An employer is required to compensate an employee for all hours he or she works or is under the employer's control as long as that time is spent for the employer's benefit. The time to be paid may include travel time, on-call time, time spent at meetings and training sessions, and time spent receiving medical attention.
For more information refer to The Payroll Source distributed by the American Payroll Association.
Nondiscretionary bonus. A bonus that is a contractual or agreed upon bonus related to production. This bonus must be used to calculate the regular rate of pay in the work week the bonus was earned. The calculated rate of pay is used to determine the overtime rate.
Discretionary bonus. The employer has the discretion whether to pay the bonus and to determine the amount. There must not be any contract or agreement concerning the bonus. This bonus is not used to calculate the regular rate of pay.
For more information refer to The Payroll Source distributed by the American Payroll Association. Back To Top
Payments to employees that are not ordinary wages such as:
When the supplemental payment is made separately, or the supplemental and regular payment amounts are defined, the employer may withhold at the rate of 28% if federal income tax was withheld from the last regular wage payment. Some states also have supplemental wage rates.
For more information go to the Internal Revenue Service Web site. Back To Top
There are two types of deductible moving expenses:1) transportation and in-transit storage of household and personal goods; and2) travel and lodging expenses from the old residence to the new residence (does not include meals).Deductibility is determined by time and distance. The new workplace must be 50 miles further from the old residence than the former workplace. If there was no former workplace, the new residence must be 50 miles from the old residence. The employee must work fulltime for 39 weeks at or near the new workplace. These conditions do not apply in case of the employee's death, disability, or involuntary termination of employment (unless willful misconduct is involved) or transfer for the employer's benefit.
The value of group term life insurance in excess of $50,000.00 minus any amount paid by the employee is included in the employees income and is considered taxable wages for federal, social security or Medicare. This is reported in Boxes 1,3,5, and 12 (with Code C) on the employee's Form W-2. The portion included in income is subject to social security and Medicare tax withholding, but not federal income tax. The employer may withhold federal income tax on the amount or the employee must pay the federal income tax owed with his or her personal income tax return. The group-term life taxable amounts are also not considered FUTA taxable wages or subject to withholding for FUTA. The excess group term life is calculated using an IRS Section 79 Table 1. The calculation is made by multiplying the rate per $1,000.00 excess coverage times the rate, which is based on the employee's age.
For more information go to the Internal Revenue Service Web site.
If reimbursements are made to an employee under an accountable plan, the reimbursement is not considered income and is not taxable. The reimbursement must not be more than the employee reports or the excess is taxable. Expenses reimbursed must be incurred away from home and be for a temporary period of time, less than one year, to qualify as non taxable. To be an accountable plan the expenses must be incurred while performing services for the employer, the employee must furnish proof of the expenses, and any excess amount received by the employee must be returned to the employer.
If the plan is a non-accountable plan, the money received by the employee is taxable.
If an employer loans money to an employee at less than the federal interest rate, the amount that is the difference between the two rates is income to the employee when the amount of all loans exceeds $10,000.00. This amount is not subject to federal income tax, but is subject to social security, Medicare and FUTA taxes and must be reported on the employee's W-2.
If the loan is forgiven, the full amount of the loan must be reported as income and is subject to federal income tax, social security, Medicare and FUTA taxes. Employer provided assistance is not subject to federal income tax, but is subject to social security, Medicare, and FUTA tax if the plan meets the requirements of IRC section 137.
Deductions taken from gross pay that reduce taxable wages such as Dental Insurance, Medical Insurance and 401K. The government has made provisions that some voluntary deductions can be excluded from an employee's taxable wages. These include deductions made to certain insurance plans that qualify under Section 125 of the IRS code and also contributions made to a qualifying 401k plan. Contributions to a 401k plan can be excluded from federal income taxes. There is also a limit to the amount of 401k contribution that can be non-taxable. For 2007, the limit is $15,500 ($20,500 for employees age 50 and older).
Any deduction an employee is not legally required to have taken from his/her check such as credit union loan repayments, charitable contributions, and 401K, etc.
The employer and the employee have no control over these deductions. They may include federal tax levies, garnishment, child support, federal taxes, state and local taxes, bankruptcy, etc.
An employer is required to withhold federal income tax from an employee's wages. To determine how much federal income tax to withhold from each wage payment, use the employee's Form W-4 and the withholding methods described in Publication 15 from the IRS.
Form W-4 can be obtained at the IRS's Web Site.
FICA provides for a Federal system of old age insurance (OASI) and health insurance (HI). The old age, survivors, and disability insurance is financed by the social security tax. The health insurance is financed by the Medicare tax. Each of these taxes is reported separately.
Social security and Medicare taxes are levied on both employers and employees (unless you or your employees are not subject to these taxes). An employer must withhold and deposit the employee's withheld social security and Medicare taxes and the employer must pay a matching amount.
The employee tax rate for social security is 6.2% (amount withheld). The employer tax rate for social security is also 6.2% (12.4% total). For 2005, the wage base limit was $94,200. The wage base limit for 2006 was $90,000. For 2007, the wage base is $97,500. Rates remain unchanged. The employee tax rate for Medicare is 1.45% (amount withheld). The employer tax rate for Medicare tax is also 1.45% (2.9% total). There is no wage base limit for Medicare tax; all covered wages are subject to Medicare tax.
For more information go to the Social Security Administration Web Site.
State Income Tax
In addition to the federal income tax, state governments can impose an additional state income tax. Currently, all but nine states have state personal income taxes and require employers to deduct and withhold from employees' wages to satisfy these obligations. The nine states that do not impose a state income tax include: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. For more information about rates, forms, exemptions, and withholding, please contact the appropriate state income tax agency.
Local Income Tax
Currently, eleven states have one or more types of local taxes that must be withheld from the employee. Some additional states have payroll-related taxes that are employer paid. The list below may not include every possible local payroll-driven tax imposed on the employer only. Always confirm with the local authorities the full range of taxes, payroll or otherwise, that may impact your business.
Below is a synopsis of basic information relating to each known tax. In most instances, there are no exclusions for 401K contributions, and rarely for Section 125. All earned income is included. It is not permissible to override tax for any bonus or other special payment. If you have any questions about the taxability of sick pay, etc., ask the agency. There are few income types that are excluded from taxable income. Additionally, worksite-based local taxes are normally required to be withheld by the employer. If the employer does not withhold and remit, the employer is liable for the taxes, penalties and interest. Certain residence-based taxes have required withholding, but most do not.
Alabama
California
Colorado
Delaware
Illinois
Indiana
Kentucky
Maryland
Michigan
Missouri
Nevada
New Jersey
New York
Ohio
Oregon
Pennsylvania
OPT or head count tax: The majority of municipalities also have a worksite based OPT or head count tax. The tax is generally $10.00 per person per year, and is part school district and part city. It is usually collected and paid to one agency; however, in some cases , as with EIT, it may be reported and paid to two separate agencies. Some municipalities have a wage exclusion so that OPT is not required until wages reach a certain level. However, it is often recommended to collect from everyone at point of hire, and annually thereafter. Some agencies accept pay stub showing deduction as proof of withholding. Others require a special form to be completed for the employee. Contact the collecting agency for specifics.
Helpful sites for Ohio and Pennsylvania:
Ohio Ohio - local tax section
Pennsylvania Pennsylvania -local tax section
California, Hawaii, New Jersey, New York, Puerto Rico, and Rhode Island provide temporary disability benefits for employees who are disabled by a non-work related illness or injury through a tax supported state fund. A tax payment similar to the unemployment insurance tax may be required by both the employee and employer. An employer should contact any state in which they have employees to determine the responsibility for paying these taxes.
For more information on Employer Taxes refer to The Payroll Source distributed by the American Payroll Association or Bureau of National Affairs' Web Site.
Employers may chose to pay employees by direct deposit rather than by check. This is a process in which money is electronically transfer from the employer's bank account to the employees bank account.