Wipfli Alerts & Updates: 2015 Payroll Update


December 11, 2014
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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 $118,500 for 2015. There is no limit for the wages subject to Medicare tax. The employer and employee FICA tax rate will remain at 7.65%, (social security rate at 6.2%, and Medicare rate at 1.45%). Wages paid in excess of $200,000 per employee in 2015 will be subject to an additional 0.9% Medicare tax that will be withheld only 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 $15,720 in 2015. One dollar in benefits will be withheld for every two dollars in earnings above $15,720.

Retirees who attain “full retirement age” in 2015 will lose $1 in benefits for every $3 earned above $41,880, 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.

Retirement Plan Limits

The maximum annual elective deferral an employee may make to a Section 401(k) or 403(b) plan for 2015 will increase to $18,000.

SIMPLE elective contributions increase to $12,500 for 2015. 
 
The IRA annual contribution limit remains unchanged at $5,500.

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 2015 as follows:

  • The 401(k) and 403(b) catch-up increases to $6,000
  • The SIMPLE catch-up increases to $3,000
  • The IRA catch-up remains at $1,000

Health Savings Account Limits

The annual contribution limits for health savings accounts (HSAs) have increased for 2015. The maximum annual contribution for self-only coverage is $3,350 and for family coverage is $6,650. 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 57.5 cents per mile beginning January 1, 2015. The charitable mileage rate of 14 cents remains the same in 2015 for charitable miles driven. The medical and moving mileage rates are decreasing to 23 cents per mile in 2015.

Unemployment Wage Base and Rate

The federal unemployment taxable wage base for 2015 remains at $7,000, and the tax rate remains at the current net rate of 0.6% for most employers.

There are a total of seven states (and the Virgin Islands) affected by the FUTA Credit Reduction Act for 2014. Michigan, Minnesota, Illinois, and Wisconsin employers have repaid their federal loans, so they do not have to pay the additional tax for 2014. 

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

Form W-2 Information

  • Each employee who was paid wages in 2014 should receive a Form W-2 that is postmarked by February 2, 2015.
  • Employers filing paper W-2s must submit them to the Social Security Administration (SSA) by March 2, 2015.
  • All employers that file 250 or more Forms W-2 for the tax year 2014 must file with the SSA electronically by March 31, 2015.

Third-Party Sick Pay Recap Reporting Changes

The SSA will no longer be processing the “Third-Party Sick Pay Recap” form effective January 1, 2015.  This form was used to reconcile Forms W-2 to Form 941 when plan administrators and insurance companies shared employment tax responsibilities with employers for disability payments.

Employers will now be required to file Form 8922, Third-Party Sick Pay Recap, beginning with the 2014 reporting period. This form will be filed with the Internal Revenue Service (IRS) and is due by March 2, 2015.

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, provided these premiums are part of an employer-sponsored plan that covers all employees. Please note that individual states may vary in taxation of these benefits.

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 taxes (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 2014 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 2014 as long as the adult child has not turned 27 by the end of the calendar year.

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 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 Reimbursement of Individual Health Insurance Premiums

Due to the Affordable Care Act (ACA) market reform requirements, employers can no longer pay for or reimburse employees for individual health insurance policies when there is more than one employee participating in the plan.

Employers can, however, provide a tax-free fringe benefit by purchasing an ACA-approved, employer-sponsored group health plan. This type of plan can be provided through the SHOP Marketplace for small employers with 50 or fewer employees. A cafeteria plan can be set up for pretax funding of the employee portion of the premium.

Another acceptable alternative would be to increase the employee’s taxable wages so that the employee can choose to pay for an individual insurance policy. It would not be acceptable to provide a higher pay increase for those with family coverage vs. single coverage or those without health insurance coverage, nor could the employer require the funds to be used for health insurance.

If you are an S corporation and pay for or reimburse a greater-than-2% shareholder for an individual health policy, please contact your Wipfli relationship executive.

Employer-Provided Health Care Coverage Reporting for 2014

In 2014, W-2 reporting of the aggregate cost (employee and employer portions) 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 2013. 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. 

Reporting of the cost of coverage is optional in 2014 for employers that were required to file fewer than 250 Forms W-2 in 2013.

Health Flexible Spending Account (FSA) Contribution Limit Changed for 2015

Since January 1, 2013, salary reductions by an employee into a health FSA have been limited to $2,500. For 2015, the limit has increased to $2,550, assuming your plan has been amended to index the limit to inflation.

FSA Carryover Option – The IRS modified the “use or lose” rule for FSAs in 2014, allowing employers the option to let employees carry over up to $500 of unused amounts remaining in their FSAs at year-end. Employers must amend their plans to offer this option to their employees. The carryover does not affect next year’s $2,550 salary reduction limit. Any unused amount in excess of $500 will be forfeited under the “use or lose” rule. This carryover option provides an alternative to the grace period rule.

Income Tax Withholding Tables

New federal tax withholding tables will be issued for 2015. Federal supplemental wage rates are scheduled to remain the same as in 2014. The mandatory flat rate on supplemental wage payments exceeding $1,000,000 to one employee during the calendar year is 39.6%. The optional flat rate on supplemental wages paid in 2015 is 25%.

Minimum Wage Rates 

Federal – The basic minimum wage remains at $7.25 per hour for 2015 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.

*Beginning January 1, 2015, the minimum wage for federal contract workers for new contracts and replacements for expiring contracts will be $10.10 per hour.

*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 Form W-4 for 2015 must be completed by an employee on or before February 17, 2015, if he or she had requested total exemption from withholding in 2014 and wishes to claim total exemption again in 2015. 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 Form W-4 should also be completed if the employee requests changes in filing status and/or number of allowances throughout the year. 

The IRS may request the employer to submit specified W-4s for review or 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 $1,900 or more are paid during 2015 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. These amounts remain unchanged for 2015.

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Illinois

Unemployment Wage Base and Rate
The unemployment taxable wage base will remain at $12,960 in 2015. Effective July 1, 2014, employers with 25 or more employees were required to report unemployment insurance taxable wages electronically on a monthly basis. These medium and 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. Monthly wage reporting must be filed electronically via TaxNet, the Department’s online tax filing and wage reporting application.

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, 2015, using the SSA EFW2 format. Employers with fewer than 250 employees are not required to submit W-2s to Illinois unless requested. You must continue to retain employee W-2s for a period of three years from the due date or payment date, whichever is later.

Income Tax Withholding Tables
Tables will be changing for 2015 but have not been released at this time.

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.

City contractors and subcontractors need to pay employees a minimum wage of $13.00 per hour on new contracts signed after October 1, 2014.

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

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Michigan

Unemployment Wage Base and Rate
The unemployment taxable wage base will remain at $9,500 in 2015. Employers should be using Form 1028, Employers Quarterly Wage/Tax Report, to report quarterly wage information. Beginning with the first quarter of 2015, all employers will 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, 2015. For more information, please contact the Magnetic Media Unit at 517-636-4730.

Income Tax Withholding Tables
Personal income tax rates remain at 4.25%. The personal exemption amount is increasing to $4,000. Be aware that there are local withholding tax requirements in the state of Michigan.

Minimum Wage Rate
The minimum wage rate increased to $8.15 per hour on September 1, 2014. It will increase to $8.50 per hour but not until January 1, 2016.

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 $30,000 in 2015. 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 for all third-party processors. Their website can be found at www.uimn.org.

Form W-2 Information
For tax year 2014, you must submit W-2s and 1099s electronically if you have more than 10 forms. W-2s must be filed by February 28, 2015, for the 2014 tax year. For more information on electronic filing, go to www.taxes.state.mn.us.

Income Tax Withholding Tables
There will be new withholding tables effective January 1, 2015.

Minimum Wage Rates
For larger employers (receipts of $500,000 or more), the minimum wage increased to $8.00 effective August 1, 2014. On August 1, 2015, this rate will increase to $9.00. For smaller employers (receipts less than $500,000), the minimum wage increased to $6.50 on August 1, 2014. On August 1, 2015, the rate will increase to $7.25. If you are an employer covered 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

Imputed Income Change for Same-Sex Marriages
On October 6, 2014, the U.S. Supreme Court denied Wisconsin’s petition related to the ban on same-sex marriage. As a result of this, these types of marriages are now legal and recognized in Wisconsin.

Wisconsin employers can now exclude the value of an employer-provided health insurance plan from income for a same-sex spouse. An employee who was lawfully married to a person of the same sex on January 1, 2014, should not need to include any imputed income on the Form W-2 for 2014. For individuals of the same sex married after January 1, 2014, there would be no imputed income from the date of marriage through December 31, 2014. If the same-sex person was covered under the health insurance plan as a domestic partner prior to getting married, imputed income from January 1 until the date of marriage will need to be included on the 2014 Form W-2.

Unemployment Wage Base and Rate
The unemployment taxable wage base will remain at $14,000 in 2015.

The new employer rate for non-construction 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 remains at 6.6% in 2015.

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, 2015.  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.

Form W-2 Information
The threshold for electronic filing of W-2s remains at 50 for 2014. Employers filing fewer than 50 Forms W-2 are not mandated to file electronically but are encouraged to do so. Wage information returns/statements with no Wisconsin withholding need to be filed with the Wisconsin Department of Revenue. There is no transmittal form needed when filing Wisconsin W-2s on paper. In prior years, a Form WT-2 was required. Employers that do not have a Wisconsin withholding number and are not required to withhold should enter 036888888888801 in Box 16 of Form W-2.

Income Tax Withholding Tables
Tables remain unchanged for 2015.

Publication W-166, Wisconsin Withholding Tax Guide Effective for Withholding Periods Beginning on or after April 1, 2014, should be used when calculating tax for wages paid in 2015.

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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We hope you find this information helpful. If you have any questions, please do not hesitate to contact your Wipfli relationship executive. You may also contact any one of our payroll specialists located in the following offices:

Wausau, WI  715-845-3111
Rockford, IL  815-399-7700
Cloquet, MN  218-879-1503
 
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