Vision Payroll

This week’s question comes from Brenda, a company executive vice-president. I compared my Form W-2 to my last pay stub and there are differences between the amounts listed on the Form W-2 and the amounts on my last pay stub. How do I reconcile my W-2 to my last pay stub? Answer: The amounts on the Form W-2 may differ from gross pay on your last pay stub for several reasons. By starting with your last pay stub and adding or subtracting typical adjustments, most employees can easily reconcile the two amounts.

Vision Payroll Document Can Assist in Reconciling Form W-2 To Last Pay Stub

The Vision Payroll web site contains a document that helps employees reconcile their Form W-2 to their last pay stub. It contains the most common adjustments to reconcile a pay stub to the amounts in the various boxes. It also contains explanatory information for coded amounts on the Form W-2.

Visit VisionPayroll.com Regularly for Updated information

Contact Vision Payroll if you have any further questions.

This week’s question comes from Seth, a company controller. It seems as if there are many changes in payroll recently. What are 10 hot items for payroll in 2011? Answer: The payroll industry and payroll departments have seen many changes as Congress uses the payroll and payroll tax system as a means to implement desired changes in social policy. Many items are new or revamped for 2011.

10 Hot Payroll Items in 2011

1. 2011 Withholding Table Changes: Because of the recently passed Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Act), employers should implement the 2011 withholding tables as soon as possible, but not later than January 31, 2011.
2. Reduced Social Security Tax Rate for Employees: For 2011, the employee tax rate for Social Security is 4.2%, down from 6.2% in 2010. The employer rate remains at 6.2%.
3. Expiration of Making Work Pay Credit: The Making Work Pay credit expired on December 31, 2010, resulting in higher federal withholding from many employees in 2011.
4. Extension of COBRA Premium Assistance Credit: The credit for COBRA premium assistance payments has been extended to include premiums paid for employees involuntarily terminated between September 1, 2008, and May 31, 2010, and to premiums paid for up to 15 months.
5. Advance Payment of Earned Income Credit (EIC) Discontinued: The option to receive advance payroll payments of EIC expired on December 31, 2010.
6. Federal Tax Payments Must Be Made by Electronic Funds Transfer: With the discontinuation of Forms 8109 and 8109-B, most federal tax payments must now be made by electronic funds transfer.
7. FUTA Tax Rate Scheduled to Decrease: Under current law, the FUTA tax rate will decrease from 6.2% to 6.0%, effective July 1, 2011.
8. Withholding Allowance Amount Set at $3,700: For 2011, the amount for one withholding allowance on an annual basis is $3,700, up from $3,650 for 2009 and 2010.
9. Aggregate Form 940 and Form 941 Filers Must File Schedule R: Agents must complete the appropriate Schedule R when filling an aggregate Form 940 or Form 941.
10. Choose to File Form 941 Instead of Form 944: Employers notified that they should file Form 944, but who want to file Form 941 instead, may notify the IRS and request to file Form 941.

More Changes Expected Throughout 2011

Check VisionPayroll.com regularly as the only certain thing about payroll and payroll taxes for 2011 is that many more changes can be expected.

This week’s question comes from Gabrielle, an office manager. I noticed that my federal income tax withholding increased for my first check of 2011 as compared to my last check of 2010. Several of my co-workers noticed the same thing. I thought the tax cuts were extended. Why did my federal income tax withholding go up in 2011? Answer: The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Act) did extend lower marginal rates for many taxpayers and some taxpayers will see lower federal withholding.

Expiration of Making Work Pay Credit Will Increase Withholding for Many

The expiration of the Making Work Pay credit meant an adjustment in the withholding tables that results in increased federal withholding for many taxpayers. Since taxpayers no longer may claim the Making Work Pay credit on their tax returns, the withholding tables have been adjusted

Taxpayers May File an Amended Form W-4 to Adjust Federal Withholding

Employees may complete a revised 2011 Form W-4, Employee’s Withholding Allowance Certificate or its Spanish equivalent, Formulario W-4(SP), Certificado de Exención de la Retención del Empleado, to adjust their federal withholding for 2011.

Many Taxpayers Have Reduced Social Security Tax Withholding

For taxpayers subject to social security tax withholding, the 2010 Tax Act reduced the rate of withholding in 2011 from 6.2% to 4.2%. This reduced withholding will generally result in higher net pay as it will more than offset the increase in federal income tax withholding.

Vision Payroll Has Implemented New Withholding Tables

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.

This week’s question comes from Steve, an HR director. We provide transportation benefits to our employers. In 2010, we could exclude $230 per month for most qualified transportation benefits. What is the monthly limit on the value of qualified transportation benefits? Answer: The Internal Revenue Service (IRS) in IR-2010-127 announced inflation adjustments related to several tax provisions. Among them, the IRS announced that for 2011, the monthly limit on the value of qualified transportation benefits provided by an employer to its employees would remain at $230.

Details Found in Revenue Procedure 2011-12

Details on the inflation adjustments are found in Revenue Procedure 2011-12. The eight items for which adjustments are included are the following:

1. Tax Rate Tables
2. Child Tax Credit
3. Hope Scholarship and Lifetime Learning Credits
4. Earned Income Credit
5. Standard Deduction
6. Qualified Transportation Fringe
7. Personal Exemption
8. Interest on Education Loans

Qualified Transportation Benefits Limits Are Unchanged

Employers are again allowed to exclude from wages the value of transportation benefits provided to an employee up to the following limits:

• $230 per month for combined commuter highway vehicle transportation and transit passes.
• $230 per month for qualified parking.
• For a calendar year, $20 multiplied by the number of qualified bicycle commuting months during that year for qualified bicycle commuting reimbursement of expenses incurred during the year.

Do You Still Have Questions on Qualified Transportation Benefits?

Contact Vision Payroll if you have further questions on the limit on the value of qualified transportation benefits.

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.

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.

This week’s question comes from Carl, a corporate controller. I received a notice from the Internal Revenue Service (IRS) about Federal Tax Deposit coupons titled, You can no longer make required deposits using Form 8109/8109-B. Why did I receive a notice about Federal Tax Deposit coupons? Answer: As previously announced, the IRS will discontinue accepting paper coupons for Federal Tax Deposits after December 31, 2010.

Updated Guidance Issued by the IRS

Updated guidance was announced in TD 9507 (REG153340-09), published in the Federal Register on December 7, 2010. The Explanation of Provision and Summary of Comments was broken into several sub-topics.

1. Burden on Small Businesses
2. Alternative Payment Methods
3. Raising the De Minimis Amounts
4. Security and Distrust of Electronic Payment Systems
5. EFTPS Registration
6. Foreign Taxpayers
7. One-Day Rule
8. Delay the January 1, 2011 Effective Date
9. Business Days and Legal Holidays
10. Other Differences From the Proposed Regulations

Taxpayers Must Make Most Payments Electronically

Most taxpayers must make all payments electronically. Small employers (those whose tax liability on the return is less than $2,500) have three options to make payments:

• Remit employment taxes with their quarterly or annual tax return,
• Voluntarily make deposits by EFT, or
• Use other methods of payment as provided by the instructions relating to the return.

Vision Payroll Makes Federal Tax Payments Using EFTPS

Vision Payroll makes all federal payroll tax deposits and payments using EFTPS. Additional payments for taxes such as federal income taxes and federal excise taxes may be made for clients by Vision Payroll. Previous registration is required so contact Vision Payroll today to get started.

This week’s question comes from Julian, a sole-proprietor. After being laid-off from my job, I have decided to open my own business as a sole proprietor. Where can I find due dates for tax payments and filings? Answer: Each year, the Internal Revenue Service (IRS) releases Publication 509, Tax Calendars, for use during the following tax year.

Publication 509 Gives Due Dates for Many Items

A tax calendar is a 12-month calendar divided into quarters. The calendar gives specific due dates for the following.

• Filing tax forms.
• Paying taxes.
• Taking other actions required by federal tax law.

Publication 509 Is not Just a Tax Calendar

Though the title of Publication 509 is Tax Calendars, it includes more than just a single tax calendar. It contains:

• A section on how to use the calendars.
• A general tax calendar.
• An employer’s tax calendar.
• An excise tax calendar.
• A table showing the semi-weekly deposit due dates for 2011.

Four Advantages of Using a Tax Calendar

1. You do not have to figure the due dates yourself.
2. You can file or pay timely and avoid penalties.
3. You do not have to adjust the due dates for Saturdays, Sundays, and legal holidays.
4. You do not have to adjust the due dates for special banking rules if you use the Employer’s Tax Calendar or Excise Tax Calendar.

Vision Payroll Has Implemented the 2011 Due Dates in Its Tax Calculation Software

Contact Vision Payroll for further information on Publication 509.

This week’s question comes from Roy, a company controller. We received a CP 213 Notice on a Form 5500. The notice requests missing information, but that missing information was supplied with an amended Form 5500. Do we need to respond to a CP 213 notice on an amended Form 5500? Answer: A CP 213 notice is sent to notify filers of a proposed Internal Revenue Service (IRS) penalty due to a late or incomplete Form 5500 or Form 5500-EZ return. Taxpayers that receive a CP 213 should reply to the notice even if an amended Form 5500 has already been filed.

CP 213 Notices Are Sent by the IRS, not DOL

In many instances, there are two letters sent out by the Department of Labor (EFAST Contractor) asking for the missing information or addressing the late-filed return. If there is no response to either of the letters, the return is processed as is, and the information is provided to the IRS. In some other instances, this CP 213 Notice is the first correspondence between the filer and the IRS.

Taxpayers Should Respond Within Thirty Days of Notice

The CP 213 Notice gives the filer thirty days after the date the notice was issued to respond. If you believe you received a CP 213, Proposed Penalty Notice, in error, respond to the notice within thirty days of receipt. In your response, be certain to submit:

• A copy of the CP 213 Notice,
• Any appropriate supporting documents, and
• Evidence that the return was timely filed or a reasonable cause statement, or
• Evidence that the return was corrected with an amended return.

Mail Response To Ogden Accounts Management Center

Send your responses by certified mail or a traceable private delivery service to the following address:

Ogden Accounts Management Center
EP Accounts Unit, Mail Stop 6270
Ogden, UT 84201

Contact Vision Payroll for Further Information

Contact Vision Payroll if you need assistance responding to a CP 213 notice sent in error.

This week’s question comes from Peter, a company controller. I read that Michigan is a credit reduction state for 2010. Are there any other credit reduction states for 2010? Answer: Federal law provides for a reduction in the FUTA tax credit when a state has outstanding federal loans for two years. The credit reduction is calculated on Schedule A of Form 940.

South Carolina and Michigan Are the Credit Reduction States for 2010

In addition to Michigan, the South Carolina Department of Employment and Workforce has announced that South Carolina is also a FUTA credit reduction state for 2010.

Maximum Tax Increase Is $21 per Employee

Since this is South Carolina’s first year as a credit reduction state, the credit reduction will be 0.3% or a maximum of $21 per employee. This is calculated by multiplying the wage base of $7,000 by the credit reduction of 0.3%.

Michigan, South Carolina and Indiana Are Credit Reduction States for 2010

As noted elsewhere and in the comments, the three credit reduction states for 2010 are Michigan, South Carolina, and Indiana. Unless Congress changes the rules or states make significant changes, as many as thirty-eight states may be credit reduction states in 2011.

Vision Payroll Will Calculate the Credit Reduction for All South Carolina Clients

Contact Vision Payroll if you have any further questions on the South Carolina credit reduction.