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 2014!
Additional Medicare Tax Rate. An additional 0.9 percent 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 percent. For all other employees, the rate is 1.45 percent. The AMT took effect January 1, 2013 under the Patient Protection and Affordable Care Act (PPACA).
Final IRS Regulations. The Internal Revenue Service has issued final regulations under § 3504 of the Internal Revenue Code describing circumstances that will help determine which party is liable for an employer's employment taxes when an 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.
Author: Rena Pirsos, JD, Legal Editor
Effective January 1, 2015, combined filing of Maine Withholding Tax and Unemployment contributions will be eliminated. The electronic filing threshold will also decrease for certain employers.
The federal Office of Child Support Enforcement has updated the standard Income Withholding For Support (IWO) form and instructions, which must be used whenever an employer is required to withhold child support from an employee's pay.
In Information Letter 2014-0012, the Internal Revenue Service has outlined two procedures that a same-sex married employee may use to claim an income tax refund if an employer included the value of his or her spouse's health insurance on the 2013 Form W-2.
Maine Form 941/C1-ME, Combined Filing for Income Tax Withholding and Unemployment Contributions, will be divided into separate forms effective for tax years beginning after January 1, 2014.
Newly revised IRS procedures allow independent contractors to stop or prevent backup withholding on reportable employer payments by validating and presenting a Social Security card to an employer.
To prevent identity theft, the IRS has issued final regulations permitting the use of Truncated Taxpayer Identification Numbers (TTINs) on certain federal tax-related payee statements, but not on Form W-2.
Employers must withhold federal, state and local income taxes and FICA taxes (Social Security and Medicare) from employees' pay. This section assists HR professionals in understanding what to withhold, different withholding methods and recordkeeping requirements.
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).
An explanation of the process of payroll withholding of federal, state and local income taxes and Social Security and Medicare (FICA) taxes.