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 information affects withholding in 2015!
Additional Medicare Tax Rate. An additional 0.9% Medicare tax (AMT) 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%. For all other employees, the rate is 1.45%.
Final IRS Regulations. Final regulations under § 3504 of the IRC describe circumstances that will help employers determine which party is liable for its employment taxes when the employer has entered into a service agreement with a third-party payor. Obligations often covered in such agreements may include withholding employment taxes from employees' pay, making wage payments to employees, and timely reporting and remitting the employer's employment taxes to the appropriate government agencies.
IRS Revenue Procedure. The IRS issued a proposed Revenue Procedure that provides employer guidance on employee consents used to support FICA (Social Security and Medicare) tax overpayment refund claims, excluding overpayments of Additional Medicare Tax.
Author: Rena Pirsos, JD, Legal Editor
Updated to reflect notice requirements under New York City's commuter benefits law, enforced as of July 1, 2016.
Updated to reflect a reduction in the Waterfront of New York Harbor Commission Assessment rate, effective July 1, 2016.
Updated to include important new information on automatic Form W-2 filing extensions, effective July 1, 2016.
HR departments should get ready now to comply with a wide variety of employment law requirements that are changing on July 1. Depending on the employer's presence in various jurisdictions, a number of workplace practices may be affected by legislative changes, ranging from employment contracts to payroll.
Updated with new IRC reference dates for Arizona, Hawaii, Indiana, Iowa, Kentucky, Maine, North Carolina, Oregon, South Carolina and Vermont.
Updated to reflect accelerated Form W-2 filing due dates in Idaho, Louisiana, Maryland, Minnesota, Oregon, South Carolina and Vermont, effective with 2016 forms filed in 2017.
Updated to reflect accelerated annual Form W-2 filing date to January 31, effective with 2016 forms filed in 2017.
Updated to include acceleration of annual Form WR filling date to January 31, effective with 2016 forms filed in 2017.
An explanation of the process of payroll withholding of federal, state and local income taxes and Social Security and Medicare (FICA) taxes.