Preparation for a Successful Payroll Year end Presented by: Jean Domaingue, CPP November 15, 2012
CompuPay is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.learningmarket.org.
Housekeeping Course Level: Basic Prerequisites: None required Advanced Preparation: None required Instructional Delivery Method: Group Internet based CPE Credits: 50-60 minutes. One (1) credit hour is available for this session. Questions Evaluation
Jean Domaingue Area Director of Payroll Sales with 30 years of payroll experience Joined CompuPay in January 2005 bringing multi-faceted service bureau experience in operations, tax, sales and marketing, compliance and training, and education.
Objective Attendees will have a full understanding of the items required for a successful payroll year-end. Specifically, attendees will learn: The items required for and how to prepare for a payroll yearend The requirements for taxing and reporting fringe benefits The rates and limit changes slated for 2013 How and when upcoming legislative changes will impact payroll for attendees and their clients Questions: barriebrown@compupay.com
Agenda Year-end Preparation Fringe Benefits Federal and State Tax Changes Checklist
Overview: The Only Constant Thing Is Change This year-end brings a number of new items that must be recorded for 2012 or put into place for 2013.
Year-End Preparation Banking holidays Dollar thresholds Manual and void checks W-4s SSN verification
Federal Reserve Year-End Schedule Holiday Date Observed Thanksgiving Thursday, November 22, 2012 Christmas Day Tuesday, December 25, 2012 New Year s Day Tuesday, January 1, 2013 Dr. Martin Luther King Jr. Day Monday, January 21, 2013 Washington s Birthday Monday, February 18, 2013 Memorial Day Monday, May 27, 2013 Independence Day Thursday, July 4, 2013 Labor Day Monday, September 2, 2013 Columbus Day Monday, October 14, 2013 Veterans Day Monday, November 11, 2013 Thanksgiving Day Thursday, November 28, 2013 Christmas Day Wednesday, December 25, 2013
Manual and Void Checks Be sure all manual and void checks have been processed prior to the processing of the final 2012 payroll.
SSN Verification SSNs must be correct for each employee prior to processing the final payroll in 2012. Incorrect or mismatched SSNs can result in penalties imposed by the IRS and some states.
E-Verify and SSA www.uscis.gov Allows employees and employers to verify eligibility to work in US via SSN http://www.ssa.gov/employer/ssnv.htm SSA allows employers to verify SSNs
Dollar Thresholds Common this time of year for companies to exceed their normal tax liability thresholds due to bonuses and other factors. Keep in mind the following: $100 K Tax Liability Employers who exceed a tax liability in a deposit period of $100,000 or more are required to deposit the taxes to the IRS on the next business day. Million $ Threshold Clients who reach a total payroll liability of one million dollars or more and are using a payroll service, may be required to wire transfer the entire amount to the payroll provider.
W-4s The Circular E document advises employers to remind employees by December 1 to submit a new Form W-4 if their withholding allowances have changed or will change for the next year. You may want to send a memo to your employees reminding them of the requirement for them to submit a new W-4 any time there are life changes that reduce the exemptions allowed. Employees claiming exempt from withholding must complete a new W-4 by February 15, 2013, to maintain exempt status. If employees do not provide a new W-4 by this date, employers are required to begin withholding federal income tax per the last valid W-4 for that employee that does not claim exemption from withholding, or if a valid W-4 does not exist, begin withholding as if the employee is single with zero withholding allowances.
POLLING QUESTION 1
2012-2013 Annual Limits 2012 2013 FEDERAL Rate Limit Rate Limit Social Security (OASDI only) 6.20 % $110,100 6.20% $113,700 Medicare (HI only) 1.45 % Federal Minimum Wage $7.25 $7.25 No Limit 1.45% No Limit (will increase to 2.35% for high earners) FUTA (net FUTA rate) 0.6% $7,000 0.6% $7,000 Tipped Wage (Federal) $2.13 $2.13 Maximum Tip Credit (Federal) $5.12 $5.12 401(K) Contributions $17,000 $17,500 Simple 401(K) $11,500 $12,000 Simple IRA $11,500 $12,000 Elective Deferrals 403(B) & 457 $17,000 $17,500 Catch Up Contribution (50+) 401(k) $ 5,500 $ 5,500 Catch Up Contribution (50+) Simple 401(k) $ 2,500 $ 2,500 Business Mileage Rate 55.5 cents Not yet published Qualified Transportation Fringes Commuter $125 Parking $240 Not yet published
State Minimum Wage Increases State 2012 2013 Florida $7.67 $7.79 Montana $7.65 $7.80 Ohio $7.70 $7.85 Oregon $8.80 $8.95 Washington $9.14 $9.19 Rhode Island $7.40 $7.75 Arizona $7.65 $7.80 Vermont $8.46 $8.60 Colorado $7.64 $7.78 Missouri $7.25 $7.35
Fringe Benefits Group Term Life Moving Expenses Third Party Sick Pay
Group Term Life Employer-provided life insurance with a value of $50,000 or less is a tax-free benefit as long as it is nondiscriminatory. The value in excess of $50,000, less any employee after-tax deductions related to the insurance, is to be treated as taxable income, subject to all taxes except FUTA, SUI, and SDI. The employer may, at their discretion, withhold FIT for the employee. The cost of the coverage (less any employee after-tax deductions) is computed based upon the amount over $50,000 and the employee age at the end of the current year.
Group Term Life Calculation Steps to take: 1. Determine the total amount of the employee s group-term life insurance coverage under the employer s plan (including coverage purchased by both the employer and the employee). Most plans figure coverage as a multiple of the employee s base salary, which may increase during the year if the employee gets a raise. That is why many employers use the employee s base salary as of January 1 as the base amount for determining life insurance coverage. Many companies also have a maximum amount of employer-provided coverage. 2. Calculate the excess benefit over $50,000.
Group Term Life Calculation 3. Divide the excess insurance amount by $1,000. 4. Determine the employee s age as of December 31 of the calendar year during which the benefit is taxable. 5. Use the IRS table to calculate the fair market value of one month of excess insurance per $1,000 and multiply it by the answer obtained in Step 3. 6. Deduct any after-tax contributions by the employee from the value of the insurance. 7. Add the excess amount to the employee s income, withhold and pay Social Security and Medicare taxes, and report the amount as required.
Fair Market Value for GTL per $1,000 of Excess Benefit/Month Age Monthly Rate Under 25 $0.05 25-29 $0.06 30-34 $0.08 35-39 $0.09 40-44 $0.10 45-49 $0.15 50-54 $0.23 55-59 $0.43 60-64 $0.66 65-69 $1.27 70+ $2.06
POLLING QUESTION 2
Moving Expenses Near year-end, many companies may find that there are relocation expenses that have not yet been entered into the payroll system. Relocation reimbursements may be taxable or nontaxable. Any moving expenses considered cash fringe benefits should be entered as they are paid for prompt calculation and reporting of tax. If you need help in identifying how expenses should be reported, refer to IRS Publication 15-B Employer s Guide to Fringe Benefits or Publication 521 Moving Expenses. These may be downloaded from the IRS website.
Moving Expenses Companies often choose to gross up the taxable portion of the moving expenses and pay taxes, so the employee net reimbursement will not be reduced. If client chooses to gross up the moving expenses: First determine how much of the moving expense is taxable and how much is deductible. Gross up the taxable amount. Most employers gross up for FIT and FICA; others gross up for all applicable taxes. Remember taxable amounts would normally be subject to local taxes. We advise clients to check with their accountant if they are not sure of the breakdown.
Third Party Sick Pay: Self-Insured Some companies are self-insured and pay their own short-term and long-term disability or the company might self-insure and have an agent process claims and determine, based on information provided by the company, who is eligible. No insurance premiums are paid. In each of these cases, the employer is responsible for withholding and reporting any required taxes.
Third Party Sick Pay: Insurer In many instances, the employer pays premiums to a third party insurer who pays short-term and long-term disability to the company s employees who become disabled. This can have fairly complex reporting requirements, depending on the agreement with the third party, and whether the employee pays any portion of the premium on an after-tax basis. Responsibility for withholding, paying and reporting the employee s taxes, as well as the issuance of a W-2 to the employee, often depend on the agreement between the employer and the third party. If the third party withholds and pays the taxes to the appropriate agency, they are usually responsible for reporting and issuing the W-2.
Third Party Sick Pay: General There are other possible agreements with third parties. See IRS Publication 15-A, for detailed information. Be sure you know how each plan works. Check with the plan administrator if unsure. Failure to coordinate your reporting with your third-party s reporting can cause IRS and SSA notices, and possibly penalty assessments.
POLLING QUESTION 3
Federal Tax Changes for 2012 Health Coverage Reporting Requirement in 2012 The Affordable Care Act (ACA) requires employers to report the value of health insurance coverage they provide employees on Form W-2. However, to provide employers the time they need to make changes to their procedures in preparation for compliance with this requirement, the IRS has deferred the reporting requirement for small business. For 2012, employers with 250 or more W-2s reported in 2011 are required to report the cost of insurance coverage on their employee s W-2 forms.
Federal Tax Changes for 2013 Social Security Wage Base Increase for 2013 In October 2012, the Social Security Administration announced the limit on earnings subject to the Social Security tax will be $113,700 in 2013, up from $110,100 in 2012. In 2012, the Payroll Tax Cut Continuation Act of 2011 was extended through December 31, 2012, reducing the employee contribution to 4.2% of taxable wages. This is scheduled to expire for 2013.
What might a January paycheck look like? Tax cuts included in the federal tax tables are scheduled to expire on December 31, 2012. Many changes to existing tax brackets will occur. Tax tables for federal income tax withholding are based on collecting enough tax throughout the year to satisfy the annual liability. Many state income tax rates are based on the federal table. The temporary tax holiday will also expire on December 31 which reduced the employee portion of the SS tax from 6.2% to 4.2%
FUTA Update States that borrowed money from the federal government to fund state unemployment programs see a reduction in their FUTA credit after two years, resulting in a higher FUTA tax rate for that state. There are approximately 21 states with 2012 FUTA credit reductions. Check the Department of Labor s official list expected to be released this month. States issued special employer assessments throughout 2012 in order to pay interest on these federal loans. It is expected that this will continue in 2013.
Taxable Wage Base Changes for State Unemployment in 2013 Changes for 2013 include: Colorado: increase to $11,300 Georgia: increase to $9,500 Illinois: decrease to $12,900 Iowa: increase to $26,000 Kentucky: increase to $9,300 Minnesota: increase to $29,000 Montana: increase to $27,900 Nevada: decrease to $26,900 New Jersey: increase to $30,900 New Mexico: increase to $22,900
Taxable Wage Base Changes for State Unemployment in 2013 North Carolina: increase to $20,900 Oklahoma: increase to $20,100 Pennsylvania: increase to $8,500 Rhode Island*: increase to $20,200 South Carolina: increase to $12,000 South Dakota: increase to $13,000 Washington: increase to $39,800 Wisconsin: increase to $14,000 *For employers in Rhode Island that pay the highest unemployment rate of 9.79%, the wage base will be $21,700.
Taxation Rules for Foreign Employees for 2013 Generally all workers must obtain a valid SSN even if they are not subject to Social Security and Medicare taxes. SSNs are necessary for wage reporting. Nonresident aliens are only allowed to claim single status with 1 dependent exemption (S-1). Residents of Canada and Mexico who commute to work are not restricted to the S-1 status. Some countries have tax treaties with the U.S. which may exempt withholding (Form 8233 must be filed before work begins). Individuals with a Permanent Resident Card (Form 1-551), formerly Green Card, are taxed exactly like a regular U.S. citizen. Nonresident aliens exempt from FICA and FUTA may be subject to SUI taxes with the exception of the following states: Arkansas, Colorado, Maryland, Pennsylvania and Washington.
POLLING QUESTION 4
Check List: Items To Do Before the Last Payroll in December 2012 Bonus checklist: Should bonuses be processed as a separate payroll run? Consider process date and check dates needed to ensure the bonus is available on the necessary date. Will the bonus be paid via direct deposit or live checks? How should the bonuses be taxed? Any voluntary deductions on bonus? Add a special message to the check? Special delivery arrangements needed?
Check List: Items To Do Before the Last Payroll in December 2012 Confirm accuracy of employees names, addresses and SSNs. Verify all tax identification numbers. Ensure all manual checks as well as voided checks have been processed Record any year-end adjustments such as disability payments, group term life insurance, nonstatutory stock options, etc. Be aware of bank holidays. Check for excess contributions to qualified plans: 401(k), 403(b), and SIMPLE plans.
Check List: Items To Do Before the First Payroll in 2013 Inform employee of the need to complete a new W-4 if their taxing situation has changed or if they are claiming exempt from federal withholding in 2013. Verify your unemployment tax rate. Make any necessary changes to employee deductions for medical, dental, 401(k), life insurance, etc. Verify that any extra taxing or blocked taxes that are no longer desired have been removed.
Helpful Websites American Payroll Association www.americanpayroll.org Social Security Administration www.ssa.gov Internal Revenue Service www.irs.gov States and Revenue Agencies www.taxsites.com/state.html CompuPay Check Stub Detail & W-2s www.compupaycentral.com Payroll Calculator www.compupay.com Bureau of Labor and Statistics www.bls.gov US Department of Labor www.dol.gov State Unemployment workforcesecurity.doleta.gov/unemploy/agencies.asp
Thank you for attending our webinar We hope we can help you turn your year-end experience from THIS TO THIS!!
Thank You! Questions: barriebrown@compupay.com