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
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.
All New York employers will be required to file and pay withholding and unemployment insurance taxes electronically starting with the first quarter of 2015.
Effective with returns due on and after April 30, 2015, all New York employers will be required to file certain withholding tax and unemployment insurance (UI) returns electronically.
The Los Angeles City Council on October 6 passed a new ordinance that will require hotels in Los Angeles to provide workers a minimum wage and paid time off, effective 2015 or 2016, depending on the size and location of the hotel.
Final regulations adopt without changes proposed and temporary regulations issued in 2013 that allow the Internal Revenue Service to designate payments for which the payer and payee may agree will be subject to a voluntary income tax withholding agreement. The final regulations are applicable on or after September 16, 2014.
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.
An explanation of the process of payroll withholding of federal, state and local income taxes and Social Security and Medicare (FICA) taxes.