Vision Payroll

This week’s question comes from Adrienne, a sales manager. I normally earn in excess of the FICA limit ($106,800 in 2010 and 2011). I know the social security withholding rate has been reduced for 2011. What is the maximum amount of social security withholding tax  (sometimes called FICA tax)for 2011? Answer: The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Act) reduced the rate for social security withholding tax (sometimes called FICA tax) from 6.2% to 4.2%. Since the wage base remains at $106,800, the maximum social security withholding tax for 2011 by one employer from one employee will be $4,485.60 ($106,800 X 4.2%).

Employer Withholding Rate Remains at 6.2%

There was no change in the rate of social security tax paid by an employer on an employee’s wages. Since the rate remains 6.2%, the maximum employer social security tax for 2011 by one employer for one employee will be $6,621.60 ($106,800 X 6.2%).

Employees May Have More Withholding if They Have Two or More Jobs

The wage base is generally applied on an employer-by-employer basis. Employees who earn more than $106,800 combined at two or more jobs could have social security withholding in excess of $4,485.60 in 2011. Withholding will stop at a job only when the employee reaches the maximum at each individual job. There are exceptions to this rule for situations such as common paymasters and successor employers.

Employees Can Receive Credit on Form 1040 for Excess FICA Withholding

Even though the employer must pay the full tax and withhold it from the employee, amounts withheld above the maximum can be claimed as a credit on Form 1040. For tax year 2010, enter any excess FICA tax withheld by two or more employers on line 69 of Form 1040 and reduce your balance due or increase your overpayment by the amount of the excess.

Contact Vision Payroll for More Information on Social Security Withholding Tax

Contact Vision Payroll if you have any questions on social security withholding tax or visit our Important Facts and Figures page for further information.

According to the US Department of Labor, in the week ending December 18, the advance figure for seasonally adjusted initial claims was 420,000, a decrease of 3,000 from the previous week’s revised figure of 423,000. The 4-week moving average was 426,000, an increase of 2,500 from the previous week’s revised average of 423,500.

Advance Seasonally Adjusted Insured Unemployment Rate Decreases

The advance seasonally adjusted insured unemployment rate was 3.2% for the week ending December 11, a decrease of 0.1 percentage points from the prior week’s unrevised rate of 3.3%.

Advance Seasonally Adjusted Insured Unemployment Decreases

The advance number for seasonally adjusted insured unemployment during the week ending December11 was 4,064,000, a decrease of 103,000 from the preceding week’s revised level of 4,167,000. The 4-week moving average was 4,155,500, a decrease of 38,250 from the preceding week’s revised average of 4,193,750.

Many small businesses struggle to determine whether or not non-compete agreements are worthwhile to use. Such agreements are employment contracts designed to restrict an employee’s right to start a competing business across the street or to take your clients, other employees, or even your training with them when joining your competition. Depending on how the agreements are written and applied, they may help add protection to your business or simply add headaches.

Six Questions to Answer from an HR Perspective

1. What are the appropriate restrictions?
2. What is the scope of the restrictions?
3. What is the nature of the job position?
4. How is confidential information secured?
5. What is the duration that the agreement can be enforced?
6. Is the non-compete agreement complete?

Find Out More About Non-Compete Agreements Now

For more information, be sure to read the featured article by the HR pros at MyHRSupportCenter, Six HR Tips for Non-Compete Agreements. If you’re not yet signed up or would like a free trial of MyHRSupportCenter, contact Vision Payroll today.

The Illinois Department of Employment Security has announced an increase in the taxable wage base for 2010. The wage base will increase from $12,520 for 2010 to $12,740 for 2011.

Minimum and Maximum Rates Also Increase

The minimum employer rate for 2011 will increase to 0.700% from 0.650% and the maximum rate for 2011 will increase to 8.400% from 7.250%

Find Out the Wage Base for All States by Visiting the Vision Payroll Unemployment Taxable Wage Base Page

Contact Vision Payroll if you have any questions on the Illinois unemployment taxable wage base or visit our Unemployment Taxable Wage Base page.

The Internal Revenue Service (IRS) recently released an updated version of Publication 15-B, Employer’s Tax Guide to Fringe Benefits.

Publication 15-B Focuses on Taxation of Fringe Benefits

Publication 15-B provides an overview of fringe benefits as well as sections on fringe benefit exclusion rules and fringe benefit valuation rules. In addition, guidelines for withholding, depositing, and reporting taxable non-cash fringe benefits are also provided.

New Items for 2011

There are several new items in the revised Publication 15-B. Among them are changes in the following areas:

• Combined Commuter Highway and Transit Passes Exclusion
• Benefits for Volunteer Firefighters and Emergency Medical Responders
• Simple Cafeteria Plans
• Cents-per-Mile Rule

Publication 15-B Is a Supplement To Publication 15

Contact Vision Payroll if you any questions on Publication 15-B.

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Act) reduces the social security tax withholding rate from 6.2% to 4.2 % effective with payments made after December 31, 2010.

Transfers To Federal Old-Age And Survivors Insurance Trust Fund

According to the 2010 Tax Act, “There are hereby appropriated to the Federal Old-Age and Survivors Trust Fund and the Federal Disability Insurance Trust Fund established under section 201 of the Social Security Act (42 U.S.C. 401) amounts equal to the reduction in revenues to the Treasury by reason of the application of subsection (a). Amounts appropriated by the preceding sentence shall be transferred from the general fund at such times and in such manner as to replicate to the extent possible the transfers which would have occurred to such Trust Fund had such amendments not been enacted.”

Reduced Withholding of Employees Portion Will not Impact Future Benefits

This reduced social security withholding will have no effect on an employee’s future social security benefits.

Contact Vision Payroll for Further Information

Vision Payroll will be providing further information on the impact of the 2010 Tax Act.

The Internal Revenue Service (IRS) has released the 2010 Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, and accompanying instructions. Employers use Form 940 to report their annual Federal Unemployment Tax Act (FUTA) tax.

FUTA Tax Must Be Deposited Electronically Using EFTPS in 2011

As previously announced, the IRS will discontinue accepting paper coupons for depository taxes after December 31, 2010. Employers should make their deposits electronically using Electronic Federal Tax Payment System (EFTPS).

Three Credit Reduction States for 2010

There are three credit reduction states for 2010: Michigan, Indiana, and South Carolina. The effective FUTA rate for most Michigan employers is 1.4% and for most Indiana and South Carolina employers it’s 1.1%. Most other employers have an effective rate of 0.8%.

2011 FUTA Rate Scheduled to Decrease

Under current law, the FUTA tax rate is scheduled to decrease to 6.0% (before SUTA credits) on July 1, 2011. The rate for the first six months of 2011 is 6.2%.

Vision Payroll to File Form 940 Electronically

Vision Payroll will file Form 940 for its clients electronically with the IRS and will not submit the paper version. Employers will be able to download a copy of Form 940 for their records.

This week’s question comes from Matt, a company president. I know the tax bill has passed the Senate and House and that President Obama has signed it. How does the new tax bill affect payroll taxes in 2011? Answer: The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Act) should give many employees an increase in their take home pay starting with their first check in 2011.

Social Security Withholding to Be Reduced To 4.2%

The biggest impact many employees will see is the reduction of Social Security withholding from 6.2% to 4.2%. According to the Internal Revenue Service (IRS) in Notice 1036, “Employers should implement the 4.2% employee social security tax rate as soon as possible, but not later than January 31, 2011. After implementing the new 4.2% rate, employers should make an offsetting adjustment in a subsequent pay period to correct any overwithholding of social security tax as soon as possible, but not later than March 31, 2011.” The new law also maintains the income-tax rates that have been in effect in recent years.

Making Work Pay Credit Set to Expire

The Making Work Pay credit expires on December 31, 2010. As a result:

• The income tax withholding tables for 2011 are not adjusted for the Making Work Pay credit.
• There is no longer an optional additional withholding adjustment for pensions.
• The procedure for withholding on wages of nonresident aliens has been modified and is included in Notice 1036.

New Percentage Method Tables for Income Tax Withholding Now Available

Notice 1036 includes the 2011 Percentage Method Tables for Income Tax Withholding that were developed as a result of the 2010 Tax Act. Employers should implement the 2011 withholding tables as soon as possible, but not later than January 31, 2011. Vision Payroll has already updated its tax tables and will calculate both the reduced Social Security and updated federal income tax withholding for all 2011 paychecks.

According to the US Department of Labor, in the week ending December 11, the advance figure for seasonally adjusted initial claims was 420,000, a decrease of 3,000 from the previous week’s revised figure of 423,000. The 4-week moving average was 422,750, a decrease of 5,250 from the previous week’s revised average of 428,000.

Advance Seasonally Adjusted Insured Unemployment Rate Remains Unchanged

The advance seasonally adjusted insured unemployment rate was 3.3% for the week ending December 4, unchanged from the prior week’s revised rate of 3.3%.

Advance Seasonally Adjusted Insured Unemployment Increases

The advance number for seasonally adjusted insured unemployment during the week ending December 4 was 4,135,000, an increase of 22,000 from the preceding week’s revised level of 4,113,000. The 4-week moving average was 4,185,500, a decrease of 47,250 from the preceding week’s revised average of 4,232,750.

In IR-2010-120, the Internal Revenue Service (IRS) announced that interest rates for the first quarter of 2011 would decrease from the fourth quarter. The rates are as follows:

• Three (3) percent for overpayments [two (2) percent in the case of a corporation];
• Three (3) percent for underpayments;
• Five (5) percent for large corporate underpayments; and
• One-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Revenue Ruling 2010-31 Contains Official Rate Announcement

The IRS will publish the rates in Revenue Ruling 2010-31. Contact Vision Payroll if you have any questions on the first quarter rates.