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 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.
The IRS has released the 2015 Form W-4, Employee's Withholding Allowance Certificate, which employers use to determine the amount of federal income taxes to withhold from employees' pay.
The IRS has issued the 2014 Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return; Schedule A (Form 940), Multi-State Employer and Credit Reduction Information; Schedule R (Form 940), Allocation Schedule for Aggregate Form 940 Filers; and the Instructions for Form 940. The due date for filing Form 940 is February 2, 2015.
The IRS has released advance copies of the federal percentage method withholding tables effective for wages paid in 2015. The withholding allowance amounts by payroll period have changed from the 2014 amounts.
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.
An explanation of the process of payroll withholding of federal, state and local income taxes and Social Security and Medicare (FICA) taxes.