2012 Tax Changes

and their effects on employers

Posted on January 26, 2012

During 2011, hundreds of new laws or extensions of existing laws were enacted that affect all Americans; many of the significant legislative changes were to tax laws that will have a direct effect on employers across the country in 2012.

Social Security Wage Base
The Social Security wage base is the maximum amount of earnings against which the Social Security tax can be applied. It has been increased from $106,800 in 2011 to $110,100 for 2012. This means that any wages earned in excess of $110,100 in 2012 are not subject to Social Security taxes.

Temporary Payroll Tax Cut Continuation Act of 2011
In December of 2011, Congress, by unanimous consent, passed the Temporary Payroll Tax Cut Continuation Act of 2011. The act, which is funded by an increase in mortgage guaranty fees, extends not only a payroll tax cut, but also unemployment benefits through the end of February 2012.

In 2011, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 reduced the employee portion of the Social Security tax from 6.2% to 4.2% on the first $106,800 of wages earned. The Temporary Payroll Tax Cut Continuation Act of 2011 extended the reduction of the employee portion of the Social Security tax through February 29, 2012. Because the extension only covers two-twelfths of the year, the tax reduction applies only to the first $18,350 (two-twelfths of $110,100) in wages earned in 2012. A Congressional conference committee is tasked with determining whether the act should be extended through the end of 2012. If it is not extended, a recapture of

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FUTA Credit Reductions in 2011

Resulting rate changes and their effect on employers

Posted on December 22, 2011

While the country begins to see positive changes in the economy, many aspects of the troubled economic times we have recently experienced will be with us for years to come. One will certainly be the effects of high numbers of unemployed workers, extended unemployment benefits and the correlating insolvency of many state unemployment funding programs.

Unemployment insurance (UI) is a program established by the Federal Unemployment Tax Act (FUTA) that is jointly financed through federal and state employer payroll taxes. It is designed to provide individuals with emergency income in times of involuntary unemployment and to encourage employers to effectively manage their workforce. In general, most employers must pay both state and federal unemployment taxes if they pay wages to employees of $1,500 or more in any quarter of a calendar year or if they had at least one employee during any day of a week during any 20 weeks, consecutive or not, in a calendar year. In New Jersey, Alaska and Pennsylvania, both employees and employers are required to pay unemployment taxes.

Calculating FUTA Taxes
The FUTA UI tax rate was originally set at 6.0%. For over 30 years, a temporary surcharge of 0.2% made the effective FUTA UI tax rate 6.2%. The surcharge expired on June 30, 2011, and the rate reverted to 6.0% as of July 1, 2011. However, it is important to understand that most employers do not pay the full tax; employers that pay the full tax;

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Tipped Employees

Posted on November 30, 2011

Payroll can be a unique challenge for businesses that employ tipped workers. Complex regulations that change from federal to state and local levels make handling payroll for tipped employees a complicated undertaking for many small businesses. By understanding government regulations concerning tipped employees, employers can take appropriate steps to reduce risk and ensure compliance.

Minimum Wage for Tipped Employees
Federal law determines the minimum wage rate at which employees can be paid. Although individual states set their own minimum wage rate, unless the state rate is higher, employers must pay their employees based on the federal minimum wage. This is true for tipped employees as well.

As of July 24, 2009, the federal minimum wage rate is set at $7.25 per hour. However, federal law also allows employers to count employee tips as part of their wages by taking a credit against the minimum wage requirement. The maximum amount of credit that the employer can apply is $5.12 per hour resulting in a tipped employee federal minimum wage of $2.13 per hour when the maximum credit is applied. This credit applies only to tipped employees, and many states have regulations concerning these credits. The Wage and Hour Division of the U.S. Department of

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Preparing Payroll for Year-End

Frequently Asked Questions

Posted on October 27, 2011

December and January are very busy months for payroll processing. As one year comes to a close and the new year begins, several payroll-related tasks need to be accomplished by employers. Some activities need to occur prior to the new year and others after the new year has begun.

In an effort to organize payroll activities and plan for the new year, several questions may arise:

What do I need to do before my last payroll of the year?

• Confirm accuracy of current data - It is important that all employee information is checked for accuracy and updated if necessary. Employee names, addresses and Social Security numbers (SSN) are information required on Form W-2 that must be updated prior to the final payroll processing for the year. Incorrect or mismatched employee names or Social Security numbers can result in penalties imposed by the Internal Revenue Service (IRS) as well as some states. (If an employee does not have an SSN, information on how to apply for a Social Security number is available through the Social Security Administration’s website.) It is recommended to have each of your employees verify that their SSN is recorded correctly in your system. SSNs can also be verified online through

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Workers’ Compensation

Posted on September 28, 2011

Workers’ compensation programs in the United States provide for the needs of employees who incur work-related injuries or illnesses. Benefits can include compensation for wages lost while recuperating from an injury, medical and rehabilitation costs, disability benefits, as well as survivor and death benefits. In return for coverage under a workers’ compensation program, covered employees relinquish their rights to sue their employer in the case of work-related illness or injury.

History of Workers’ Compensation Laws in the United States

Before the Supreme Court upheld the constitutionality of compulsory workers’ compensation programs by the states in 1917, workers had little recourse if they were injured while on the job. An employee who became hurt had to turn to the courts for restitution. Most workers did not have the financial resources to sue the employer; those who could, faced a difficult time, as the onus was on the employee to prove negligence on the employer’s part. As a result, very few employees received any compensation. Additionally, employees and employers alike faced an unpredictable system where the settlement might be less than the employee’s legal costs or an exorbitant amount that might be more than the employer could afford to pay.

Initially, the concept of workers’ compensation was not widely embraced. In addition to resistance from employers, unions opposed workers’ compensation laws, as they feared that the necessity of unions would decline if the states controlled worker benefits. Between 1902 and 1910, four states

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