2012 payroll update
Jan 1, 2012
Social Security and Medicare tax
As of January 1, 2012, the maximum amount of annual earnings subject to the Social Security tax increases to $110,100 (from $106,800 in 2010). There is no limit on the amount of earnings subject to the Medicare tax.
The 2% payroll tax rate reduction on employee Social Security has been extended through February 29, 2012. Assuming that the holiday is further extended through the end of 2012, the maximum Social Security tax to be deducted from an employee’s compensation during 2012 will be $4,624.20 (4.2% x $110,100). If the 2% tax holiday is not extended through the end of the year, the employee rate will revert to 6.2% on compensation paid after February 29. Additionally any compensation in excess of $18,350 paid prior to March 1 will have a 2% tax added to the employee's 2012 personal tax return, and no employer adjustments will be needed.
The employer Social Security tax rate will remain unchanged at 6.2%. The employee and employer Medicare tax rate will remain unchanged at 1.45%. The combined rate on earnings up to $110,100 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, 2012 for salaries and wages paid in 2012. There will be no change in Maryland (MD), Pennsylvania (PA), or Virginia (VA) withholding taxes.
DC’s maximum individual income tax rate will increase from 8.5% to 8.95% for 2012. MD’s and VA’s maximum individual income tax rates will remain at 5.5% and 5.75% respectively. MD local county rates are unchanged except for Queen Anne’s, which increases from 2.8% to 3.2% and Anne Arundel, which decreases from 2.56% to 2.49%. PA’s individual income tax rate will remain at 3.07% for 2012.
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) deposit rate is .6% for 2012. PA and VA will be subject to an additional .3% for 2012. 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 2012 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 0.58% to 6.68%
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
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 2011 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 reduced to 25, 25, and 50 or more, respectively. MD and PA allow withholding statements on magnetic media or other machine-readable formats.
Employers required to file at least 250 W-2 forms in January 2013 for calendar year 2012 wages will have to include the amount paid by the company for each employee’s health insurance on the W-2. This is only for informational purposes; it will not change the employee’s wage amount.
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.
Information return penalties
Effective for returns due after December 31, 2010, penalty amounts have increased for failing to provide timely, complete and correct information returns (W-2 and Form 1099). Penalties range from $30 - $100 per return with a maximum of $1,500,000 ($500,000 for small businesses). Additionally, employers will be required to acknowledge their compliance with information return filings on their 2011 business returns.
Please contact Gross Mendelsohn at 410.685.5512 if you have any questions about these matters.
