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HR Support on Tax and Payroll Withholding Rules
Editor's Note: Avoid penalties by properly withholding and remitting income and employment taxes.
Overview: The most important payroll process for all employers is undoubtedly withholding for federal, state and local income and employment taxes and timely remitting the amounts collected to the appropriate government agencies. In turn, proper withholding leads to correct employee paychecks, and timely remitting of withheld taxes avoids serious employer penalties.
The income and employment tax withholding process requires an employer to understand: the importance of obtaining and correctly recording employee Social Security Numbers; how to determine the amount of federal income and Social Security and Medicare (FICA) tax to withhold; the various federal income tax withholding and payment methods; federal recordkeeping requirements; and the penalties that are imposed for noncompliance.
Trends: The following important changes affect withholding in 2013!
2013 Medicare Tax Rate. Beginning with wages paid in 2013, an additional 0.9 percent Medicare tax rate applies to single employees who earn more than $200,000 and to married couples who file joint tax returns and earn more than $250,000. For high earners, the total Medicare tax rate is 2.35 percent. For all other employees, the rate is 1.45 percent.
Impact of the American Taxpayer Relief Act (ATRA) of 2012. ATRA 2012 had a major impact on payroll by permanently extending certain expiring Bush-era tax provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, P.L. 107-16 (EGTRRA), temporarily extending other payroll related provisions that expired at the end of 2011 and 2012, increasing the top marginal income tax rate on the wealthiest one percent of Americans and the withholding rate on supplemental wages over $1 million. ATRA also allowed the employee portion of the Social Security tax rate to revert to 6.2 percent from 4.2 percent, causing most employees’ net pay to be lower in 2013.
Rena Pirsos, J.D., Legal Editor
Latest items in Withholdings
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Final Regulations on Employer Identification Numbers Added to Payroll Content
The Depositing and Reporting Withheld Taxes section of the Employment Law Manual has been updated to reflect final regulations issued by the Internal Revenue Service regarding employer identification numbers.
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IRS Issues Final Regulations on Employer Identification Numbers
The Internal Revenue Service (IRS) has issued final regulations, effective January 1, 2014, requiring employers that have an employer identification number (EIN) to provide updated EIN application information to the IRS when required by forms, instructions or other guidance that the IRS plans to issue in the near future.
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Taxation of Employee Benefits
Employee benefits, such as health insurance, sick pay, disability pay, workers' compensation insurance and retirement savings plans, may be subject to withholding for federal income taxes (FIT), Social Security and Medicare (FICA) taxes or federal unemployment (FUTA) taxes. This section assists HR professionals in understanding how each particular type of benefit plan must be structured and how to properly tax and report contributions, reimbursements and distributions in order to ensure compliance with the Internal Revenue Code.
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Depositing and Reporting Withheld Taxes
One of the most important payroll related tasks is ensuring that taxes withheld from employees' pay are deposited and reported properly and on time. This section reviews tax deposit schedules, the Electronic Federal Tax Payment System (EFTPS) and other electronic filing requirements, potential penalties for noncompliance, and important tax forms (e.g., 941, W-2, W-3, 1099).
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New Hire Paperwork: New York
In-depth review of the spectrum of New York employment law requirements HR must follow with respect to new hire paperwork.
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Virginia Employer Earned Income Tax Credit Poster
The Virginia Employer Earned Income Tax Credit poster is required by all employers.
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IRS Issues Additional Payroll Tax Refund Procedures
The Internal Revenue Service (IRS) has posted additional procedures explaining how employers and employees can obtain refunds of overpaid federal income, Social Security and Medicare (FICA) taxes after the 2012 transportation fringe benefit limits were retroactively increased by the American Taxpayer Relief Act (ATRA) of 2012.
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North Dakota Narrows Scope of Permitted Paycheck Deductions
Effective August 1, 2013, the types of payroll deductions that North Dakota employers will be permitted to make will become more limited under amended rules.
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New Hire Paperwork: Kansas
In-depth review of the spectrum of Kansas employment law requirements HR must follow with respect to new hire paperwork.
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IRS Releases 2013 General Instructions for Forms W-2 and W-3
The Internal Revenue Service (IRS) has released the 2013 General Instructions for Forms W-2 and W-3. The 2013 Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements, were released by the IRS earlier this month without the instructions. The instructions highlight some new information of interest to employers.
About this topic
An explanation of the process of payroll withholding of federal, state and local income taxes and Social Security and Medicare (FICA) taxes.
Payroll Withholdings: Key Items
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Withholding Taxes
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Impact of the American Taxpayer Relief Act of 2012 on Payroll
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Social Security Wage Base Increases to $113,700 for 2013
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SSA and IRS Announce 2013 Cost-of-Living Increases and Inflation-Adjusted Amounts
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IRS Issues Guidance on How to Apply the Retroactive Increase in Excludable Transit Benefits
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Eleven More States Revise Withholding Tax Tables for 2013
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Depositing and Reporting Withheld Taxes