reduced To 4.2%

The biggest impact many employees will see is the reduction of Social Security withholding from 6.2% to 4.2%. According to the Internal Revenue Service (IRS) in Notice 1036, “Employers should implement the 4.2% employee social security tax rate as soon as possible, but not later than January 31, 2011. After implementing the new 4.2% rate, employers should make an offsetting adjustment in a subsequent pay period to correct any overwithholding of social security tax as soon as possible, but not later than March 31, 2011.” The new law also maintains the income-tax rates that have been in effect in recent years.

Making Work Pay Credit Set to Expire

The Making Work Pay credit expires on December 31, 2010. As a result:

  • The income tax withholding tables for 2011 are not adjusted for the Making Work Pay credit.
  • There is no longer an optional additional withholding adjustment for pensions.
  • The procedure for withholding on wages of nonresident aliens has been modified and is included in Notice 1036.

New Percentage Method Tables for Income Tax Withholding Now Available

Notice 1036 includes the 2011 Percentage Method Tables for Income Tax Withholding that were developed as a result of the 2010 Tax Act. Employers should implement the 2011 withholding tables as soon as possible, but not later than January 31, 2011. Vision Payroll has already updated its tax tables and will calculate both the reduced Social Security and updated federal income tax withholding for all 2011 paychecks.

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