Archive for December, 2011

FUTA Credit Reduction Impacts 20 States

Saturday, December 31st, 2011

FUTA Credit ReductionThere are 20 states and one territory (Virgin Islands) that have FUTA credit reductions imposed for 2011 unemployment taxes. The 20 states are: Arkansas, California, Connecticut, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Virginia, and Wisconsin. The credit reduction will increase the 2011 Federal Unemployment rate by 0.3% except in Indiana, where the increase will be 0.6%, and Michigan, where the increase will be 0.9%.

Employers in “credit reduction” states must remember to calculate a credit reduction as an adjustment to their FUTA tax on their 2011 Form 940 (PDF), Employer’s Annual Federal Unemployment (FUTA) Tax Return. “Credit reduction” states are states that did not repay the money they borrowed from the federal government to pay unemployment benefits.

The Department of Labor determines the credit reduction states for each year. For 2011, employers in these states must reduce their .054 credit on their Form 940 by the following amounts:

States Reduction Rate
Arkansas .003
California .003
Connecticut .003
Florida .003
Georgia .003
Illinois .003
Indiana .006
Kentucky .003
Michigan .009
Minnesota .003
Missouri .003
Nevada .003
New Jersey .003
New York .003
North Carolina .003
Ohio .003
Pennsylvania .003
Rhode Island .003
Virginia .003
Virgin Islands .003
Wisconsin .003

Employers in these states must use the Schedule A (Form 940) (PDF) to compute the credit reduction and attach the Schedule A to their Form 940. More information on the credit reduction, including an example on how to calculate the credit reduction is on the Schedule A (Form 940) and also in the Instructions for Form 940 (PDF).

As a result, if employers pay wages that are subject to the unemployment tax laws of a credit reduction state, the employers must pay additional FUTA tax. Employers must include liabilities owed for credit reduction in calculating their fourth quarter deposit.

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney, CPA or HR Professional.

Employee Names on Form W-2

Saturday, December 31st, 2011

Employee Names on W-2sIt’s important to understand how employee names will be displayed on the W-2 forms so you can make sure they are entered correctly in the payroll system.  W-2’s provide information to your employees, the SSA, IRS and state and local governments so it’s important to try to correct any entry errors, which cause processing delays, before the end of December each year.

One way you can take preventative measures at year-end is by running the Employee Profile report.   This report gives detailed employee information and page breaks by employee so it can be distributed to your employees so they can make sure their W-2 information including social security number, spelling of full name and home address are correct.

An employee’s name should be entered exactly as it is displayed on their social security card.  If an employee has a name change, you should use the name on the original card until you see a corrected card.  Do not show titles or academic degrees, such as “Dr.,” “RN,” or “Rev.,” as those are not included on the social security card.  Generally, do not enter “Jr.,” “Sr.,” or any numerical suffixes unless the suffix appears on the card, and in that case, it should be entered after the last name in the “last name” field.  If the employee has a middle name or middle initial on their SSN card, it should be entered in the middle name field but no punctuation should be included since it needs to be entered exactly as it is on their social security card.

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney, CPA or HR Professional.

2012 Standard Mileage Rates Issued

Saturday, December 31st, 2011

2012 Mileage RateIR-2011-116, Dec. 9, 2011

WASHINGTON — The Internal Revenue Service today issued the 2012 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 55.5 cents per mile for business miles driven
  • 23 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

The rate for business miles driven is unchanged from the mid-year adjustment that became effective on July 1, 2011. The medical and moving rate has been reduced by 0.5 cents per mile.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical or charitable expense are in Rev. Proc. 2010-51.

Notice 2012-01 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney, CPA or HR Professional.

Payroll Tax Cut Temporarily Extended into 2012

Saturday, December 31st, 2011

Social Security Withholding Tax CutIR-2011-124, Dec. 23, 2011

WASHINGTON — Nearly 160 million workers will benefit from the extension of the reduced payroll tax rate that has been in effect for 2011. The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012. This reduced Social Security withholding will have no effect on employees’ future Social Security benefits.

Employers should implement the new payroll tax rate as soon as possible in 2012 but not later than Jan. 31, 2012. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012.

Employers and payroll companies will handle the withholding changes, so workers should not need to take any additional action.

Under the terms negotiated by Congress, the law also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year amount). This provision imposes an additional income tax on these higher-income employees in an amount equal to 2 percent of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).

This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions. The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. With the possibility of a full-year extension of the payroll tax cut being discussed for 2012, the IRS will closely monitor the situation in case future legislation changes the recapture provision.

The IRS will issue additional guidance as needed to implement the provisions of this new two-month extension, including revised employment tax forms and instructions and information for employees who may be subject to the new “recapture” provision. For most employers, the quarterly employment tax return for the quarter ending March 31, 2012, is due April 30, 2012.

Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney, CPA or HR Professional.