Wipfli Alerts & Updates: 2013 Payroll Update


December 7, 2012
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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 Rate
The wage base subject to social security will be increasing to $113,700 for 2013. There is no limit for the wages subject to Medicare tax. With the expiration of the payroll tax holiday on December 31, 2012, the FICA tax rate, which is the combined social security rate of 6.2% and the Medicare tax rate of 1.45%, will increase to 7.65% for the employee. Bills currently being considered in Congress may change this. The employer FICA rate will remain at 7.65%. Wages paid in excess of $200,000 per employee in 2013 will be subject to an additional 0.9% Medicare tax that will only be withheld from the employees’ wages. Employers will not have to match the additional tax. If the employer does not withhold and deposit the additional tax from the employees affected, they will be subject to penalties for failure to withhold the tax.

Earnings Allowed When Receiving Social Security Benefits
Social security recipients who are under full retirement age can earn up to $15,120 in 2013. One dollar in benefits will be withheld for every $2 in earnings above $15,120.

The year individuals reach full retirement age, they can earn up to $40,080. Retirees who attain “full retirement age” in 2013 will lose $1 in benefits for every $3 earned above $40,080, 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, go to www.socialsecurity.gov/pubs/ageincrease.htm.

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 2013 will increase to $17,500.

SIMPLE elective contributions increase to $12,000 for 2013.

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 for 2013 as follows: 

  • The 401(k) and 403(b) catch-ups remain at $5,500,  
  • The SIMPLE catch-up remains at $2,500. 

Health Savings Account Limits
The annual contribution limits for health savings accounts (HSAs) have increased for 2013. The maximum annual contribution for self-only coverage is $3,250 and for family coverage is $6,450. The catch-up contribution for an individual age 55 or older remains at $1,000. You cannot contribute to an HSA if you are enrolled in Medicare.

Mileage Reimbursement
The standard business mileage rate will increase to 56.5 cents per mile.

Unemployment Wage Base and Rate
The federal unemployment taxable wage base for 2013 remains at $7,000, and the tax rate remains at the current net rate of 0.6% for most employers.

Wisconsin employers will pay an additional 0.6% for 2012 because of the federal loans that were not repaid by November 10, 2012. Wisconsin is expecting to fully repay its outstanding federal loans by the end of 2014. The additional FUTA taxes are due by the due date of the Form 940. The Form 940 has been revised to reflect these changes.

There are a total of 18 states (and the Virgin Islands) affected by the FUTA Credit Reduction Act for 2012. Michigan, Minnesota, and Illinois employers have repaid their federal loans, so they do not have to pay the additional tax for 2012. 

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

Form W-2 Information

  • Each employee who was paid wages in 2012 should receive a Form W-2 that is postmarked by January 31, 2013.
  • Employers filing paper W-2s must submit them to the Social Security Administration (SSA) by February 28, 2013.
  • All employers who file 250 or more Forms W-2 for the tax year 2012 must file with the SSA electronically by April 1, 2013.

Those who used the SSA Website in 2011 to submit W-2s will find that the W-2s are pre-populated for 2012.

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

  • Amounts for personal use of company auto are taxable for FICA, federal/state withholding, and federal/state unemployment.
  • The cost of group-term life insurance over $50,000 is taxable only 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 greater-than-2% shareholder of an S corporation must be included in the employee’s wages subject to federal and Wisconsin income tax withholding (Boxes 1 and 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 greater-than-2% shareholder must be included in wages, subject to social security, Medicare, and federal and Wisconsin income tax (Boxes 1, 3, 5, 12 (code C), and 16 on Form W-2), but not subject to FUTA and SUTA. It is important that these benefits are added to 2012 wage totals for the greater-than-2% shareholder and that appropriate payroll taxes are remitted. Contact your client service partner or manager if you are required to report wages outside of Wisconsin.

Employers are not required to include the fair market value of health, vision, or dental insurance coverage for adult children in gross income for federal or state tax purposes in 2012, as long as the adult child has not turned 27 by the end of the calendar year. If the adult child is 27 or older on December 31, 2012, and received coverage for part of the year, the fair market value of the coverage for that adult child will need to be imputed as taxable income to the employee for the period in which the adult child received coverage, unless he or she can be claimed as a qualified tax dependent. In 2013, the imputed income for adult children will be eliminated because employers will no longer be carrying adult children older than age 26.

There are additional fringe benefits that are typically excluded from taxable income unless limits are exceeded. Some examples are:

  • Achievement awards
  • Dependent care assistance
  • Educational assistance
  • Employee discounts

Additional information can be found on these and other fringe benefits at http://www.irs.gov/ in Publication 15-B.

If you have disability policies, it may be possible, with proper planning, to exclude from taxable income the disability benefits you receive. Please contact your service partner or manager for details.

Employer-Provided Health Care Coverage Reporting for 2012
Beginning with 2012 W-2s, reporting of the aggregate cost (employee and employer portion) of health care coverage under an employer-sponsored group (or self-insured) health plan is required for employers that filed 250 or more W-2s for 2011. The aggregate cost of the health care coverage is reported in Box 12 of the Form W-2, labeled with code DD. This amount is for informational purposes only and is not included in the employee’s taxable income. There is no reporting requirement on the Form W-3 of the total of these amounts. 

Employers that were required to file less than 250 Forms W-2 for 2011 are not mandated to report the cost for 2012. A chart illustrating what must be reported on the Form W-2 can be found at http://www.irs.gov/uac/Form-W-2-Informational-Reporting-of-the-Cost-of-Employer-Sponsored-Group-Health-Plan-Coverage.

Health Flexible Spending Account (FSA) Contribution Limit Changing for 2013
Effective January 1, 2013, salary reductions by an employee into a health FSA will be limited to $2,500. Employers must amend their cafeteria plan documents by the end of calendar year 2014.

Medical Loss Ratio (MLR) Rebates
The Patient Protection and Affordable Care Act of 2010 (PPACA) included a provision requiring MLR rebates from your insurance company if they did not spend a specified percentage of premium dollars on medical care and quality improvement activities. The first rebates were to be paid by August 1, 2012. These rebates may have to be paid to your employees and may be taxable income to them. Please contact your service partner or manager for more information.

Income Tax Withholding Tables
New federal tax withholding tables will be issued for 2013. Federal supplemental wage rates are scheduled to change as of January 1, 2013. The mandatory flat rate on supplemental wage payments exceeding $1,000,000 to one employee during the calendar year will be increasing to 39.6%. It is currently 35% for 2012. The optional flat rate on supplemental wages paid in 2013 is increasing to 28%.  Currently it is at 25%.

Minimum Wage Rates 
The federal minimum wage remains at $7.25 per hour for 2013 for covered employers. These employers include:

  • Businesses producing or handling goods for interstate commerce.
  • Businesses with $500,000 in annual dollar volume of business.
  • Certain other businesses including federal, state, and local government agencies; hospitals and nursing homes; and private and public schools.

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

Form W-4 - Employee’s Withholding Allowance Certificate
A new W-4 form for 2013 must be completed by an employee on or before February 18, 2013, if he or she had requested total exemption from withholding in 2012 and wishes to claim total exemption again in 2013. 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.

Domestic Employers
You are not required to withhold federal income tax from wages you pay a household employee. However, if cash wages of $1,800 or more are paid during 2013 to any household (domestic) employee, the wages are subject to FICA taxes. This remains unchanged from the 2012 amount. 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.

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Illinois
 

Unemployment Wage Base and Rate
The unemployment taxable wage base will decrease to $12,900 in 2013. Effective January 1, 2013, employers with 250 or more employees will be required to report unemployment insurance taxable wages electronically every month. These large employers will continue to submit quarterly contribution and wage reports but will also be required to submit eight additional monthly wage reports. The employees’ names, social security numbers, and total wages for the reporting period will be required on the monthly report. No monthly wage report will be required for the months of March, June, September, and December, since these figures will be included on the quarterly reports filed. There is a proposal to lower the threshold to employers with 25 or more employees.
 
Form W-2 Information
All payroll service providers and employers with 250 or more employees are mandated to file Forms W-2 electronically with the Department of Revenue. These W-2s must be accepted by March 31, 2013, using the SSA EFW2 format.

Income Tax Withholding Tables
Tables remain unchanged for 2013.

Minimum Wage Rates
The adult minimum wage rate remains at $8.25 per hour. Employers may pay $7.75 to anyone under the age of 18.

State New Hire Reporting
Employers can report new hires online at www.ides.state.il.us. Click on Employer tab, then on Report New Hires.

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 Michigan

Unemployment Wage Base and Rate
The unemployment taxable wage base will remain at $9,500 in 2013. Employers should be using Form 1028, Employers Quarterly Wage/Tax Report, to report quarterly wage information. This form consolidates six forms that were used prior to the third quarter of 2012. Beginning in 2013, employers with 25 or more employees will be required to submit their quarterly reports online through MiWam (Michigan Web Account Manager). In 2014, employers with more than five employees will also be mandated to file Form 1028 online. Visit www.michigan.gov/uia to view the MiWam Website.

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, 2013. For more information, please contact the Magnetic Media Unit at 517.636.6925.

Income Tax Withholding Tables
Tables changed October 1, 2012, and will remain in effect until December 31, 2013. Personal income tax rates decreased from 4.35% to 4.25%. The personal exemption amount is now $3,950. Be aware that there are local withholding tax requirements in the state of Michigan.

Minimum Wage Rates
The minimum wage rate remains at $7.40 per hour. 

State New Hire Reporting
Employers can report new hires online at www.mi-newhire.com.

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Minnesota

Unemployment Wage Base and Rate
The unemployment taxable wage base will increase to $29,000 in 2013. All unemployment quarterly tax and wage reporting is required to be done electronically. Electronic payments are available for all employers and are required for employers reporting 50 or more employees in any calendar quarter and all third-party processors. Their website can be found at www.uimn.org.

Form W-2 Information
For tax year 2012, you must submit W-2s and 1099s electronically if you have more than 10 forms.  W-2s must be filed by February 28, 2013, for the 2012 tax year. For more information on electronic filing, go to www.taxes.state.mn.us.

Income Tax Withholding Tables
There are new withholding tables effective January 1, 2013. The employee withholding allowance amount is increasing to $3,900. Tax brackets have changed. For more information, go to www.taxes.state.mn.us/withholding.

Minimum Wage Rates
For larger employers (receipts of $625,000 or more), minimum wage remains at $6.15. For receipts less than $625,000, minimum wage remains at $5.25. If you are a covered employer under federal law, you must pay $7.25.

State New Hire Reporting
Employers can report new hires online at www.mn-newhire.com.

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Wisconsin

Unemployment Wage Base and Rate
The unemployment taxable wage base will increase to $14,000 in 2013.

The new employer rate for nonconstruction employers with payroll under $500,000 remains at 3.6%; for payrolls of $500,000 or more, the rate remains at 4.1%. The new employer rate for construction employers is decreasing from 7.1% to 6.6% in 2013.

Existing employers’ tax rates vary and are determined annually based on “experience” factors.  Employers are notified in October of their tax rate for the next year. In some situations, employers have the option of making a voluntary contribution to reduce their upcoming year’s tax rate. This voluntary contribution is due by November 30.

Employers with 25 or more employees are required to file their tax report via the Web-based reporting application at www.dwd.wisconsin.gov/uitax and their wage report using the same application. Continued filing on paper will result in a $25 penalty. All quarterly tax/wage reports and payments must be received by the department on or before the due date.

Employers with $1,000 or more in first quarter tax liability can defer up to 60% of the total liability to future quarters. Employers must follow certain requirements in order to avoid assessment of interest on the deferred amount. You must file a deferral election online between February 15 and April 30, 2013.  Please contact your client service partner or manager for more information on this. 

An employer with a tax liability of at least $10,000 for any 12-month period ending on June 30 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.

In August 2012 many employers received Special Assessment Billing Notices. These were sent to employers whose taxable payrolls for calendar year 2011 were greater than $25,000. The special assessment is used to pay interest due to the federal government on loans advanced to Wisconsin's Unemployment Insurance Reserve Fund. Interest will be paid on the outstanding loan balance until it is paid in full, which is estimated to take until 2014. The next special assessment will be billed in August 2013, with payment due in September 2013. Based on our current economy, future assessments are expected to be similar or less than the rate charged in 2012. More information regarding this special assessment can be found at http://dwd.wisconsin.gov/ui/safi/default.htm.

Form W-2 Information
The threshold for electronic filing of W-2s remains at 50 for 2012. Employers filing less than 50 W-2 forms are not mandated to file electronically but are encouraged to do so.

Income Tax Withholding Tables
Tables remain unchanged for 2013.

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

State New Hire Reporting
Employers can report new hires online at www.wi-newhire.com.

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