Vision Payroll

This week’s question comes from Roseanne, a payroll manager. When will the 2009 Social Security wage base be announced? Answer: The US Department of Labor has just announced that the 2009 Social Security Wage Base will increase by $4,800 to $106,800. Since wages are taxed at a rate of 6.2%, the maximum tax to be paid by each employee will therefore increase to $6,621.60 or an increase of $297.60. The increase impacts about 7% of workers who pay Social Security Tax. Vision Payroll will automatically update its system for 2009 to reflect the higher wage base.

This week’s question comes from Mark, owner of an import company. I receive the same salary every week. All year, my Massachusetts income tax withholding has been the same. Now it’s gone up two weeks in a row. Why did this happen? Answer: In Massachusetts, a deduction of up to $2,000 is allowed on the state income tax return for social security and Medicare tax (also known as FICA). Therefore, in calculating the amount of income tax to be withheld, a deduction is allowed for these taxes. Once the combined social security and Medicare tax equals $2,000, the deduction is no longer allowed. Vision Payroll will automatically make this change for you once the limit is reached. The reason the amount changed twice is that on the first check the deduction may be partially allowed. For example, if the combined social security and Medicare was $1,980 and the current withholding was $50, $20 ($2,000 – $1,980) would be allowed as a deduction and $30 ($50 – $20) would be over the limit and not allowed as a deduction for state purposes. In the next week, the entire $50 would be considered excess and none allowed as a deduction. Since the deduction decreased two weeks in a row, the tax withheld must increase each week. Contact Vision Payroll if you have any questions.

The IRS recently issued guidance for reporting wages paid in 2008 (including accrued wages and vacation pay) on behalf of deceased employees. Although state law generally controls who receives the unpaid wages, the reporting follows the same rules even if the check is reissued in the name of the employee’s estate or beneficiary. If the employee died in 2008, the employer withholds social security and Medicare taxes and reports the payments in boxes 3 and 5 of the 2008 Form W-2. The wages are not to be reported in box 1 of the 2008 Form W-2 and no income tax is to be withheld. Instead, the amount of the payment must be reported in box 3 of the 2008 Form 1099-MISC using the name and taxpayer identification number of the recipient of the payment. If the employee died in 2007 or before, there is no reporting on the 2008 Form W-2 and no withholding of social security and Medicare taxes. The payment must still be reported in box 3 of the 2008 Form 1099-MISC using the name and taxpayer identification number of the recipient of the payment. Contact Vision Payroll to ensure proper reporting for payments of wages made on behalf of your deceased employees.