2012 Payroll Update


December 13, 2011
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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 increase to $110,100 for 2012. As in prior years, there is no wage base limit for Medicare tax. During 2012, employees revert to paying 6.2% Social Security tax on wages up to $110,100. Employers will continue to pay 6.2% Social Security tax on wages up to $110,100. The Medicare tax will remain at 1.45% in 2012 for both the employee and employer. Please note that there is legislature pending regarding a decrease in Social Security tax to 3.1% for both the employee and employer.

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

Age

2012

Under full retirement age$14,640* (increase from 2011)
The year an individual reaches full retirement age$38,880** (increase from 2011)

*$1 in benefits will continue to be withheld fro every $2 in earnings above $14,640.

**Retirees who attain 'full retirement age' in 2012 will lose $1 in benefits for every $3 earned above $38,880, but only earnings earned before the month in which they reach full retirement age. There is no limi 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 2012 will increase to $17,000.

SIMPLE elective contributions remain at $11,500 for 2012.

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 2012:  

      • 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) has increased for 2012. The maximum annual contribution for self-only coverage is $3,100, and family coverage is $6,250. 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. New for 2011 – Contributions to an HSA in Wisconsin are not taxable.

Mileage Reimbursement
The standard business mileage rate will remain at 55.5 cents per mile.
 
Unemployment Wage Base and Rate
The federal unemployment taxable wage base for 2012 remains at $7,000 and the tax rate remains at the current net rate of 0.6% for most employers. Michigan employers will pay an additional 0.9% for 2011 due to federal loans which haven’t been repaid. Illinois, Minnesota, and Wisconsin employers will pay an additional 0.3% for 2011, also due to federal loans which haven’t been repaid. There are a total of 20 states (and the Virgin Islands) affected by the FUTA Credit Reduction Act for 2011. Please contact your client service partner or manager for more information on this. The additional FUTA taxes are due by the due date of Form 940. The Form 940 has been revised to reflect these changes.
 
The minimum threshold for quarterly FUTA tax deposits remains at $500.
 
Form W-2 Information
  • Each employee that had wages paid in 2011 should receive a Form W-2 that is postmarked by January 31, 2012.
  • Employers filing paper W-2s must submit them to the Social Security Administration (SSA) by February 29, 2012.
  • All employers who file 250 or more Form W-2s for the tax year 2011 must file with the SSA electronically by April 2, 2012.

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 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 greater than 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 2011 wage totals for the greater than 2% shareholder and appropriate payroll taxes remitted. Contact your client service partner or manager if you are required to report wages outside of Wisconsin.

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

Cell Phones No Longer “Listed Property"
Effective for tax years beginning after December 31, 2009, the business use value of an employer-provided cell phone does not need to be included as taxable income. When an employer provides an employee with a cell phone primarily for “noncompensatory business reasons”, the employee’s use for business purposes will be treated as a nontaxable working condition fringe benefit without any further substantiation. The value of any personal use of such a cell phone will also be treated as a nontaxable de minimis fringe benefit.

Income Tax Withholding Tables
New tax tables will be published for 2012.
 
Minimum Wage Rates 
The federal basic minimum wage remains at $7.25 per hour for 2012 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 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 2012 lookback period begins on July 1, 2010 and ends June 30, 2011. 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 2012 calendar year. New employers use the monthly schedule for the first 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.
 
Health Care Benefits for Adult Children
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 2011, 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, 2011, 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 they can be claimed as a qualified tax dependent.
 
Employer-Provided Health Care Coverage Reporting 
W-2 reporting of the cost of coverage under an employer-sponsored group health plan has been delayed until at least 2012, making reporting optional for W-2s issued for 2011. Starting in 2012, reporting is mandatory for employers that file 250 or more W-2s. Employers with less than 250 W-2s may have transitional relief for 2012 reporting. The value of the cost of coverage should be reported in Box 12 of the Form W-2, labeled with code DD. The amount reported is for informational purposes only
 
State Electronic Funds Transfer
See state-specific information below.
 
Form W-4 - Employee’s Withholding Allowance Certificate
A new W-4 form for 2012 must be completed by an employee on or before February 16, 2012, if he or she had requested total exemption from withholding in 2011 and wishes to claim total exemption again in 2012. 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 2012 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, rehire, or return to work.
 
The definition of a “newly hired” employee is an employee who has not been previously employed by the employer or was previously employed by the employer but has been separated from such prior employment for at least 60 days. This provision is effective April 21, 2012. 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 birth, date of hire (effective June 8, 2011), employee’s state of hire (only if reporting as a multistate employer), and the employer's name, address, and Federal Employer Identification Number. 
 
Multi-state employers may choose to report all new hires to only one state, but they must report electronically and also notify the U.S. Department of Health and Human Services.
 
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 2012 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 $13,560 in 2012.

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, 2012, using the SSA EFW2 format.

Income Tax Withholding Tables
Tables remain unchanged for 2012.

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

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 2012. Positive reserve balance employers can apply to receive a state unemployment tax credit in 2012 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 will be posted at www.michigan.gov/uia or you can call 1.800.638.3994.

Employers will be able to apply for the Michigan UI credit starting in February 2012.

Employers with negative reserve balances will continue to pay a solvency tax in 2012.  This tax is used to pay interest charges on Michigan’s outstanding federal loans.

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 29, 2012. For more information, please contact the Magnetic Media Unit at 517.636.4730.

Income Tax Withholding Tables
Tables remain unchanged for 2012. 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 increase to $28,000 in 2012. 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 2011, W-2s must be filed electronically if the employer has more than 10 forms, down from 25 in 2010. There are three options for submitting W-2s electronically. For more information, go to www.taxes.state.mn.us. W-2s must be filed by February 28, 2012, for the 2011 tax year.

Income Tax Withholding Tables
Minnesota has released new withholding tables effective January 1, 2012. 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 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

Since mid October 2011, employers have begun transitioning from the current e-file system to the new e-Services online filing and paying system. Visit www.taxes.state.mn.us/eservices to view the most up-to-date information regarding e-Services.

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 allowances (if the employee is claiming more Minnesota than federal withholding allowances, use the number of federal withholding allowances to determine the MN withholding), (3) want additional withholding deducted from your pay each pay period, or (4) 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 Minnesota Department of Revenue 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. Minnesota requires all employers to submit their new hire reports within 20 days after the employee is hired or rehired or returns to work. Electronic reporting is an option (www.mn-newhire.com) in addition to faxing or mailing the completed Minnesota New Hire Reporting Form or W-4. For more information on reporting new hires, contact 1.800.672.4473.

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Wisconsin

Unemployment Wage Base and Rate
Unemployment taxable wage base will remain unchanged at $13,000 in 2012. 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 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 for the Tax Report and $20 per employee for Wage Reports.

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 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.  

In August 2011, many employers received Special Assessment Billing Notices.  These were sent to employers whose taxable payrolls for calendar year 2010 were greater than $25,000.  When the federal government began charging interest on funds, Wisconsin borrowed from them to pay claims.  Interest will be paid on the outstanding loan balance until it is paid in full, which is estimated to take three years.  The next Special Assessment will be billed in August 2012 with payment due in September 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 2011. In 2012, employers will be able to submit W-2s through My Tax Account.

Income Tax Withholding Tables
Tables remain unchanged for 2012.

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

State Electronic Funds Transfer
The Wisconsin Department of Revenue requires employers with withholding of $300 or more during the previous calendar year to remit the taxes by electronic funds transfer (EFT).

My Tax Account is the online application which businesses should be using 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.

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. To begin reporting online, go to www.wi-newhire.com. If you have any questions, you may contact the New Hire Processing Center at 1.888.300.4473.

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