After ringing in 2012 and packing up holiday decorations, it is time to get back to business and update files to reflect payroll updates for the new year. Below are a few of the changes to look for.
While the Social Security wage limit had remained at $106,800 for the last three years, this year the maximum amount of income subject to Social Security taxes will increase to $110,100. The reduction in the employee portion of Social Security tax rate to 4.2% we saw in 2011 will expire December 31, 2011 and the rate will revert back to 6.2% for employees and 12.4% for self-employed individuals. Employees will notice a reduction in net pay on their first paycheck in January. It may be necessary for anyone self-employed to adjust their estimated tax payments in 2012 as a result of the tax increase. Keep a close eye on this one as congress is currently battling it out over new legislation to extend and maybe even expand the payroll tax holiday.
For 2012, the taxable wage base for state unemployment tax for Virginia remains at $8,000.00. On the first of December the Virginia Employment Commission (VEC) mailed Tax Rate Notices for Calendar Year 2012. QuickBooks users must be sure to edit the payroll item for state unemployment tax with their new rate before processing their first payroll in January. If the notice has not been received the rate can be found on your VA ifile VEC link where you would submit your Quarterly Tax Report to the VEC after January 1 or via phone at 800-897-5630.
A business must determine annually which deposit schedule (semi-weekly, monthly, or quarterly) it is required to use for submitting federal and state tax deposits. The Internal Revenue Service (IRS) and Virginia Department of Taxation (VDOT) send notices at year end notifying a business of a change in deposit frequency. However, it is the responsibility of the business to determine its filing frequency and to ensure they are depositing taxes timely. Your deposit schedule for a calendar year is determined by calculating your tax liability during the “Lookback Period”. This period is defined in Circular E, Employer’s Tax Guide issued by the IRS for the federal lookback and in the Commonwealth of Virginia Withholding Tax Guide issued by VDOT for the Virginia lookback.
Distribute Forms W-4 and VA-4 to employees so they may make changes in address, marital status and withholding allowances in the new year. It is helpful to remind employees to review paycheck information and have them advise you of any changes that may affect W-2 forms before year end. If an employee claimed exemption from income tax withholding last year on Form W-4, a new form must be completed by February 15th in order to continue the exemption another year.
Hopefully some of these reminders will help get your New Year off to a good start. Best wishes for a happy and healthy 2012!