Overview Pay Frequency Payment on Separation Payment Methods Pay Statements Escheat Laws Deceased Employees

Pay Frequency Annual, Monthly, Semi-Monthly, Bi-Weekly, Weekly, and Daily May pay more frequent than state requires Lag time equals time after period end date until pay date

Payment on Separation Type of separation matters –Lay-off, resignation, discharge Think of Voluntary or Involuntary –Who had the choice

Payment Methods Cash Check Direct Deposit Pay Cards

Direct Deposit Terms you will need to know –ODFI –RDFI –NACHA –Prenote Process Flow –Authorization from Employee to Payroll Department –Payroll to ODFI –ODFI to ACH Operator –ACH Operator to RDFI –RDFI to Employee

Company’s Bank Bank Employee’s Bank ODFI ACH RDFI Employee Payroll The flow chart for an EFT I want Direct Deposit Federal Reserve

Electronic Paycards How Do They Work Branded vs Nonbranded Benefits for Employer Benefits for Employee Compliance Issue Implementation Issues

Pay Statements Check Stubs –May need to include: Name and/or part of the SSN, Address Hours worked Pay Period Dates Total Earnings Itemized Deductions Net Pay Employer name and Address Benefits Gross and Net

Escheat Laws Unclaimed Wages –Wages go to state

Wages Owed to Deceased Employees Who may you pay? Is there a maximum payment allowed? Are there any special conditions or requirements?

Extra Pay Period Only effects Weekly and Bi-Weekly frequencies Salary Reduction is allowed –Agreed rate is annual rate

Questions / Comments

Section 6 Withholding Taxes

What are taxes?  What you need in order to withhold correctly  Withholding Taxes  FICA  Social Security  Medicare  Federal Income Tax  State and Local  How to Withhold

Constructive Payment When are wages actually paid Checks in the Mail Postdating or Backdating Why is it important

Social Security Numbers  9 digit numberXXX-XX-XXXX  Can be verified by contacting the Social Security Administration – refer to Section 1  Invalid SSN formats  Form SS-5, Application for a Social Security Card

Employee Withholding Allowance Certificates  Form W-4 - Payroll  Form W-4P - Pension and Annuity Payments  Form W-4S - Third Party Sick Pay  State Withholding Certificates

Social Security & Medicare  Social Security Tax Rate = 6.2% (there was a special rate of 4.2% for 2010, 2011 and 2012)  Social Security Wage Base = $117,100 for 2014  Medicare Tax Rate = 1.45% (no wage limit)  Total FICA Tax Rate = 7.65%

Wages Exempt from FICA  Worker Compensation Payments  Deferred Compensation Payments  Flex 125 Payments  Qualified Moving Expenses  More complete list available on Pg 6-48

Statutory Employees and Statutory Non-Employees  Statutory Employees –  Withhold SSEC and MEDCR  Do not withhold FIT  Statutory Non-employees –  Do not withhold taxes  Issue 1099-MISC

Federal Income Tax (FIT)  Based on Employee Income  Must withhold when liability is incurred  Liability incurred when wages are paid or constructively received by the employee

How to withhold Federal Income Tax Based on:  Estimated Annual Income  Marital Status*  Personal Allowances*  Additional Withholding (if applicable)* *Information submitted by employee on Form W-4

Federal Income Tax Withholding Rates  Available in IRS Publication 15, Circular E, Employer’s Tax Guide (revised each calendar year)  Also Available in your Payroll Source and Payroll Source Answer Key and Appendix

Different Method of Withholding  Wage Bracket Method (see Pg 6-20)  Percentage Method (see Pg 6-23)  Alternative Withholding Methods  Annualized Wages (see Pg 6-23)  Average Estimated Wages (see Pg 6-23)  Cumulative Wages (see Pg 6-24,25)  Part-Year Employment (see Pg 6-25,26)

Supplemental Wage Payments  Wages not part of ordinary wages  Flat rate of 25% if accumulated supplemental wages are under $1,000,000 per year  Flat rate of 39.6% of amount over $1,000,000  Combined payment  Regular withholding rate (Aggregate Method)

Advanced Earned Income Credit  Reduction of taxes owed for qualified employees  Amount included in employee’s net pay  Must file Form W-5 annually with employer to qualify

Practice Problems

Practice Problem #1  Wage Bracket Method – Employee Jane is married and is paid $1,790 by her employer on a biweekly basis. Jane claims 6 withholding allowances on her Form W-4. How much is deducted for federal income tax each pay period?

Practice Problem #1Answer Answer - $55.00

Practice Problem #2  Employee Bill received a $2,000 bonus in addition to his regular wages and has received $50,000 in wages so far during the year. Using the flat rate withholding method for supplemental wages, calculate Bill’s federal income tax withholding on the bonus.

Practice Problem #2 Answer  Employee Bill received a $2,000 bonus in addition to his regular wages and has received $50,000 in wages so far during the year. Using the flat rate withholding method for supplemental wages, calculate Bill’s federal income tax withholding on the bonus. $2,000 x 25% = $500

Practice Problem #3  Employee Karen received a $20,000 bonus in addition to her regular wages and has received $990,000 in regular wages so far during the year. Using the flat rate withholding method for supplemental wages, calculate Karen’s federal income tax withholding on the bonus.

Practice Problem #3 Answer  Employee Karen received a $20,000 bonus in addition to her regular wages and has received $990,000 in bonuses so far during the year. Using the flat rate withholding method for supplemental wages, calculate Karen’s federal income tax withholding on the bonus. $10,000 x 25% = $2,500 $10,000 x 39.6% = $ $2,500 + $3,500 = $6,460 Withheld

Questions / Comments

Discussion Time  Prior Topics  Topic this week  Homework Problems Any questions on:

Next Class Topics: Section 7 Unemployment Taxes and Section 8 Depositing & Reporting of Withheld Taxes