2016 Payroll Update
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 included. 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 remain at $118,500 for 2016. 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 2016 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, the employer 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 2016 (unchanged from 2015). One dollar in benefits will be withheld for every two dollars in earnings above $15,720.
Retirees who attain “full retirement age” in 2016 will lose $1 in benefits for every $3 earned above $41,880 (unchanged from 2015), 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 2016 remains unchanged at $18,000.
The SIMPLE elective contribution limit remains unchanged at $12,500 for 2016.
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 and would otherwise be precluded from making any additional elective contributions will be permitted to make additional contributions for 2016 as follows:
- The 401(k) and 403(b) catch-up remains unchanged at $6,000
- The SIMPLE catch-up remains unchanged at $3,000
- The IRA catch-up remains unchanged at $1,000
Health Savings Account Limits
The annual contribution limits for health savings accounts (HSA) are as follows for 2016: The maximum annual contribution for self-only coverage remains unchanged at $3,350. The family coverage maximum annual contribution is increasing to $6,750. 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
Mileage rates for 2016 have not been released as of this posting. The standard business mileage rate for 2015 is 57.5 cents per mile.
Unemployment Wage Base and Rate
The federal unemployment taxable wage base for 2016 remains at $7,000, and the tax rate remains at the current net rate of 0.6% for most employers.
California, Connecticut, Ohio, and the Virgin Islands are the only states affected by the FUTA Credit Reduction Act for 2015. These states will be required to pay a higher futa rate.
The minimum threshold for quarterly FUTA tax deposits remains at $500.
Form W-2 Information
Each employee who was paid wages in 2015 should receive a Form W-2 that is postmarked by February 1, 2016
Employers filing paper W-2s must submit them to the Social Security Administration (SSA) by February 29, 2016. If you e-file the forms, the due date is March 31, 2016.
All employers that file 250 or more Forms W-2 for the tax year 2015 must file with the SSA electronically by March 31, 2016.
W-2 Verification Code Pilot Program
On approximately 1.7 million 2015 W-2 forms there will be a new W-2 verification code. The pilot program’s purpose is to test whether a verification code printed on Form W-2 would help the IRS determine if the data included on Form 1040 is authentic. The verification code will appear in a box either to the left or below Box 10 of Form W-2.
Third-Party Sick Pay Recap Reporting
Employers are required to file Form 8922, Third-Party Sick Pay Recap, to report third-party sick pay payments. The IRS uses this form to reconcile Forms 941 with Forms W-2 for the year. The recap form should be filed with the Internal Revenue Service (IRS) and is due February 29, 2016.
Affordable Care Act (ACA) Reporting
Applicable large employers (companies employing 50 or more full-time employees, including full-time equivalents during the previous calendar year) need to file a transmittal Form 1094-C and information return Form 1095-C to report the required information about offers of health coverage and enrollment in health coverage for their employees.
Applicable large employers who sponsor self-insured group health plans will use Form1094-C and 1095-C to report the coverage they offer as well as report information about the coverage they provide to the covered individuals.
Form 1095-C for 2015 must be provided to the employee by February 1, 2016. Forms 1094-C & 1095-C should be filed with the IRS by February 29, 2016 if submitting on paper, or March 31, 2016 if filing electronically. Filers of 250 or more Forms 1095-C must file electronically.
Employers that sponsor self-funded insured group health plans who employ less than 50 employees are not subject to the employer shared responsibility provisions. These employers will use Forms 1094-B and 1095-B to report information about their covered individuals.
If you need assistance with ACA reporting, please contact your Wipfli relationship executive.
Employer Reimbursement of Individual Health Insurance Premiums
Because of 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.
Effective July 1, 2015 small employers (companies that employ less than 50 full time or full time equivalent employees on business days during 2014) may be subject to penalties for reimbursing or paying the employee’s health insurance premiums instead of offering health insurance coverage to its employees. Prior to July 1, 2015 the IRS had waived applicable penalties.
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
Form 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 2014. 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 2015 for employers that were required to file fewer than 250 Forms W-2 in 2014.
Health Flexible Spending Account (FSA) Contribution Limit
The dollar limitation for contributions to a health FSA remains unchanged at $2,550 for 2016.
FSA Options – With the use or lose provision, participating employees must incur all eligible expenses by the end of the plan year or lose any unspent amounts. Under a special rule, employers may offer participating employees more time to incur eligible expenses through either the carryover option or grace period option. An employee can carryover up to $500 of unused funds to the following plan year under the carry over option. An employee has until 2 ½ months after the end of the plan year to incur eligible expenses under the grace period option. Employers can offer either option, but not both, or none at all.
Income Tax Withholding Tables
New federal tax withholding tables will be issued for 2016. Federal supplemental wage rates are scheduled to remain the same as in 2015. 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 2016 is 25%.
Minimum Wage Rates
Federal – The basic minimum wage remains at $7.25 per hour for 2016 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, 2016, the minimum wage for federal contract workers for new contracts and replacements for expiring contracts will be increasing to $10.15 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 2016 must be completed by an employee on or before February 16, 2016, if he or she had requested total exemption from withholding in 2015 and wishes to claim total exemption again in 2016. 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 $2,000 or more are paid during 2016 to any household (domestic) employee, the wages are subject to FICA taxes. This amount has increased from 2015. 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.
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 on Form W-2. However, greater-than-2% shareholders of an S corporation do not receive the $50,000 exclusion. They are taxed on the full amount of the policy.
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.
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 2015 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 Wipfli relationship executive for details.
Delaware
Unemployment Wage Base and Rate
The state unemployment insurance (SUI) taxable wage base will remain at $18,500 for calendar year 2016. Tax rate notices will be mailed to employers in mid-December 2015. The new employer rate for non-construction employers will be decreasing from 2.1% to 1.9% in 2016. The SUI tax rates will continue to range from 0.3% to 8.2%.
Form W-2 Information
W-2s must be filed with Delaware by February 29, 2016 if filing on paper. You must file Form W-2 electronically if you have 250 or more forms for 2015. The due date for electronic submission is March 31, 2016. A Form W-3A reconciliation of Delaware income tax withholding should be accompanied with paper copies of employee W-2 forms.
Minimum Wage Rate
The minimum wage rate will remain at $8.25 per hour in 2016.
State New Hire Reporting
Employers must report new hires and rehires within 20 days of hire date using Form W-4 or equivalent to Delaware State Directory of New Hires, P.O. Box 90370, Atlanta, GA 30364, fax the information to 855.481.0047; or report online at http://newhire.dhss.delaware.gov/de-Newhire/default.aspx.
Illinois
Unemployment Wage Base and Rate
The unemployment taxable wage base will remain at $12,960 in 2016.
Employers with 25 or more employees are 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 submitted by February 16, 2016, 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
There will be new withholding tables effective January 1, 2016.
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.
State New Hire Reporting
Employers can report new hires online at https://ides.illinois.gov/employer-resources/taxes-reporting/new-hires.html. Click on the Employer tab, then on New Hire Reporting. You can also report new hires by completing the New Hire Reporting form and mailing to IDES, P O Box 19473, Springfield, IL 62794-9473, or faxing the form to 217.557.1947.
Michigan
Unemployment Wage Base and Rate
In the 3rd quarter of 2015 the unemployment taxable wage base was reduced to $9,000 for “non-delinquent” contributing employers. The decrease will remain in effect as long as the state unemployment trust fund remains at or above $2.5 billion. If the UI trust fund falls or is projected to fall below this amount, the taxable wage base will increase to $9,500.
All employers are mandated to file Form 1028, Employers Quarterly Wage/Tax Report, online. This form is used to report quarterly wage information. 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, 2016. For more information, please contact the Magnetic Media Unit at 517.636.6925.
Income Tax Withholding Tables
Personal income tax rates remain at 4.25%. Be aware that there are local withholding tax requirements in the state of Michigan.
Minimum Wage Rate
The minimum wage rate is increasing to $8.50 per hour on January 1, 2016.
State New Hire Reporting
Employers must report new hires, rehires & employees returning to work within 20 days of hire date either online at www.mi-newhire.com, by faxing the information to 877.318.1659, or mailing the information to MI New Hires Operation Center, P O Box 85010, Lansing, MI 48908-5010.
Minnesota
Unemployment Wage Base and Rate
The unemployment taxable wage base will increase to $31,000 in 2016.
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 https://www.uimn.org/.
Form W-2 Information
For tax year 2015, you must submit W-2s and 1099s electronically if you have more than 10 forms. W-2s must be filed by February 28, 2016, for the 2015 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, 2016.
Minimum Wage Rates
For larger employers (receipts of $500,000 or more), the minimum wage increased to $9.00 effective August 1, 2015. This rate will increase to $9.50 on August 1, 2016.
For smaller employers (receipts less than $500,000), the minimum wage increased to $7.25 on August 1, 2015. This rate will increase to $7.75 on August 1, 2016.
The training minimum wage rate that can be paid to employees who are 18 & 19 years old during the first 90 consecutive days of employment was $7.25 as of August 1, 2015 and is increasing to $7.75 as of August 1, 2016.
A large employer may pay an employee under 18 years of age a rate of $7.25 as of August 1, 2015. This rate is also increasing to $7.75 as of August 1, 2016.
State New Hire Reporting
Employers must report new employees, rehires & employees returning to work within 20 days of hire date either online at www.mn-newhire.com, by faxing the information to 1.800.692.4473 or mailing the information to Minnesota New Hire Reporting Center, PO Box 64212, St Paul, MN 55164-0212.
Montana
Unemployment Wage Base and Rate
The unemployment taxable wage base will increase to $30,500 in 2016.
Employers may report their quarterly wages and pay their state unemployment tax online or on paper. To access the Montana Unemployment Insurance Division’s UI Eservices For Employers, an ePass Montana account needs to be setup. You can do this at https://app.mt.gov/epass/Authn/selectIDP.html.
Form W-2 Information
W-2s can be filed electronically using the File Transfer Service (FTS) through ePass. The MW-3, Montana Annual Withholding Tax Reconciliation form can be filed using Taxpayer Access Point (TAP). TAP can be found at https://tap.dor.mt.gov/. There is no limit requirement for electronically filing these forms for 2016. The forms are due February 28, 2016.
Minimum Wage Rates
The minimum wage rate remains unchanged at $8.05 per hour.
State New Hire Reporting
Employers must report new hires & rehires either online through their ePass account, by phone at 1.888.866.0327, by fax to 1.888.272.1990, or mailed to Montana New Hire Reporting, P O Box 8013, Helena, MT 59604-8013. Reports must be submitted within 20 days of the date the employee is hired or rehired. More information on new hire reporting can be found at http://dphhs.mt.gov/CSED/employerinfo.aspx.
New Jersey
Unemployment Wage Base and Rate
The employer unemployment taxable wage base will increase to $32,600 for 2016.
Unemployment/Disability Rates in New Jersey are assigned on a fiscal year basis (i.e. July 1st to June 30). All new employers (except successors) are assigned new employer rates for the first three calendar years after which a calculated rate is assigned based on employment experience.
New Employer
|
U.I. |
D.I. |
W.F./S.W.F. |
|
|
|
0.032825 |
0.005000 |
0.001175 |
0.000000 |
July 1, 2015 to June 30, 2016 |
Worker
|
U.I. |
D.I. |
W.F./S.W.F. |
F.L.I |
|
|
0.003825 |
0.002000 |
0.000425 |
0.000800 |
January 1, 2016 to December 31, 2016 |
Form W-2 Information
W-2s can either be filed electronically or on paper. Whether submitting on paper or filing electronically, the forms are due February 29, 2016. Employers are not mandated to file W-2 forms electronically, but are encouraged to do so. New Jersey’s record specifications for reporting W-2 information via E-file (SFTP) conforms to specifications defined by the Social Security Administration. The specifications can also be obtained by calling 609.292.9292.
Minimum Wage Rate
The minimum wage rate will remain at $8.38 an hour in 2016.
State New Hire Reporting
Employers must report new hires & rehires either online at https://nj-newhire.com, by fax to 1.800.304.4901, or mailed to New Jersey New Hire Directory, P O Box 4654, Trenton, NJ 08650-4654. Reports must be submitted within 20 days of the date the employee is hired or rehired.
Pennsylvania
Unemployment Wage Base and Rate
The taxable wage base for employer contributions will be increasing from $9,000 to $9,500 in 2016.
Contribution rate notices for 2016 are planned to be mailed to employers on December 31, 2015. Employers can view their rate notice information via the UCMS employer portal once it is posted.
The employee unemployment tax withholding rate will remain unchanged at 0.07 percent (.0007) for all taxable wages for 2016. There is no wage limit, as there is for employer contributions.
All employers are required to electronically file quarterly unemployment tax and wage reports thru UCMS.
Form W-2 Information
W-2s must be filed with Pennsylvania by January 31, 2016. A transmittal form, REV-1667, must also be completed and submitted with each W-2 report. Employers that file 250 or more W-2 forms are required to file electronically.
Minimum Wage Rate
The minimum wage rate will remain at $7.25 an hour in 2016.
State New Hire Reporting
Employers must report new hires and rehires within 20 days of hire date using Form W-4 or Pennsylvania New Hire Form. You can mail the form to Commonwealth of PA, New Hire Reporting Program, PO Box 69400, Harrisburg, PA 17106-9400, fax the information to 1.866.748.4473 or report online at https://www.cwds.pa.gov/cwdsonline/NewHire/NewHireProgramInformation/NewHireInformation.aspx.
Wisconsin
Unemployment Wage Base and Rate
The unemployment taxable wage base will remain at $14,000 in 2016.
The new employer rate for non-construction employers with payroll under $500,000 is decreasing to 3.25%; for payrolls of $500,000 or more, the rate is decreasing to 3.4%. The new employer rate for construction employers remains at 6.6% in 2016.
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.
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 or more for 2015. 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 who do not have a Wisconsin withholding tax number and are not required to withhold should enter 036888888888801 in Box 16 of Form W-2. The W-2s should be filed with the state by February 1, 2016.
Withholding Tax/Annual Reconciliation (WT-7)
If your withholding tax payments were $300 or more in the prior year, you are required to file and pay the tax electronically via MyTax account. The Form WT-7 must also be filed electronically. You may request an e-filing/e-payment waiver by completing Form EFT-102 if these requirements create an undue hardship.
Income Tax Withholding Tables
Tables remain unchanged for 2016.
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 2016.
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. All new hires, rehires, or employees returning to work must be reported to the Wisconsin New Hire Reporting Center within 20 days of their hire or re-hire/return date. You can also fax the information to ;1.800.277.8075 or mail to Dept of Workforce Development, New Hire Reporting, PO Box 14431, Madison, WI 53708-0431.
