Posted tagged ‘Payroll’

The Moment You Have All Been Waiting For: Payroll Tax Guidance for 2013

January 4, 2013

The IRS released Notice 1036 to assist employer’s with determining the payroll tax consequences of the fiscal cliff.

2013 Withholding Tables. Notice 1036 includes the 2013 Percentage Method Tables for Income Tax Withholding. Employers should implement the 2013 withholding tables as soon as possible, but not later than February 15, 2013. Employers can use the 2012 withholding tables until they implement the 2013 withholding tables.

Social Security Tax. For 2013, the employee tax rate for social security increases to 6.2%. The social security wage base limit increases to $113,700. Employers should implement the 6.2% employee social security tax rate as soon as possible, but not later than February 15, 2013. After implementing the new 6.2% rate, employers should make an adjustment in a subsequent pay period to correct any underwithholding of social security tax as soon as possible, but not later than March 31, 2013. The employer tax rate for social security remains unchanged at 6.2%.

Medicare Tax. The Medicare tax rate is 1.45% each for the employee and employer, unchanged from 2012. There is no wage base limit for Medicare tax.

Additional Medicare Tax Withholding. In addition to withholding Medicare tax at 1.45%, employers must withhold a 0.9% Additional Medicare Tax from wages paid to an employee in excess of $200,000 in a calendar year. Employers are required to begin withholding Additional Medicare Tax in the pay period in which it pays wages in excess of $200,000 to an employee and must continue to withhold it each pay period until the end of the calendar year. Additional Medicare Tax is only imposed on the employee. There is no employer share of Additional Medicare Tax. All wages that are subject to Medicare tax are subject to Additional Medicare Tax withholding if paid in excess of the $200,000 withholding threshold.


September 20, 2011

On September 19, 2011, Commissioner Shulman and Secretary of Labor Solis signed a memorandum of understanding that will allow for the sharing of information intended to combat employee misclassification.  The sharing of information and collaboration between the two agencies is intended to help reduce the incidence of misclassification, reduce the tax gap, and improve compliance with federal tax and labor laws.  The increased collaboration will also strengthen the relationship between the IRS and DOL, enable both agencies to leverage existing resources and send a consistent message to employers about their duties to properly classify workers and pay employment taxes.  The memorandum of understanding’s specific objectives include the following:

  • Expanding the IRS-DOL partnership launched in the Questionable Employment Tax Practices Program
  • Reduce the employment tax portion of the tax gap
  • Increase compliance with federal employment and unemployment tax requirements
  • Increase compliance with federal labor laws enforced by the DOL
  • Reduce fraudulent filings
  • Reduce abusive employment/unemployment schemes
  • Reduce worker classification
  • Reduce questionable employment tax practices
  • Reduce worker misclassification
  • Reduce questionable employment tax practices
  • Work together to create educational and outreach materials and guidance for employer and employees

The initiative will be coordinated by an IRS-DOL team.  The members of the team will meet regularly and make recommendations for improvement in partnership activities.  In addition, the DOL will refer to the IRS, Wage and Hour Investigation information and other data that the DOL believes may raise Internal Revenue Service employment tax compliance issues related to misclassification.  The IRS will share the employment tax referrals provided by the DOL with the state and municipal taxing agencies that are authorized to receive tax return information under approved agreements.  The IRS will provide annual reports to the DOL summarizing the results achieved by using DOL referrals.  Moreover, the IRS will provide the DOL with information which may constitute evidence of a violation of any federal criminal law that the DOL enforces.

In addition to this landmark signing hosted at the U.S. Department of Labor headquarters in Washington, DC, labor commissioners and other agency leaders representing several states signed memorandums of understanding with the Department’s Wage and Hour Division and, in some cases, its Employee Benefits Security Administration, Occupational Safety and Health Administration, Office of Federal Contract Compliance Programs and Office of the Solicitor.  The signatory states are Connecticut,Maryland, Massachusetts, Minnesota, Missouri, Utah, and Washington.  Secretary Solis also announced agreements for the Wage and H our Division to enter into memorandums of understanding with the state labor agencies of Hawaii, Illinois, and Montana, as well as New York’s attorney general.  The memorandums of understanding will enable the U.S. Department of Labor to share information and coordinate law enforcement with the IRS and participating states in order to combat worker misclassification.

In a press release issued on September 19, 2011, Secretary Solis is quoted “We’re here today to sign a series of agreements that together send a coordinated message: We’re standing united to end the practice of misclassifying employees.  We are taking important steps toward making sure that the American dream is still available for all employees and responsible employers alike.”  Commissioner Shulman said “This agreement takes the partnership between the IRS and Department of Labor to a new level.  In this new phase of our relationship, we will work together more efficiently to address worker misclassification issues…. 

The stakes are higher than before.  The government has forged an inter-agency team to combat the issue.  Business owners should prepare and seek assistance of trusted legal advisors to ensure compliance with federal and state employment tax and labor laws.

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