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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.

 Minimum Wage

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.

 Overtime Rules

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.

Form 1098

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.

 Forms 1099

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.

 Household Employees

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!

 

December, 2020

Tax Alerts
May 08, 2021
Tax Briefing(s)

The IRS has postponed the federal tax filing and payment deadlines, and associated interest, penalties, and additions to tax, for certain taxpayers who have been adversely affected by the Coronavirus Disease 2019 (COVID-19) pandemic. 


The IRS has provided guidance related to the temporary 100-percent deduction for business meals provided by a restaurant. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 ( P.L. 116-260) temporarily increased the deduction from 50 percent to 100 percent for a business’s restaurant food and beverage expenses for 2021 and 2022. All other food and beverage expenses are still subject to the 50 percent deduction limitation unless some other exception applies.


The IRS has issued guidance for employers claiming the employee retention credit under Act Sec. 2301 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) ( P.L. 116-136), as modified by Act Secs. 206 and 207 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act) (Division EE of P.L. 116-260), for the first and second calendar quarters in 2021. The guidance amplifies previous guidance which addressed amendments made by section 206 of the Relief Act for calendar quarters in 2020.


The IRS has issued guidance clarifying that amounts paid for personal protective equipment—such as masks, hand sanitizer and sanitizing wipes—for the primary purpose of preventing the spread of the Coronavirus Disease 2019 (COVID-19 PPE) are treated as amounts paid for medical care under Code Sec. 213(d).


The U.S. Department of Labor has published a new webpage with guidance implementing the Continuation of Health Coverage premium assistance provisions of the American Rescue Plan (ARP), to provide full COBRA premium assistance to certain individuals who experienced a reduction in hours or involuntary termination of employment.


The IRS has announced that, under the American Rescue Plan Act of 2021 (ARP) ( P.L. 117-2), the requirement that taxpayers increase their tax liability by all or a portion of their excess advance payments of the Premium Tax Credit (excess APTC) is suspended for tax year (TY) 2020.


The IRS has extended the penalty relief provided in Notice 2020-22, I.R.B. 2020-17, 664, for failure to deposit employment taxes, to eligible employers that reduce their required deposits in anticipation of the following credits.


Continuing an ongoing effort to help those experiencing homelessness during the pandemic, the IRS has reminded people who do not have a permanent address or a bank account that may still qualify for Economic Impact Payments (EIP) and other tax benefits.


Death benefits that an S corporation provided to its sole shareholder under a split-dollar life insurance arrangement were employee compensation rather than a corporate distribution. In reaching this decision, the Tax Court firmly rejected the contrary conclusion reached by the Sixth Circuit Court of Appeals in J.J. Machacek, CA-6, 2018-2 U.S.T.C. 50,447.


The termination date for an empowerment zone designation under Code Sec. 1391 is generally deemed to extend until December 31, 2025. However, the state or local government that nominated the zone may decline the deemed extension.