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
In-depth review of the spectrum of Ohio employment law requirements HR must follow with respect to withholding taxes
Although relieved of the annual wage notice requirement starting in 2015, New York employers are now subject to increased penalties for failing to comply with other requirements of the Wage Theft Prevention Act.
Ohio Governor John Kasich has signed legislation that will require municipalities levying income taxes to adhere to certain standardized procedures starting January 1, 2016. The law, Sub. H.B. 5, aims to make municipal tax collection more consistent.
This Quick Reference chart provides employers with an overview of the current method required to be used in each state to withhold state income taxes from supplemental wage payments made to employees.
Starting in 2015, North Carolina employers are required to calculate withholding for nonresident alien employees using a new form in lieu of Form NC-4 or W-4.
Illinois content has been updated to reflect the accelerated due date of February 15, 2015, for electronically filed 2014 Forms W-2.
Under an emergency rule filed in late December, the Illinois Department of Revenue (DOR) has accelerated the filing due date for 2014 Forms W-2, Wage and Tax Statement, and Forms W-2c, Corrected Wage and Tax Statement, to February 15, 2015, from March 31.
In-depth review of the spectrum of Illinois employment law requirements HR must follow with respect to withholding taxes.
In-depth review of the spectrum of Maine employment law requirements HR must follow with respect to depositing and reporting withheld taxes.
As mandated by the California Employment Development Department, all California employers must provide DE 35 to new hires and current employees if their W-4 or DE-4 meets certain conditions.
An explanation of the process of payroll withholding of federal, state and local income taxes and Social Security and Medicare (FICA) taxes.