MBA News - Taxes

What is a payroll system?

MBAHRO — Fri, 20 Aug 2010 18:44:00 GMT

What is a payroll system?

As a payroll outsourcing company, many times when we sit down with clients, they initially ask “What is a payroll system?” This is a great starting place for planning how your payroll system will, at a minimum:

Gather your employee work hours
Cut checks
Stay in compliance with taxes and withholdings on a federal, state and local level.

Companies generally handle creating their payroll system in a few popular ways:

You can have employees fill out time cards and use your internal accounting staff to handle all checks. While this is a popular strategy, pay attention to some of the shortfalls of this system:

It usually doesn’t scale easily as you grow your business
It can be unmanageable to keep the accountant up-to-speed with state and federal withholdings and compliance issues
You’re dependant on one person for your system. This makes the person very hard to replace if the need should arise for any reason.

You can automate much of the process in-house using time clocks and software.

This helps the system to scale.
There are usually some features built into the software to try to stay in compliance with federal withholdings and such, but support dwindles as the focus turns to state and local withholding and taxation issues.

You can use an outsource to handle your payroll processing. (Full disclosure: Modern Business Associates is a payroll service.) These services:

Can easily scale with your business.
Have major data safety policies regarding the backing up of data and recovery, if necessary.
They have experience with many clients that have the same compliance issues.
It is their primary business to keep their services enabled to adjust to the most recent changes in federal and state regulations regarding taxation and withholdings.

If you consider an outsource for your payroll processing, you will need to spend effort to properly identify a good payroll processing firm that you are comfortable with. In addition, plan to spend time adjusting to new routines to get your staff’s timesheets and withholding data into their system to get the ball rolling.

If you are asking, “What is a payroll system?”, why not contact us at MBA to talk it over. It’s the kind of question we get asked every day.

Modern Business Associates is an HR company that focuses on payroll and HR outsourcing. We routinely work with clients to help with all kinds of HR and payroll issues. As a Professional Payroll and HR outsource organization, our clients rely on us to help them effectively deal with these kinds of topics.

Figure payroll withholding taxes

MBAHRO — Wed, 11 Aug 2010 18:39:00 GMT

Figure payroll withholding taxes

To figure payroll withholding taxes, just follow this guide of steps to take and links to resources.

Employees’s Gross Pay
Minus Required Payroll Tax deductions (including any voluntary deductions)
What’s left is the net pay.

Required Payroll Tax Deductions

Since the payroll taxes have to be withheld from your employees’ paychecks, it’s important to understand the different kinds of mandatory withholdings:

Federal Income Tax (based on the withholding tables based on the Fed’s Publication 15)
Social Security tax withholding (6.2%, up to the annual maximum for that employee)
Medicare Tax (1.45%)
Any applicable state income tax
Any applicable local tax withholdings (like state unemployment insurance, city, county, state disability)

Voluntary Payroll Deductions

Voluntary payroll deductions are ones where the employee has previously agreed to the deduction. These include health insurance premiums, life insurance, retirement contributions, union dues and other expenses related to the work.

Note that the voluntary deduction may be pre-tax dollars, or after-tax, depending on the benefit being paid for. You’ll need professional advice to understanding the distinctions and correct way to calculate these.

Don’t forget to reserve monies to cover the employer payroll tax responsibilities. As the employer, you are responsible for paying the employer’s share of the payroll taxes.

Of course, you’ll also need to plan for the employer’s portion for payroll taxes.

Modern Business Associates is an HR company that focuses on payroll and HR outsourcing. We routinely work with clients to figure payroll withholding taxes. As a Professional Payroll and HR outsource organization, our clients rely on us to help them effectively deal with these kinds of topics.

Employer’s portion for payroll taxes

MBAHRO — Thu, 05 Aug 2010 18:37:00 GMT

Employer’s portion for payroll taxes

After paychecks are sent to employees, your work is only half done. Here’s and explanation of, and how to calculate, the employer’s portion for payroll taxes. These employer taxes are above and beyond your employees’ gross pay.

The employer’s portion for payroll taxes includes these elements:

Social Security (6.2% up to the annual maximum per employee)
Medicare Taxes (1.45% of wages)
Federal unemployment taxes (FUTA)
State unemployment taxes (SUTA)

Note: Social Security and Medicare Taxes are commonly referred to as FICA taxes (Federal Insurance Contributions Act). These are paid for by both the employers and the employees in identical contribution amounts.

In addition to covering the employer’s portion for payroll taxes, read our other article to figure payroll withholding taxes.

Modern Business Associates is an HR company that focuses on payroll and HR outsourcing. As a Professional Payroll and HR outsource organization, our clients rely on us to help them effectively deal with these kinds of topics.

Healthcare Reform Update

MBAHRO — Fri, 14 May 2010 15:58:00 GMT

Health Reform Bill HR3590 Update - Simple Cafeteria Plans

The American Society of Pension Professionals & Actuaries published an article summarizing "Simple Cafeteria Plans" that are available starting January 1, 2011, under the health reform bill (HR 3590). Please use the link below to access:

http://www.asppa.org/Document-Vault/PDFs/ASAPs/2010/10-13.aspx

Tax credits mean good news for employers!

MBAHRO — Tue, 23 Mar 2010 22:47:00 GMT

Tax credits mean good news for employers!

On March 18, 2010 President Obama signed into law the Hiring Incentives to Restore Employment Act (HIRE Act). The HIRE Act carries two significant tax incentive components for employers: a Social Security tax forgiveness and a retention tax credit. The first starts immediately for employers hiring qualified employees through the remainder of 2010 and the second can be earned by employers who retain qualified employees for a minimum of 52 consecutive weeks. The following is an overview of how both incentives work.

Social Security Tax Forgiveness:

Employers will receive a 6.2% Employer Social Security Tax Exemption on wages paid to “qualified employees” after March 18, 2010 and before January 1, 2011, up to the Social Security maximum of $106,800. The maximum credit per qualified employee is $6,621. To be a qualified employee the new employee must:

· Start work after February 3, 2010 and before January 1, 2011.

· Be previously unemployed and not have worked more than 40 hours within the 60 days prior to the employee’s start date.

· Not replace current employees unless former employees were terminated for cause or left employment voluntarily.

· Not be related to the employer

Qualified employees may work less than full time hours, and under certain circumstances, may be rehired from a previous lay off. To obtain maximum tax savings per employee it is in the best interest of the employer to hire qualified employees as early in the year as possible as the exemption stops on wages paid after January 1, 2011. As an example, if an employee earning $40,000 annually is hired on April 1, 2010, the Social Security tax savings to the employer would be approximately $1,900. If the same employee was not hired until August 15, 2010, the savings would be cut approximately in half to $950. Social Security tax forgiveness can be used to offset scheduled tax deposit liabilities beginning April 1, 2010 and accrue with each payroll processed. Although the details on documenting qualified employees are still being worked out we wanted to provide an overview of this legislation now. We will continue to monitor and provide updates as additional information becomes available.

Retention Tax Credit:

As another benefit for retaining employees who qualify for Social Security tax forgiveness, the HIRE Act provides up to a maximum $1,000 tax credit to employers for each qualified retained employee as a Section 38(b) business tax credit. The credit is the lesser of 6.2% of wages or $1,000. To be eligible for the credit the qualified retained employee must:

Be employed for 52 consecutive weeks. There is no provision for prorating the credit.
Earn wages during the last 26 week period that are at least 80% of the wages for the first 26 week period.

These tax credits will be available to be taken on employers’ 2011 income tax returns. The HIRE Act does not allow carry back of any unused Section 38 business tax credits that are attributable to the provision for retaining workers. Finally, the Congressional Record makes clear that a PEO client is entitled to the retention credit.

Modern Business Associates appreciates your business and is available to assist as you navigate through these significant legislative changes. We look forward to continuing to support your organization’s payroll, employment tax, workers’ compensation and human resources needs. While we focus on these areas, you can concentrate on your core business needs and goals.

Should you have any questions, please do not hesitate to contact us.

Payroll deductions should include state income tax and payroll insurance deductions

MBAHRO — Wed, 17 Mar 2010 22:52:00 GMT

Payroll deductions should include state income tax and payroll insurance deductions

As a Professional Employee Organization, our clients ask us to handle their payroll responsibilities including two of the most talked about deductions: their state income tax and payroll insurance deductions.

The state income tax is part of the statutory payroll tax deductions.

As required by law, statutory Payroll Tax Deductions are payroll taxes that must be withheld from your employees paycheck. You must hand these withholdings over to the multitude of tax agencies on all levels of government.

Local tax withholdings (city, county, or school district taxes, state disability or unemployment insurance).
State income tax withholding
Federal income tax withholding
Social Security tax withholding
Medicare tax withholding

The payroll insurance deductions are part of the Voluntary Payroll Deductions

Voluntary deductions pay for various benefits which the employee has chosen to participate in. Voluntary payroll deductions are withheld from an employee's paycheck only if the employee has agreed to the deduction.
Voluntary payroll deductions include the following:

Retirement plan contributions (such as a 401k plan)
Health insurance premiums (medical, dental, and eyecare)
Life insurance premiums
Meals, uniforms, union dues and other job-related expenses
Employee stock purchase plans (ESPP and ESOP plans)

Voluntary deductions can be paid with pre-tax dollars or after-tax dollars, depending on the type of benefit being paid for.

As a business owner, decisions you make about state income tax and payroll insurance deductions issues are important ones to make correctly. Always consult with your HR advisors when these issues come up.

At Modern Business Associates, we deal with state income tax and payroll insurance deductions as a daily part or our business. Our clients outsource their payroll processing to us. We take pride in working with our St. Petersburg and Tampa clients, as well as clients from across the nation. Please contact us for more information about utilizing an HR company and any specific questions about our services. Our goal is for you to make the best informed decision for your St. Petersburg or Tampa-based company.

Employer Payroll Taxes – How to stay out of trouble

MBAHRO — Wed, 10 Mar 2010 23:03:00 GMT

Employer Payroll Taxes – How to stay out of trouble

Many growing companies have questions like, “How do employer payroll taxes work?” At Modern Business Associates, many of our small clients come onboard with our payroll processing to let us handle their entire payroll processing burden, which includes payroll taxes. Our systems are set up to ensure your business does not get into trouble by missing withholdings or taking the wrong amounts.

As background, you should know that employer payroll taxes are the state and federal taxes that you, as an employer, are required to withhold and/or to pay on behalf of your employees.

After having each new employee complete their IRS form W-4, we’ll use this information to calculate the amount of federal income tax to withhold from the employee’s wages. Most all of the states have income tax structures that are based on the federal blueprint, so you will use the same W-4 to calculate the amount of state income tax to withhold as well.

You are also required to withhold social security and Medicare taxes from your employees' wages.

Social security and Medicare taxes (FICA taxes) must be withheld from your employees' wages.

You are required to withhold the social security taxes from the employee’s wages, and to pay a matching amount in social security taxes until the employee reaches the wage base for the year. At higher salary levels, there is a cap on the total amount of social security tax per year that must be paid per employee.

You will withhold the Medicare portion of the FICA tax and pay a matching amount. There is no cap for the Medicare portion of the FICA tax. Both the employer and the employee continue to pay Medicare tax, no matter how much is earned.

Employer payroll taxes also include State and Federal unemployment tax.

The employer also must pay State and Federal Unemployment Taxes (SUTA and FUTA). There may be some tax credits available for some businesses for the FUTA amounts.

Generally, your SUTA tax rate is based on the amount of unemployment claims that are filed by employees that you have terminated. Generally, when your business is brand new, your SUTA tax rate is at its most, and declines as you build a history of few unemployment claims.

Modern Business Associates is an outsource company that deals with payroll processing and employer payroll taxes all the time. If you are considering a payroll company, why not call us to help answer your questions and offer important information for making this kind of decision?