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Payroll Tax Info : Federal Tax Changes

The following information regarding Federal payroll tax changes is effective January 1, 2016. For wages paid in the 2016 calendar year, these changes include the following:

Federal Unemployment Tax for 2015

The federal unemployment tax rate varies by state. 0.6% is the current base rate, but due to some states being behind in payments to the federal government, their tax rates have been increased. For companies in any of the following states: CA, KY, NC, NY and OH the adjusted rate for 2015 is 2.1% (0.021). Additionally, for companies in CT the rate is 2.6% (0.026) and for companies in IN, the rate is 2.4% (0.021). Companies in other states should use the base rate of 0.6% (0.006).

Increase in the Federal Withholding Allowance for 2016

Withholding allowances for self and dependents increases to $4,050. Verify that the "ANNUAL EXEMPTIONS - SELF" and "DEPENDENTS" fields of the "US" (federal) record of the Tax Data File is set to 4050.00.
Reference: Notice 1036 - Early Release Copies of the 2016 Percentage Method Tables for Income Tax Withholding, (Rev December 2015)

No change in the FICA/Disability Employee Tax Rate for 2016

The FICA/Disability Employee rate remains at 7.65%. Verify the  "FICA/DISABILITY" field of the "US" (federal) record of the Tax Data File is set to 0.07650 for the EMPLOYEE TAX RATE. (Reference: Notice 1036)

No change in the Social Security Base Wage Limit for 2016

The Social Security wage base limit remains unchanged at $118,500 for wages paid in 2016. Verify that the "FICA/DISABILITY - Employee Tax Rate" field of the "US" (federal) record of the Tax Data File is set to 118500.00 for the EMPLOYEE TAX WAGE LIMIT. (Reference: Notice 1036)

No Change to the Medicare Tax Rate for 2016

The Medicare tax rate remains at 1.45% on all wages, for both employers and employees. There is no wage base limit for the Medicare tax. Keep the amount of the field "MEDI LIMIT" of the Custom screen (option U) of the "US" (federal) record at 9999999 (seven 9's). (Reference: Notice 1036)

Additional Medicare Tax Withholding Remains

In addition to withholding Medicare tax at 1.45%, you must withhold a 0.9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. In order to address this, you must make the following changes:
Verify the field "CUSTOM FIELD #3 NUMBER" has a description of "MEDICAREX%" with a value of "900".
Verify the field "CUSTOM FIELD #4 NUMBER" has a description of "MEDIX LIM" with a value of "200000".
Verify the field "CUSTOM FIELD #5 NUMBER" has a description of "ROUNDWH" with a value of "1".

Advance Payment of Earned Income Credit (EIC) Expired 

The option of receiving advance payroll payments of EIC expired December 31, 2010. Individuals eligible for EIC in 2016 may still claim the credit when they file their 2016 federal income tax return.

New Federal Withholding Tables

Sample screens with the new withholding rates follow this notice. These changes should be made to the "US" (Federal) record of the Tax Parameter File. You must access the Single, Married, and Head of Household) screens individually. (Note that for the Federal tables, the values for Single and Head of Household are the same.)

Reporting the Cost of Group Health Insurance Coverage: Beginning in the 2012 tax year (W-2s printed in January 2013 for 2012 wages) the Affordable Care Act required employers to report the cost of coverage under an employer-sponsored group health plan on an employee's Form W-2, Wage and Tax Statement, in Box 12, using Code DD. Reference: IRS Affordable Care Act Tax Provisions

The Compusource Payroll software supports this feature by allowing you to enter the total cost of the employer sponsored health plan on the W-2 screen of the Last Year Employee Maintenance. These will print in box 12 on the W-2 and a code of DD should be used (refer to the online help for more information).

Transition Relief
For certain employers, types of coverage, and situations, there is transition relief from the requirement to report the value of coverage on the 2012 Forms W-2 (the forms for calendar year 2012 that employers generally are required to provide employees in January 2013). This relief will apply to future calendar years until the IRS publishes additional guidance. However, any guidance that expands the reporting requirements will apply only to calendar years that start at least six months after the guidance is issued. See the 'Optional Reporting' column in the below chart for the employers, types of coverage, and situations eligible for the transition relief. Refer to the Form W-2 Reporting of Employer-Sponsored Health Coverage page for more information or contact your IRS representative.