HR Support on Tax and Payroll Withholding Rules

Editor's Note: Avoid penalties by properly withholding and remitting income and employment taxes.

Rena PirsosOverview: 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

Latest items in Withholdings

  • Date:
    12 May 2015
    Type:
    Legal Timetable

  • Depositing and Reporting Withheld Taxes: Oregon

    Type:
    Employment Law Manual

    In-depth review of the spectrum of Oregon employment law requirements HR must follow with respect to depositing and reporting withheld taxes.

  • Depositing and Reporting Withheld Taxes: Virginia

    Type:
    Employment Law Manual

    In-depth review of the spectrum of Virginia employment law requirements HR must follow with respect to depositing and reporting withheld taxes.

  • Depositing and Reporting Withheld Taxes: West Virginia

    Type:
    Employment Law Manual

    In-depth review of the spectrum of West Virginia employment law requirements HR must follow with respect to depositing and reporting withheld taxes.

  • Depositing and Reporting Withheld Taxes: Illinois

    Type:
    Employment Law Manual

    In-depth review of the spectrum of Illinois employment law requirements HR must follow with respect to depositing and reporting withheld taxes.

  • Internal Revenue Code Conformity by State

    Type:
    Quick Reference

    Some states that require employers to withhold income taxes from employees' wages tie their definitions of "wages" to the federal Internal Revenue Code (IRC). However, many states update their IRC references to a specific date every year or so, while others roll their references into the current version of the IRC. Even with IRC conformity, some states have important exceptions. This Quick Reference chart summarizes each state's IRC conformity reference.

  • Form 941-X and Instructions Updated for 2015

    Date:
    06 April 2015
    Type:
    News

    Employers are required to use Form 941-X to correct errors they have made on a previously filed Form 941, Employer's Quarterly Federal Tax Return. Employers must file Form 941-X on paper and use a separate copy for each Form 941 they wish to correct.

  • How to Withhold Using the Annualized Wages Method

    Type:
    How To

    Employers must withhold federal income taxes from employees' pay every pay period. Employers that use automated payroll systems may find that the annualized wages method of withholding is more accurate than other withholding methods. This How To guides employers on using the annualized wages method of withholding.

  • How to Withhold Using the Cumulative Wages Method

    Type:
    How To

    Employers must withhold federal income taxes from employees' pay every pay period. Certain employees, such as commission salespeople, may be overwithheld if their employers use the regular percentage method tables, without adjustment for the seasonal nature of employees' jobs. This How To guides employers on determining withholding using the cumulative wages method.

  • How to Use the Percentage Method Withholding Tables

    Type:
    How To

    Employers must withhold federal income taxes from employees' pay every pay period. The IRS has developed several methods employers can use to fulfill this duty. This How To shows employers how to withhold using the percentage method withholding tables published by the IRS.