PAYROLL TAX AND REPORTING REQUIREMENTS FOR 2020
Federal Income Tax Withholding Changes
Due to the inflation indexing provisions and other changes contained in the Internal Revenue Code, new withholding tables must be used for wages paid after December 31, 2018.
Social Security (FICA) Tax
For 2021, the employee tax rate for social security will remain unchanged at 6.2%, as well as the Medicare tax rate of 1.45%. The 2021 social security wage base limit increases to $142,800 from the $137,700 in 2020. There is no wage base limitation for Medicare.
Additional Medicare Tax
For 2021, the additional Medicare Tax will remain in effect. An employer must withhold additional Medicare Tax from wages it pays to an individual in excess of $200,000 in a calendar year, regardless of the individual’s filing status or wages paid by another employer. The additional tax rate is 0.9%. If you have any questions regarding this please contact us.
Federal Unemployment Tax
The federal unemployment tax rate remains at 0.6% for 2021.
Payroll Tax Deposits
Because of the complexity of the Federal, State and Local Tax Deposit Rules, we suggest using a professional payroll company to prepare your company’s payroll. If you have any questions regarding your specific deposit rules, please contact us.
Forms 1094 and 1095
The Affordable Care Act’s reporting requirements for healthcare plan coverage information apply to all employers with 50 or more full-time or full-time equivalent employees during the previous year. Employers of all sizes that offer employer-sponsored self-insured coverage will also need to report information to the Internal Revenue Service and to individual employees. Form 1095’s must be provided to employees by March 4, 2019 and filed with the Internal Revenue Service by March 1, 2021. If you have any questions regarding this, please contact us.
S Corporation Shareholders
Health insurance premiums paid by an S Corporation on behalf of 2.0% shareholder employees must be included in income for Federal purposes and reported on form W-2. Please contact us if you have any questions regarding this.
New Hire Reporting
Employers are required to submit to the Commonwealth of Pennsylvania a New Hire Report for each new employee within 20 days of the first day that the employee performs services for wages. There are several methods to report this information to the Commonwealth of Pennsylvania. Visit their website at http://www.cwds.pa.gov for more information.
Verification of Eligibility of Employment
All employers are required to obtain and keep on file a completed Form I-9 Employment Eligibility Verification for each employee upon hiring.
Federal and Pennsylvania minimum hourly wage rates remain at $7.25. New Jersey minimum hourly rate increases to $12.00 effective January 1, 2021. For minimum wage rates for tipped employees or any other questions, please contact us.
Pension Plan Limitations
Some pension plan limitations have increased for the year 2021. If you have any questions regarding these limitations, please contact us.
The U.S. Department of Labor issues regulations regarding overtime provisions. If you have any questions regarding these provisions, please contact us.
Employee’s Personal Use of Employer Provided Vehicle
An employer must include annually the value of an employee’s personal use of a business vehicle in an employee’s gross wages. Please contact us if this applies to any of your employees or if you need more information.
Mortgage interest of $600 or more received in the course of a trade or business from an individual must be reported to the payer on a Form 1098 by January 31, 2021. A copy must also be filed with the Internal Revenue Service by January 31, 2021.
A Form 1099-NEC must be issued to any person or non-incorporated entity to which you have paid at least $600 for services that are performed in the course of your trade or business. Attorney fees over $600 should be reported on 1099-NEC regardless of if the firm is incorporated or not. The Form 1099-NEC is due to the recipient on or before January 31, 2021 and due to the Internal Revenue Service on or before February 1, 2021.
A Form 1099-MISC must be issued to any person or non-incorporated entity to which you have paid atleast $600 in rents, royalties, medical payments and certain other income payments. The Form 1099-MISC is due to the recipients on or before January 1, 2021 and is due to the Internal Revenue Service on or before March 1, 2021.
We recommend that you get a completed W-9 form for each vendor that you use at the time of service and retain these forms with your records for easier preparation of the Forms 1099-MISC and 1099-NEC.
Beginning January 1, 2018, anyone that makes the following payments is required to withhold from such payments 3.07% Pennsylvania tax:
NOTE: Withholding is optional for payors or lessees paying less than $5,000 annually. However, if you are unsure of the total amount of payments that will be made during the year, the Department encourages you to withhold and remit income tax from all payments made.
Please contact us if this applies to any of your subcontractors or if you need more information.
If you pay someone to perform household duties you may be subject to payroll reporting requirements. Please contact our office if you are not sure of the applicability of this.
This letter does not cover all issues and changes related to payroll, payroll taxes and other reporting and compliance matters. It is intended only to provide limited information that may be applicable to your business. These rules and regulations are not all encompassing and there may be specific situations that need to be addressed individually. Please contact us if you need more specific information on any of the topics addressed in this letter.
Pursuant to Treasury Regulations, any U.S. federal tax advice contained in this communication, unless otherwise stated, is not intended and cannot be used for the purpose of avoiding tax-related penalties.
If you have any questions regarding the above information, please contact us at (610)366-7300 or through our website at www.lencpas.com.
BEST WISHES FOR A HAPPY AND PROSPEROUS 2021!