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 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
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 West Virginia employment law requirements HR must follow with respect to depositing and reporting withheld taxes.
In-depth review of the spectrum of Delaware employment law requirements HR must follow with respect to depositing and reporting withheld taxes.
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.
This How To guides employers on using the annualized wages method of withholding.
This How To guides employers on determining withholding using the cumulative wages method.
This How To shows employers how to withhold using the percentage method withholding tables published by the IRS.
This How To guides employers on determining withholding using the part-year employment method.
This How To guides employers on determining withholding using the average estimated wages method.
This How To shows employers how to withhold on supplemental wages using the aggregate method.
An explanation of the process of payroll withholding of federal, state and local income taxes and Social Security and Medicare (FICA) taxes.