Wipfli Alerts & Updates: 2014 Payroll Update


December 13, 2013
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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 $117,000 for 2014. There is no limit for the wages subject to Medicare tax. The employer and employee FICA rate will remain at 7.65%. Wages paid in excess of $200,000 per employee in 2014 will be subject to an additional 0.9% Medicare tax that will be withheld from only 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 employees 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 $15,480 in 2014. One dollar in benefits will be withheld for every two dollars in earnings above $15,480.

Retirees who attain “full retirement age” in 2014 will lose $1 in benefits for every $3 earned above $41,400, 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 2014 will remain at $17,500.

SIMPLE elective contributions remain at $12,000 for 2014.

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 2014 as follows:

  • The 401(k), 403(b) catch-up remains 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 2014.  The maximum annual contribution for self-only coverage is $3,300 and for family coverage is $6,550.  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 decrease to 56 cents per mile.

Unemployment Wage Base and Rate

The federal unemployment taxable wage base for 2014 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 0.9% for 2013 because of the federal loans that were not repaid by November 10, 2013. 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 13 states (and the Virgin Islands) affected by the FUTA Credit Reduction Act for 2013.  Michigan, Minnesota, and Illinois employers have repaid their federal loans so they do not have to pay the additional tax for 2013. 

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

Form W-2 Information

  • Each employee who was paid wages in 2013 should receive a Form W-2 that is postmarked by January 31, 2014.

  • Employers filing paper W-2s must submit them to the Social Security Administration (SSA) by February 28, 2014.

  • All employers who file 250 or more Forms W-2 for the tax year 2013 must file with the SSA electronically by March 31, 2014.

Those who used the SSA website in 2012 to submit W 2s will find that the W-2s are prepopulated for 2013.

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. 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 2013 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 2013 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.

Same-Sex Marriage

There could be some federal tax savings for you and your employer if your company covers same-sex spouses under your health insurance plan. The insurance deduction for the cost of the same-sex spouse can be treated as a pretax deduction now. Some states, including Wisconsin, do not follow the federal change.

Employer-Provided Health Care Coverage Reporting  for 2013

In 2013, 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 2012. 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 2012 are not mandated to report the cost for 2013.

Health Flexible Spending Account (FSA) Contribution Limit Changed for 2013

Since January 1, 2013, salary reductions by an employee into a health FSA have been limited to $2,500. For 2014, the limit remains at $2,500. Employers must amend their cafeteria plan documents by the end of calendar year 2014.

FSA Carryover Option: The IRS has modified the “use or lose” rule for FSAs, 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 the next year’s $2,500 salary reduction limit. Any unused amount in excess of $500 will be forfeited under this modified “use or lose” rule.

Income Tax Withholding Tables

New federal tax withholding tables will be issued for 2014. Federal supplemental wage rates are scheduled to remain the same as 2013. 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 2014 is 25%.

Minimum Wage Rates 

Federal – The basic minimum wage remains at $7.25 per hour for 2014 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 2014 must be completed by an employee on or before February 17, 2014, if he or she had requested total exemption from withholding in 2013 and wishes to claim total exemption again in 2014. 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 $1,900 or more are paid during 2014 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.

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Illinois
 

Unemployment Wage Base and Rate

The unemployment taxable wage base will increase to $12,960 in 2014. Effective January 1, 2014, employers with 50-99 employees will be required to report unemployment insurance taxable wages electronically every month. Effective July 1, 2014, employers with 25-49 employees will be required to report unemployment insurance taxable wages electronically every month. 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. Newly required companies will have six months to comply. 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.

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, 2014, using the SSA EFW2 format.

Income Tax Withholding Tables

Tables remain unchanged for 2014.

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 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 2014. Employers should be using Form 1028, Employers Quarterly Wage/Tax Report, to report quarterly wage information. 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, 2014. 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%. 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 remain at $29,000 in 2014. 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 2013, you must submit W-2s and 1099s electronically if you have more than 10 forms. W-2s must be filed by February 28, 2014, for the 2013 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, 2014. The employee withholding allowance amount is increasing to $3,950. Tax brackets have changed.
 
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 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

Unemployment Wage Base and Rate

The unemployment taxable wage base will remain at $14,000 in 2014.

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 remains at 6.6% in 2014.

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, 2014. Please contact your Wipfli relationship executive 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 2013. Employers filing less than 50 W-2 forms are not mandated to file electronically but are encouraged to do so. Beginning in 2014, wage information returns/statements with no Wisconsin withholding need to be filed with the Wisconsin Department of Revenue. These forms can be filed on paper and sent with Form WT-2.  A Wisconsin withholding ID number is not required for wage information returns with no Wisconsin withholding tax. Enter the Federal ID Number in Box 16 of Form W-2 for employers that do not have a Wisconsin withholding number.

Income Tax Withholding Tables

Tables remain unchanged for 2014.

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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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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