Tax Relief Law Act and Payroll Changes - Including W-4 and Withholding
Several provisions of the Tax Relief, Unemployment Insurance Continuation and Job Creation Act of 2010 will change how your process payroll in 2011. As William Perez, About.com Guide to Tax Planning reports, this tinkering with withholding rates by the IRS is the result of changes to Making Work Pay, which has been eliminated, and other changes in the tax code. Here are the details:
Employee Social Security Tax Reduced 2% in 2011
In attempt to boost taxpayer income - and thus encourage spending - the new law includes a 2% reduction in the employee portion for the Social Security part of FICA taxes. For an employee earning $50,000 in gross income, this means an additional $1,000 available in 2011. This cut in Social Security tax is only effective for 2011 (unless it's extended) and it does not change your employer contribution to FICA taxes.
New Withholding Tables for 2011
In response to the new tax law, the IRS has made changes to withholding tables for 2011. You can download IRS Notice 1036, which provides more details on the percentage method for income tax withholding.
Employee Changes to W-4 Forms
Although employees don't have to make changes to their withholding, this might be a good time to contact all your employees and remind them to check their W-4 form for changes in filing status, marital status, or additional deductions to avoid underpayment.
You can help employees make changes in their W-4 forms by providing them with this link to the IRS withholding calculator. Employees can also refer to IRS Publication 919 for more information on how to change their withholding allowances.
Adjusting Payroll Tax Withholding in 2011
To reflect the new 2% reduction in Social Security taxes, you will need to change your payroll deductions for employees by this amount. You should make these changes as soon as possible, but no later than January 31, 2011. If you don't get the changes made immediately, you will need to make an adjustment in worker pay to reflect the over-payment. The IRS says the adjustment should be made no later than March 31, 2011.
For example, if you were not able to make the adjustment with the first paycheck in January, the 2% overpayment would need to be refunded to employees in a later paycheck.
Remember:
1. You must reduce the amount you withhold from employee paychecks by 2% for the Social Security portion of FICA taxes.
2. The Social Security maximum taxable income amount for 2011 hasn't changed (it's still $106,800), so some employees may reach this maximum sooner.
3. The employer portion of FICA taxes is not reduced by 2%.
4. New withholding tables are in effect for 2011. You can see the tables in IRS Notice 1036, or get them from your payroll service.
hsmp uk
Several provisions of the Tax Relief, Unemployment Insurance Continuation and Job Creation Act of 2010 will change how your process payroll in 2011. As William Perez, About.com Guide to Tax Planning reports, this tinkering with withholding rates by the IRS is the result of changes to Making Work Pay, which has been eliminated, and other changes in the tax code. Here are the details:
Employee Social Security Tax Reduced 2% in 2011
In attempt to boost taxpayer income - and thus encourage spending - the new law includes a 2% reduction in the employee portion for the Social Security part of FICA taxes. For an employee earning $50,000 in gross income, this means an additional $1,000 available in 2011. This cut in Social Security tax is only effective for 2011 (unless it's extended) and it does not change your employer contribution to FICA taxes.
New Withholding Tables for 2011
In response to the new tax law, the IRS has made changes to withholding tables for 2011. You can download IRS Notice 1036, which provides more details on the percentage method for income tax withholding.
Employee Changes to W-4 Forms
Although employees don't have to make changes to their withholding, this might be a good time to contact all your employees and remind them to check their W-4 form for changes in filing status, marital status, or additional deductions to avoid underpayment.
You can help employees make changes in their W-4 forms by providing them with this link to the IRS withholding calculator. Employees can also refer to IRS Publication 919 for more information on how to change their withholding allowances.
Adjusting Payroll Tax Withholding in 2011
To reflect the new 2% reduction in Social Security taxes, you will need to change your payroll deductions for employees by this amount. You should make these changes as soon as possible, but no later than January 31, 2011. If you don't get the changes made immediately, you will need to make an adjustment in worker pay to reflect the over-payment. The IRS says the adjustment should be made no later than March 31, 2011.
For example, if you were not able to make the adjustment with the first paycheck in January, the 2% overpayment would need to be refunded to employees in a later paycheck.
Remember:
1. You must reduce the amount you withhold from employee paychecks by 2% for the Social Security portion of FICA taxes.
2. The Social Security maximum taxable income amount for 2011 hasn't changed (it's still $106,800), so some employees may reach this maximum sooner.
3. The employer portion of FICA taxes is not reduced by 2%.
4. New withholding tables are in effect for 2011. You can see the tables in IRS Notice 1036, or get them from your payroll service.
hsmp uk