Wipfli Alerts & Updates: 2011 Payroll Update


December 20, 2010
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As a service to you, we are pleased to provide this list of updates and reminders regarding payroll. The information below includes federal updates, however, some state-specific information has also been compiled. Please click the appropriate link below for information specific to each state. If your state information is not provided, please contact your Wipfli relationship executive with any specific questions.




Social Security and Medicare Wage Base and RateThe wage base subject to social security will remain at $106,800 for 2011. As in prior years, there is no wage base limit for Medicare tax. The recently passed legislation, 2010 Tax Relief Act, provides a payroll/self-employment tax holiday during 2011 of two percentage points. As a result, employees will pay only 4.2% Social Security tax on wages up to $106,800. However, employers will continue to pay 6.2% Social Security tax on wages up to $106,800. The Medicare tax rate will remain at 1.45% in 2011 for both the employee and employer.

Earnings Allowed When Receiving Social Security Benefits
Beneficiaries can earn the following amounts without losing benefits: 



Age

2011

Under full retirement age $14,160* (no change from 2010)
The year an individual reaches full retirement age $37,680**(no change from 2010)

    
*$1 in benefits will continue to be withheld for every $2 in earnings above the limit.

**Retirees who attain ‘full retirement age’ in 2011 will lose $1 in benefits for every $3 earned above $37,680, but only on earnings earned before the month in which they reach full retirement age. There is no limit on earnings beginning the month an individual reaches full retirement age. To find an individual’s full retirement age, click here.

401(k)/403(b)/SIMPLE Limits
The maximum annual elective deferral an employee may make to a Section 401(k) or 403(b) plan for 2011 will remain at $16,500.

SIMPLE elective contributions remain at $11,500 for 2011.

Catch-Up Contributions - Individuals who have attained age 50 before the close of the plan year who would otherwise be precluded from making any additional elective contributions will be permitted to make additional contributions as follows for 2011:
  • 401(k), 403(b) catch-up remains at $5,500
  • SIMPLE catch-up remains at $2,500

Health Savings Account Limits
The annual contribution limits for health savings accounts (HSAs) will remain unchanged for 2011. The maximum annual contribution for self-only coverage is $3,050, and family coverage is $6,150.  The catch-up contribution for an individual age 55 or older is $1,000.

Mileage Reimbursement
The standard business mileage rate will increase to 51 cents per mile, effective January 1, 2011.

Unemployment Wage Base and Rate
The federal unemployment taxable wage base for 2011 remains at $7,000 and the tax rate remains at the current net rate of 0.8% for most employers. Michigan employers will pay a higher FUTA rate of 1.4% for 2010 due to federal loans which haven’t been repaid. The additional FUTA taxes are due by the due date of Form 940.

The minimum threshold for quarterly FUTA tax deposits remains at $500.

Form W-2 Information

  • Each employee that had wages paid in 2010 should receive a Form W-2 that is postmarked by January 31, 2011.
  • Employers filing paper W-2s must submit them to the Social Security Administration (SSA) by February 28, 2011.
  • All employers who file 250 or more Form W-2s for the tax year 2010 must file with the SSA electronically by March 31, 2011.

Fringe Benefits
Some examples of fringe benefits that need to be added to Form W-2 are personal use of company auto, the cost of group-term life insurance over $50,000, and fringe benefits paid to shareholders of S corporations.

  • Personal use of company auto amounts are taxable for FICA, federal/state withholding, and federal/state unemployment.
  • The cost of group-term life insurance over $50,000 is only taxable for FICA and federal/state withholding and is included in Box 12, identified as Code C.

An employer can choose not to withhold income tax on the value of the personal use of a company vehicle and group-term life insurance, but the employer must notify the employee if this choice is made.

The value of health benefits (including HSA employer contributions and long-term care insurance) provided to a S corporation greater than a 2% shareholder must be included in the employee’s wages subject to federal and Wisconsin income tax withholding (Boxes 1 & 16 on Form W-2).  However, the value of these benefits is excluded from wages subject to social security, Medicare, FUTA, and SUTA taxes. The cost of all group-term life insurance coverage provided to a 2% shareholder must be included in wages, subject to social security, Medicare, and federal and WI income tax (Boxes 1, 3, 5, 12 (code C), & 16 on Form W-2), but not subject to FUTA and SUTA. It is important that these benefits are added to 2010 wage totals for the 2% shareholder and appropriate payroll taxes remitted. Contact your client service partner or manager if you are required to report wages outside of Wisconsin.

Income Tax Withholding Tables
New tax tables will be published for 2011.

Minimum Wage Rates
The federal basic minimum wage remains at $7.25 per hour for 2011.

*When an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher minimum wage rate.

Federal Tax Deposit Schedules
There are two deposit schedules for federal income, social security, and Medicare taxes - monthly or semiweekly. Prior to the beginning of each calendar year, the employer must determine which of the two deposit schedules they are required to use. The deposit schedule is based on the total tax liability reported on Form 941 during a four-quarter lookback period.

The 2011 lookback period begins on July 1, 2009 and ends June 30, 2010. If the total tax liability reported on Form 941 during this period is $50,000 or less, you are a monthly depositor; if over $50,000, you are a semiweekly depositor for the 2011 calendar year.

There is a special depository rule if the employer accumulates a tax liability of $100,000 or more during a deposit period.

Contact your client service partner or manager for details.

Most Businesses Required to Pay via EFTPS in 2011
The U.S. Department of Treasury has announced that employers currently using paper federal deposit coupons must make payroll deposits electronically beginning January 1, 2011. An exception will be made for businesses that have $2,500 or less in quarterly tax liabilities that pay their payroll taxes when filing the payroll tax return. Employers that currently use paper deposit coupons should enroll in EFTPS before January 1, 2011.

To receive an enrollment form, call EFTPS Customer Service at 800.555.4477 or go online at www.eftps.gov.

Health Care Benefits for Children Under Age 27
From January 1, 2010 through March 29, 2010, the fair market value of employer-provided health insurance for nondependent adult children under age 27 at the end of 2010 is required to be included in the employee’s gross income. Effective March 30, 2010, the Affordable Health Care Act was amended to extend the general exclusion from gross income for employer-provided health insurance and reimbursements for medical care under an employer-provided accident or health plan to any employee’s child who has not reached age 27 as of the end of the taxable year.

If a child is age 26 or less at the end of the tax year, the income exclusion applies even if the child provides more than one-half of his or her own support, earns more income than the exemption amount, does not live with the taxpayer, is married, or if any other restriction applies which prevents the employee from claiming a dependency exemption. A “child” includes a son, daughter, stepchild, adopted child, or eligible foster child.

Reporting of this benefit varies between states. Therefore, please contact your client service partner or manager regarding proper state reporting of this benefit.

Advance Earned Income Credit
Effective January 1, 2011, the advance payment of the federal earned income credit (EIC) has been eliminated. Because the federal advance EIC has been eliminated for 2011, the Wisconsin advance EIC will also be eliminated for taxable years beginning January 1, 2011.

HIRE Act
The HIRE Act, enacted March 18, 2010, created two new tax benefits to encourage qualified employers to hire and retain new workers. Employers who hired unemployed workers after February 3, 2010 and before January 1, 2011, could possibly qualify for a 6.2% payroll tax incentive, exempting them from the employers’ share of social security tax on wages paid to these employees after March 18, 2010. Also, for every qualified worker retained for at least 52 consecutive weeks, businesses can claim a new hire retention credit on their business return of up to $1,000 per worker.

State Electronic Funds Transfer
See state specific information below.

Form W-4 - Employee’s Withholding Allowance Certificate
A new W-4 form for 2011 must be completed by an employee on or before February 15, 2011, if he or she had requested total exemption from withholding in 2010 and wishes to claim total exemption again in 2011. A claim of exemption from withholding lasts for only one calendar year. If an employee does not submit a new W-4, the employer must begin to withhold as if the employee were single with zero withholding allowances.

A new W-4 form should also be completed if the employee requests changes in filing status and/or number of allowances throughout the year.

The Internal Revenue Service (IRS) may request the employer to submit specified W-4s for review or to make them available for inspection by an IRS employee.

State Withholding Certificates
See state specific information below.

State New Hire Reporting
All new employees in 2011 must complete Forms W-4 and I-9. Employers are required by federal and state law to file information with their respective agencies on employees who are newly hired or rehired after an unpaid absence of more than 90 days. Paper reports must be received within 20 days after the employee’s first day of work, rehired, or returns to work. Electronic reports must be submitted at least twice per month and are required only after an employee is hired. Employers are required to report the new employee’s name, address, social security number, date of hire, employee’s state of hire (only if reporting as a multistate employer), date of birth, and the employer's name, address, and federal employer identification number.

Domestic Employers
You are not required to withhold federal income tax from wages you pay a household employee.  However, if cash wages of $1,700 or more are paid during 2011 to any household (domestic) employee, the wages are subject to FICA taxes. If total cash wages (of all household employees) of $1,000 or more are paid in any calendar quarter, the wages are subject to FUTA taxes.


Illinois

Unemployment Wage Base and Rate
Unemployment taxable wage base will increase to $12,740 in 2011.

Form W-2 Information
All payroll service providers and employers with 250 or more employees are mandated to file Form W-2 electronically with the Department of Revenue by March 31, 2011, using SSA EFW2 format.

Income Tax Withholding Tables
Tables remain unchanged for 2011.

Minimum Wage Rates
As of July 1, 2010, the adult minimum wage rate increased to $8.25 per hour. Employers may pay $.50 less to anyone under the age of 18.

State Electronic Funds Transfer
Effective January 1, 2011, employers with an annual withholding tax liability of $12,000 or more (currently, $20,000 or more) must make all withholding tax payments to the Illinois Department of Revenue by electronic fund transfer (EFT). Employers who deposit their taxes on a semi-weekly basis must also do so by EFT beginning January 1, 2011.

State Withholding Certificates
IL W-4 - Every employer must obtain an IL W-4 from each employee.

State New Hire Reporting
Use IL New Hire Reporting form. The form can be faxed or mailed to IDES. Employers can also report new hires online at www.ides.state.il.us/employer/new-hire.asp.


Michigan

Unemployment Wage Base and Rate
Unemployment taxable wage base will remain unchanged at $9,000 in 2011. Positive reserve balance employers can apply to receive a state unemployment tax credit if they have paid Michigan unemployment taxes for five years or more. These employers could receive a credit of up to 50% of the additional FUTA tax paid on the Form 940. Information regarding this credit and how to apply for it are posted at www.michigan.gov/uia or you can call 1.800.638.3994.

Form W-2 Information
Employers with 250 or more employees are mandated to file W-2 information on magnetic media using the EFW2 format by February 28, 2011. For more information, please contact the Magnetic Media Unit at 517.636.4730.

Income Tax Withholding Tables
Michigan has released new withholding tables effective January 1, 2011. A withholding rate reduction is scheduled for October 1, 2011. Updated withholding tables will be available on the Michigan Department of Treasury’s website which should be used for wages paid after September 30, 2011. Be aware that there are local withholding tax requirements in the state of Michigan.

Minimum Wage Rates
Remains at $7.40 per hour.

State Electronic Funds Transfer
Employers who paid an average of $40,000 or more per month in income tax withholding in the preceding calendar year must remit via electronic funds transfer (EFT) and will be notified of a requirement to pay on an accelerated schedule. For additional information, call 517.636.4730 or e-mail treasSUW@michigan.gov.

State Withholding Certificates
MI W-4 - Every employer must obtain a MI W-4 from each employee and submit a copy to the Department of Treasury if an employee is claiming (1) 10 or more exemptions or (2) exempt from withholding tax. An employee may not claim more exemptions on the MI W-4 than can be claimed on the employee’s federal income tax return.

State New Hire Reporting
Use Form 3281 or MI W-4 to file information with Michigan New Hire Operations Center. Either form can be mailed, faxed, sent electronically, or submitted online at www.mi-newhire.com. If you report your new hire information electronically or magnetically, also send a paper copy of the MI W-4 for these employees to the New Hire Operations Center. If you have any questions regarding the New Hire Reporting process, call 800.524.9846.


Minnesota

Unemployment Wage Base and Rate
Unemployment taxable wage base will remain at $27,000 in 2011. Any business registered for unemployment tax can file its report and pay its taxes online at www.uimn.org. All unemployment quarterly tax and wage reporting are required to be done electronically. Electronic payments are available for all employers and required for employers reporting 50 or more employees in any calendar quarter and all third-party processors.

Form W-2 Information
For tax year 2010, W-2s must be filed electronically if the employer has more than 25 forms, down from 50 in 2009. This threshold is lowered to more than 10 forms for tax year 2011 and beyond. The format for transmission is SSA’s EFW2.  W-2s must be filed by February 28, 2011, for the 2010 tax year. If submitting W-2s electronically presents an undue hardship, a waiver of the requirements may be requested.

Income Tax Withholding Tables
Michigan has released new withholding tables effective January 1, 2011. For more information, go to www.taxes.state.mn.us/withholding.

Minimum Wage Rates
For larger employers (receipts of $500,000 or more) minimum wage remains at $7.25. For receipts less than $500,000, minimum wage remains at $5.25.

State Electronic Funds Transfer
Employers with a total tax withholding liability of $10,000 or more during the previous fiscal year ending June 30 must remit via EFT. If you are required to electronically pay any other Minnesota business tax or use a payroll service company, you must also file via EFT. The website is www.taxes.state.mn.us

State Withholding Certificates
MN W-4 should be completed if you (1) claim fewer Minnesota withholding allowances than your federal allowances, (2) have more than 10 Minnesota withholding allowance, (3) want additional withholding deducted from your pay each pay period, or (4) claim to be exempt from federal withholding or claim to be exempt from Minnesota withholding. Use the federal W-4 form if you are claiming the same number of Minnesota withholding allowances as federal and the number claimed is 10 or less. You must send copies of MN W-4 to the department if the employee:

  • Claims more than 10 Minnesota allowances or
  • Claims to be exempt from MN withholding and you reasonably expect the employee’s wages to exceed $200 per week or
  • You believe the employee is not entitled to the number of allowances claimed.

State New Hire Reporting
Use the Minnesota New Hire Reporting form or use Form W-4 and file information with Minnesota New Hire Reporting Center. This form can be mailed, faxed, sent electronically, by disk, or the Internet.


Wisconsin

Unemployment Wage Base and Rate
Unemployment taxable wage base will increase to $13,000 in 2011. Employers’ tax rates vary and are determined annually based on “experience” factors. Employers are notified of their tax rate for the next year in October. In some situations, employers have the option of making a voluntary contribution to reduce their upcoming year’s tax rate, which is due by November 30.

Employers with 25 or more employees must file their Tax Report via the web-based reporting application at www.dwd.wisconsin.gov/uitax and their Wage Report using the same application.

Failure to comply with these filing requirements will result in penalties of $25 for every Tax Report filed on paper and $20 per employee for Wage Reports filed on paper.

All quarterly Tax/Wage Reports and payments must be received by the department on or before the due date. The penalty for late filing of Wage Reports is $50.

An employer with a tax liability paid or due for any 12-month period ending on June 30 that is at least $10,000 must pay all unemployment payments via electronic funds transfer (EFT) beginning with the next calendar year. Once an employer is subject to EFT, the employer must continue to pay all unemployment tax payments in that manner.

Form W-2 Information
Employers should be using the 15-digit Wisconsin Withholding Tax Account number on their 2010 W-2s. The threshold for electronic filing of Forms W-2 remains at 50 for 2010.

Income Tax Withholding Tables
Tables remain unchanged for 2011.

Minimum Wage Rates
The general minimum wage for adults remains at $7.25 per hour.

State Electronic Funds Transfer
The Wisconsin Department of Revenue has adopted a rule that will require employers withholding $300 or more during the previous calendar year to remit the taxes by electronic funds transfer (EFT). The current threshold is $10,000.

My Tax Account is the online application which allows businesses to file returns and pay amounts due for sales and use tax, withholding tax, and various other taxes and fees. You can access My Tax Account at www.revenue.wi.gov. The late filing fee for delinquent withholding reports (WT-6s) and deposits is $50 for individuals and $150 for corporations and insurance companies. The late filing fee will not apply if the person required to file the withholding report or make the deposit dies, or the failure is due to reasonable cause and not neglect.

State Withholding Certificates
Form WT-4 - This form should be completed for employees who claim different withholding allowances for state purposes versus federal purposes. This form may also be used to gather and submit information in order to comply with Wisconsin New Hire Reporting requirements. Submit a copy to the Department of Revenue if an employee has claimed (1) more than 10 exemptions, (2) has claimed complete exemption from withholding and earns more than $200 a week, or (3) if the employer believes an employee is claiming more exemptions than he or she is entitled to.

State New Hire Reporting
Form WT-4 is the Wisconsin equivalent of the federal Form W-4 and may be used to collect and report this information. We suggest the employee complete both the W-4 and WT-4 at the time of hire. This form can be mailed, faxed, sent electronically, by disk, or the Internet. If you have any questions, you may contact the Division of Unemployment at 1.888.300.4473.

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