2011 payroll update
Jan 1, 2011
Social Security and Medicare Tax
As of January 1, 2011, the maximum amount of annual earnings subject to the Social Security tax remains unchanged from 2010, which is $106,800. There is no limit on the amount of earnings subject to the Medicare tax.
Effective January 1, 2011 the employee Social Security rate will be temporarily lowered to 4.2% (6.2% in 2010). The maximum Social Security tax to be deducted from an employee’s compensation during 2011 will be $4,485.60. (4.2% x $106,800). The employer Social Security tax rate will remain unchanged in 2011 at 6.2%. The employee and employer Medicare tax rate will remain unchanged at 1.45%. The combined rate on earnings up to $106,800 is 7.65% for employers and 5.65% for employees.
Income Tax Withholding
Revised federal and District of Columbia (DC) income tax withholding tables became effective as of January 1, 2011 for salaries and wages paid in 2011. There will be no change in Maryland (MD), Pennsylvania (PA), or Virginia (VA) withholding taxes.
MD’s maximum individual income tax rate will decrease from 6.25% to 5.5% for 2011; local county rates are unchanged except for Baltimore City, which increases from 3.05% to 3.2%.
DC’s and VA’s maximum individual income tax rates will remain at 8.5% and 5.75% respectively. PA’s individual income tax rate will remain at 3.07% for 2011.
An alternative flat federal withholding rate of 35% must be used on supplemental wages (e.g., bonus payments) exceeding $1 million during a calendar year. Accumulated supplemental wages of $1 million or less continue to be subject to a flat rate of 25%.
Unemployment Taxes
The federal unemployment tax (FUTA) rate will remain at .8% for 2011. The federal taxable wage base will remain at $7,000. MD, DC, PA, and VA wage bases will also remain at $8,500, $9,000, $8,000 and $8,000, respectively. Unemployment taxes are paid by the employer. PA employees are responsible for an additional withholding of .08% of total wages.
State unemployment tax rates vary according to the employer’s experience. Employer 2011 rates will be as follows:
MD - from 2.2% to 13.5%
DC - from 1.6% to 7.0%
PA - from 2.677% to 13.9976%
VA - from 0.77% to 6.87%
In the event you did not receive your current MD unemployment insurance tax rate, it is available by calling 1-800-492-5524. Payment option plans are available for MD employers in economic hardship.
The minimum threshold amount for quarterly FUTA tax deposits remains at $500.
Tax Deposits
Effective January 1, 2011 all federal tax deposits (employment tax, excise tax, corporate income tax, etc.) must be made by electronic funds transfer (EFT). Generally, electronic funds transfers are made using the “Electronic Federal Tax Payment System” (EFTPS). Employers may arrange for their financial institutions to initiate a same-day tax wire payment on your behalf. De minimis deposit rules still apply for employment taxes of less than $2,500 for a return period. Those who fail to use EFTPS will be subject to a 10% penalty.
MD and DC requires EFT for any payment of state taxes of $10,000 or more. PA’s threshold is payments of $20,000 or more.
VA has an electronic funds transfer requirement for business taxpayers paying corporate income tax, retail sales and use tax, or withholding tax exceeding an average monthly balance of $20,000. The monthly liability threshold applies separately to each tax. VA will notify taxpayers who are required to pay by electronic funds transfer. Additionally, VA employers with 100 or more employees are required to submit all withholding payments using EFT.
Employers should receive notification from the IRS and state taxing authorities as to the frequency of their depository requirements. Semi-weekly depositors have three banking days to make a deposit. Monthly depositors' due dates are the 15th day of the next month for MD and PA, the 20th for DC, and the 25th for VA. Quarterly depositors may remit accumulated tax with the quarterly tax returns which are generally due the last day of the month following the end of each calendar quarter. MD’s quarterly returns are due the 15th day of the following month.
Accelerated deposit dates are required for federal accumulation of $100,000, which are due the next day. Also MD employers who withheld $15,000 or more during 2009 and currently have accumulated $700 or more in withholding tax must make a deposit within three business days after the payroll pay date. Employers who are allowed to file federal withholding tax returns on a monthly basis may apply to MD for a waiver of the three-day rule described above.
Wage Statements
Federal rules require employers filing 250 or more W-2 forms to file electronically. PA follows the federal threshold. DC’s, MD's, and VA’s requirements are 50, 100, and 150 or more, respectively. MD and PA allow withholding statements on magnetic media or other machine-readable formats. Effective January 1, 2011 VA will no longer accept CD's or other forms of magnetic media.
Minimum Wage
The federal minimum wage rate is $7.25 per hour for employees covered by the Federal Fair Labor Standards Act. MD, PA, and VA follow the federal law. DC’s minimum wage rate is $8.25 per hour.
Retroactive Military Spouse Rules
Spouses of active military members living in MD, DC, PA or VA may file a worksheet or certificate with their employer to claim exemption from state withholding. Employers should retain the documentation and may be required to submit form to authorities.
Please contact Gross Mendelsohn at 410.685.5512 if you have any questions about these matters.
