Payroll Blog

Payroll Training, Tips, and News

  • Are You Thinking About Changing Payroll Frequency?

    posted by Rachel Blakely-Gray
    Newest Article
  • final paycheck laws

    Final Paycheck Laws by State

    posted by Rachel Blakely-Gray
    Recent Article
  • A Recap of Recent Tax Changes Affecting Payroll

    save money on payrollRecent tax changes affecting payroll may be confusing for employers and employees. I thought it would be helpful to recap these changes to help you better understand and communicate with your employees. While those on your payroll may wind up with a slightly larger net (take-home) pay resulting from these changes, the amount will depend on their marital status and withholding. Ending of the Advanced Earned Income Tax Credit
    The government eliminated the “advance” feature that allowed taxpayers to receive their earned income tax credit (EITC) spread out through the year in their paychecks. Your employees who were receiving the credit as an advance in their pay may be concerned that the EITC has gone away for good. You can assure your employees they can still take the credit as a lump sum on their annual 1040 tax return. For more info, read A Quick Update for Employers on the Earned Income Tax Credit.

    The Tax Relief, Unemployment and Insurance Reauthorization and Job Creation Act of 2010
    Enacted in December 2010, this act extended for two years the tax cuts that were due to expire, preventing a large tax increase for American workers. This Act did not, however, extend the 2009-10 Making Work Pay (MWP) credit that was factored into the rate tables for those years. The 2011 tax tables reflect the loss of this MWP credit.

    New Payroll Tax Withholding Tables
    For 2011, the government lowered the amount that workers contribute to to their Social Security to 4.2%. Employers still contribute to Social Security at the same rate of 6.2%.

    The IRS gave employers until 1/31/11 to adjust for the Social Security payroll tax “holiday” on their employee paychecks or change it in their payroll software. If you haven’t made this change and ran payroll calculating the 6.2% employee share instead of the new rate, you’ll need to issue your employees a refund for the amount.

    How the Tax Changes Affect Pensioners
    Retired employees receiving pensions may question why their retirement checks are smaller. Retirees receiving pensions aren’t getting the 2% payroll tax break on their Social Security; the amount they contribute remains at 6.2%. Retirees also didn’t receive the Making Work Pay credit for the last two years, but your payroll administrator might have adjusted their withholding using separate tax tables for those years. With the new withholding tables, retirees may see their withholding increase by $7-50 per payment, depending on the filing status, payment amount, and frequency of their pension checks.

    Deadline for Personal and Payroll Taxes Extended

    payroll taxes extended picture of timer

    Thanks to Emancipation Day, we all get three more days this year to file our 1040 federal tax returns for 2010. Businesses also get a few more days to report certain payroll taxes and estimated taxes.

    The IRS has extended this year’s 1040 tax filing deadline to Monday, April 18 because Emancipation Day, a holiday celebrated in the District of Columbia, falls on April 15. (By law, all D.C. holidays affect tax deadlines the same as federal holidays.) Postmark your federal income tax return by midnight on April 18.

    If you want to request a six-month extension on filing your income taxes, file Form 4868 by April 18. You’ll have until October 17, 2011, to file your tax return (note: a filing extension doesn’t let you off the hook from paying any tax due. If you think you might owe the government, send your estimated taxes with your filing extension paperwork to avoid penalties.)

    Payroll Taxes Extended: What it means for your business

    If you or your business is required to make quarterly estimated income tax payments, your deadline is also April 18 for the first quarter 2011.

    Don’t assume this extended tax deadline applies to your state or locality, so make sure you observe their tax filing deadlines (which are most likely found somewhere on the tax forms).

    Certain federal payroll tax deposits normally due on April 15 also are extended to April 18 this year. If you are a monthly depositor for federal payroll taxes, your March 2011 deposit won’t be due until April 18. If you are a semi-weekly depositor, any taxes withheld for pay dates falling between April 9 and April 12 also come due on April 18. (Remember to initiate your payroll tax deposit via EFTPS at least one banking day before the due date to be consider timely.)

    [RELATED ARTICLE: What is EFTPS?]

    Trust Online Payroll to Save You Time and Money

    As a small business owner, you’re good at what you do. You’ve built your business from the ground up. You know how to make your customers happy. It’s the paper-pushing that gets you down.

    One of the conundrums of owning a small business is learning how to manage all the administrative “stuff”. Building your business can get muddied with complicated and ever-changing taxes, laws, and regulations. Payroll, in particular, can be confusing and time-consuming.

    We understand. Anymore, running payroll goes beyond paying your employees for a good day’s work. There are payroll taxes and IRS forms that you need to send to the right people at the right time. And because no one business is the same, your payroll needs are different from the next company’s.

    Of course, you can tackle your payroll all by yourself, but you’ll need to invest time in learning the ins and outs of running payroll correctly (and time is money). You also run the risk of getting your payroll wrong, exposing you to unnecessary risks. And, who wants that?

    There is a better way to go. With basic online payroll software, you have the freedom to pay your employees from almost anywhere. Online payroll programs are generally comparable in price, or sometimes less costly, than traditional desktop software.

    Benefits of online payroll software

    There are benefits to having your payroll online:

    • No downloading means no extra programs gobbling up memory on your computer.
    • All data is stored outside your computer.  If there is ever a computer malfunction, you don’t lose your payroll records.
    • Tax table automatically update.
    • Software updates and enhancements occur automatically.
    • You can log in from any computer (with Internet connection).

    When looking for a payroll software program, be sure payroll calculations are guaranteed to be correct. Customer support should be included in your payroll program and provide help when you need it, without charge.

    Full service payroll programs

    Full service online payroll is the new generation of payroll services. You save money by entering employee hours into an online payroll software application by yourself. At the end of a pay period, you can pay your employees by direct deposit, printing paychecks, or hand writing checks.

    The online payroll company files and deposits all your federal, state, and local taxes. (Patriot Software includes local payroll tax filings with their service. Be aware, not all payroll companies will.) The online payroll company may also remit and file Form W-2 and Form W-3.

    Feel free to read our payroll software reviews. Then, sign up for a no-obligation free trial with our online payroll. Remember, we are here to help!

    Employers: Important Tax Form Deadlines Ahead

    Updated 9/19/2016.

    Employers, procrastinate no more! January 31 is looming, and it’s time to get your act together for some important tax form deadlines.

    A Quick Update for Employers on the Earned Income Tax Credit

    employees save on payroll taxesQ. Is the Earned Income Tax Credit going away?
    A. No. The EITC, also known as the EIC, which was enacted by Congress in 1975 to help low-income workers, has not gone away. But the AEITC has.

    Q. What was the AEITC?
    A. The Advanced Earned Income Tax Credit program was designed to give qualified employees a tax credit that was distributed throughout the year in their paychecks. This option has gone away as of Dec. 31, 2010.  

    Q. Why did the advance option go away?
    A. The law changed. Workers didn’t take advantage of the advance option as much as the government had hoped. The Education Jobs and Medicaid Assistance Act of 2010 repealed the AEITC, and it became unavailable to workers in 2011.

    Q. What will my employees do now?
    A. Eligible employees can still get the earned income credit in a lump sum when they file their personal tax return. And if they received the tax credit in 2010, they need to report it on their tax return.

    Q. What does it mean for me as an employer?
    A. As an employer, you are are no longer part of the equation for your employees’ EITC. You no longer will calculate the tax credit in your employee payroll. Your payroll provider should have already updated their payroll software and forms to prepare for this change.You no longer need to give employees Form W-5 (Earned Income Credit Advance Payment Certificate); that form has been eliminated. However, you still must notify employees that they may be eligible to receive the earned income credit. (To find out if your employees are eligible, read Notice 1015: Have You Told Your Employees About the Earned Income Credit?)

    You can satisfy the EITC notification requirement when you give employees their Form W-2 (required information is on the back of Copy B), or give them Form 797.

    Payroll Tax Cut Gives Employees More Take-Home Pay in 2011

    If you haven’t heard the news yet, employers will withhold less Social Security from their employee payroll taxes starting Jan. 1, 2011. The 2% payroll tax cut is designed to give employees more take-home pay for 2011. The Social Security “holiday” is one part of the recently passed Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

    Employers will calculate employee payroll taxes using the new Social Security rate of 4.2%, down from the current rate of 6.2%. The employer’s share of payroll taxes remains the same; they will contribute to the employees’ Social Security at a rate of 6.2% for 2011.

    According to the Internal Revenue Service, employers should withhold at the new rate as soon as possible in 2011 and no later than Jan. 31. If you’re using payroll software or a payroll service, the rate change should be automatic — check with your payroll provider to be sure. Also, notify your employees of the rate adjustment and how it will affect their pay (they may be pleasantly surprised at the new amount of their paycheck.)

    If you’re an employer still figuring payroll by hand, and you forget and continue to use the old rate, the IRS advises you to make an offsetting adjustment to your employees’ Social Security withholding no later than March 31, 2011 (the end of the first quarter.) For more details about this change in payroll tax withholding and the recently passed Act, read IRS notice 1036.

    Changes Ahead for Employers Making Federal Payroll Tax Deposits

    Employers, put away your #2 pencils, and say goodbye to the old yellow coupon books for payroll tax deposits.

    Effective Jan. 1, 2011, most employers must use the Electronic Federal Tax Payment System (EFTPS) to make federal payroll deposit payments, either by the Internet or by phone. After you sign up, EFTPS will transfer payroll tax funds from your bank account directly to the Treasury. (And by the way, you can make all federal tax payments through this service.)

    New Change May Affect Your Schedule
    Employers, procrastinate no more! Take note: You can’t wait until the last minute anymore to make your payroll tax deposits. According to the EFTPS, you must schedule your payment one calendar day before the due date, and pay it online or by phone by 8 p.m. Eastern time to be considered timely. (So, if you’re a creature of habit known for dashing to the bank at 4:55 p.m. on the 15th of the month to make your payroll deposit — you’ll now need to dash to your phone or computer before 8 p.m. on the 14th instead.)

    Super-Small Businesses May Qualify for Exception
    If you’re a small business with a federal tax liability of less than $2,500 per quarter, you may have the option of mailing a check with your annual or federal returns (call the IRS at 1-800-830-5215, as they decide which businesses qualify, not me!)

    How to Enroll in EFTPS
    You most likely received an IRS mailing that detailed this coming change. If you haven’t opened this envelope, it’s time to find it and do it now. While the IRS has pre-enrolled employers in EFTPS and issued each employer a Personal Identification Number (PIN), you must activate your enrollment in the program. The brochure explains how, and your assigned PIN number is included in the mailing.

    Call EFTPS at 1-800-555-3453 to activate your enrollment, and follow the prompts to enter your PIN number, 9-digit Employer Identification Number (EIN), banking info and phone number. Once you complete your enrollment, follow more prompts to get a temporary log-in password to make payroll tax payments at EFTPS online.

    After you activate, you can make EFTPS deposits online, by phone, or by one additional method. Some banks may still be able to make federal deposits via EFTPS on your behalf, but you’ll still need to initiate the transaction a day early (sorry.) Contact your bank for more details and any costs for this service.

    The Info You Need at a Glance
    Yes, it is a lot to process. Here are some answers to questions you might be asking:

    I activated my enrollment and I’m ready to make a payroll tax payment online or by phone — what’s next? Go to www.eftps.gov or call 1-800-555-3453.
    How do I activate my enrollment in EFTPS? Call EFTPS at 1-800-555-3453.
    Who do I call if I didn’t get my EFTPS enrollment info (or can’t find it)? Call EFTPS Customer Service at 1-800-555-4477 or visit www.eftps.gov.
    I think my business might be small enough to qualify for mailing payments with my payroll tax return. What should I do? Call the IRS at 1-800-830-5215 to see if your business qualifies.
    I have questions about my bank and EFTPS. Who do I call? Call EFTPS Customer Service at 1-800-555-4477 or visit www.eftps.gov.
    I want to know more about why this is happening. Read the Federal Register report on EFTPS.

    Note: Thinking about chancing it and mailing in a old tax deposit coupon with your liability payment? That may not be the best idea. According to the IRS, they may charge you a 10% penalty for each non-electronic deposit – even if your payment is on time.

    I’ll try to keep you updated on important info regarding this change. Meanwhile, if you’ve had enough already and you’d like more info on payroll solutions (and let someone else worry about your payroll taxes for a change), check out our online payroll software and Full Service Payroll.

    When’s the Best Time to Switch Your Payroll Provider?

    switch your payroll system software provider

    Updated on June 24, 2013
    If you’ve been thinking about calling it quits with your current payroll provider, you may be wondering: When’s the best time to switch payroll providers and move on already? The answer is ANYTIME! Perhaps you thought the start of a new year would be the best time to make a fresh start with a new payroll service provider; so you wouldn’t need to enter data from any previous paychecks to get up-to-date? Actually, if your new accounting and payroll software provider is Patriot Software, we will do the data entry for you. For FREE. So you can switch to Patriot’s payroll system software at any point during the year.

    Patriot’s Payroll System Software offers FREE payroll setup. Whether you are using another payroll provider, an accountant, or your spouse, Patriot Software can help you get set up. We can enter all necessary payroll information for the current year from your records. The system will identify the taxes you are responsible for and, if needed, it can help clean up issues with previous tax payments.

    Of course, whenever you break up with someone, it’s vitally important to get all your stuff back. Whether you make a clean break at year-end or change your payroll provider in the middle of a tax year, make sure you get your payroll records from your old payroll provider (before they forget that they’re yours, like your favorite sweater you never got back).

    Also, if you switch payroll processing companies midstream, clarify with them that you really are leaving (and you don’t want them to send you flowers or candy, or continue to file any forms with the government that your new payroll provider might duplicate, causing unnecessary confusion and more work on your end). It’s really best to wrap up this relationship with an email letter for documentation and to clarify all break-up details. Follow up with a phone call to confirm.

    Ready to make the switch? Try Patriot Online Payroll free for 30 days with a no-obligation trial. Get started today!

    DOL Cracks Down on Retirement Plan Contributions

    piggy bankAs a follow up to my article Depositing 401(k) Contributions On Time, the Department Of Labor (DOL) is taking further steps to protect the assets of employer retirement and health plans.  The DOL has recently announced the roll-out of a new Retirement Security Initiatives program. This program serves not only to enforce employer rules for making timely deposits into employee benefit plans and investigating employer plan practices, but also to educate employees and notify them of their rights.

    When it comes to protecting employee benefits, the DOL isn’t messing around.  In past years, the DOL has conducted numerous investigations into employers who did not deposit their employee contributions and instead used the money for another use unrelated to the retirement plan.  Recently, the DOL has filed 24 new civil suits on 11/16/10.  The DOL has also launched a new Contributory Plans Criminal Project to investigate individuals and service providers who have committed fraud against the plan.  The above fact sheet illustrates several recent criminal prosecutions which have resulted in prison sentences.

    According to the DOL press release, “Workers are often the first line of defense in identifying problems with their benefit programs early,” said Phyllis C. Borzi, assistant secretary for EBSA. “Therefore, we want to equip them with information to help the department protect and preserve their right to plan benefits.”  The DOL has issued a publication geared toward employees called Ten Warning Signs That Your 401(k) Contributions Are Being Misused.

    To stay off of the DOL naughty list, you must deposit your employees’ contributions into the plan as soon as administratively feasible, and do not use employee contributions for any other purpose other than for their benefit under the plan.

    For more information see the DOL Retirement Security Initiatives Fact Sheet.

    Health Reform Checklist for Open Enrollment

    If your health plan renews on January 1, 2011, you’ll need to tell your employees about several important changes, including two special enrollment periods, as a result of the Patient Protection and Affordable Care Act (“PPACA”), otherwise known as the healthcare reform law.  These changes go into effect for all health plans renewing on or after September 23, 2010.  Assuming your open enrollment period is now or coming very soon, it makes sense to include this information with other open enrollment materials.

    First, determine whether your plan is grandfathered or non-grandfathered.  See the article What Is A Grandfathered Plan? for more details.

    Notices For Both Grandfathered and Non-Grandfathered Plans:

    Notice of Grandfathered Status – Plan participants need to be made aware of whether or not the plan is grandfathered.  See the model notice language Word document issued by the HHS.

    Special Enrollment Notice for Child Dependent Coverage Up to Age 26 – For plans that provide dependent coverage, newly eligible children will have a one-time 30-day opportunity to enroll in the coverage, if they:

    • had originally lost coverage due to reaching the prior age limit
    • are on COBRA due to losing coverage
    • or were never covered because they were above the age limit.

    Note that some states already have laws in place with the same or higher age limits than this new federal law.  If you have a grandfathered plan, you don’t need to allow adult children who are eligible for coverage through their own job until 2014.  See the model notice language issued by the HHS.

    Special Enrollment Notice for Those Who’ve Reached Their Lifetime Limit – The elimination of lifetime dollar limits is one of the PPACA changes.  Therefore, anyone on your plan who lost coverage due to meeting the lifetime dollar limit, and is otherwise still eligible for coverage now has a chance to re-enroll in the plan.  See the model notice language issued by the HHS.   Note:  Only send this special enrollment notice to those who had met the lifetime limit.

    Other Plan Changes

    Work with your insurance carrier or third party administrator to make sure your summary plan descriptions are updated with the following changes:

    Pre-Existing Conditions for Children Under Age 19 – Previously, plans could limit or exclude coverage for pre-existing conditions if the individual did not have prior coverage when they enrolled in the plan.  The PPACA changed this rule so that coverage for pre-existing conditions of children under age 19 could be covered right away.  This provision will eventually be extended to anyone (adults or children) with pre-existing conditions effective 1/1/2014.

     Notice of Rescission of Coverage – The PPACA has limited the reasons that coverage can be revoked retroactively.  Plans are required to give a notice of 30 calendar days when this happens.

    Additional Notice for Non-Grandfathered Plans:

    Patient Protection Disclosures – For new plans or existing plans that have made changes and are no longer grandfathered, you must notify plan participants of their rights to choose a primary care provider for themselves and pediatricians for their children.  The law also allows obstetrical or gynecological care without prior authorization.  See the model notice language issued by the HHS.

    A Recap of Recent Tax Changes Affecting Payroll

    save money on payrollRecent tax changes affecting payroll may be confusing for employers and employees. I thought it would be helpful to recap these changes to help you better understand and communicate with your employees. While those on your payroll may wind up with a slightly larger net (take-home) pay resulting from these changes, the amount will depend on their marital status and withholding. Ending of the Advanced Earned Income Tax Credit
    The government eliminated the “advance” feature that allowed taxpayers to receive their earned income tax credit (EITC) spread out through the year in their paychecks. Your employees who were receiving the credit as an advance in their pay may be concerned that the EITC has gone away for good. You can assure your employees they can still take the credit as a lump sum on their annual 1040 tax return. For more info, read A Quick Update for Employers on the Earned Income Tax Credit.

    The Tax Relief, Unemployment and Insurance Reauthorization and Job Creation Act of 2010
    Enacted in December 2010, this act extended for two years the tax cuts that were due to expire, preventing a large tax increase for American workers. This Act did not, however, extend the 2009-10 Making Work Pay (MWP) credit that was factored into the rate tables for those years. The 2011 tax tables reflect the loss of this MWP credit.

    New Payroll Tax Withholding Tables
    For 2011, the government lowered the amount that workers contribute to to their Social Security to 4.2%. Employers still contribute to Social Security at the same rate of 6.2%.

    The IRS gave employers until 1/31/11 to adjust for the Social Security payroll tax “holiday” on their employee paychecks or change it in their payroll software. If you haven’t made this change and ran payroll calculating the 6.2% employee share instead of the new rate, you’ll need to issue your employees a refund for the amount.

    How the Tax Changes Affect Pensioners
    Retired employees receiving pensions may question why their retirement checks are smaller. Retirees receiving pensions aren’t getting the 2% payroll tax break on their Social Security; the amount they contribute remains at 6.2%. Retirees also didn’t receive the Making Work Pay credit for the last two years, but your payroll administrator might have adjusted their withholding using separate tax tables for those years. With the new withholding tables, retirees may see their withholding increase by $7-50 per payment, depending on the filing status, payment amount, and frequency of their pension checks.

    Deadline for Personal and Payroll Taxes Extended

    payroll taxes extended picture of timer

    Thanks to Emancipation Day, we all get three more days this year to file our 1040 federal tax returns for 2010. Businesses also get a few more days to report certain payroll taxes and estimated taxes.

    The IRS has extended this year’s 1040 tax filing deadline to Monday, April 18 because Emancipation Day, a holiday celebrated in the District of Columbia, falls on April 15. (By law, all D.C. holidays affect tax deadlines the same as federal holidays.) Postmark your federal income tax return by midnight on April 18.

    If you want to request a six-month extension on filing your income taxes, file Form 4868 by April 18. You’ll have until October 17, 2011, to file your tax return (note: a filing extension doesn’t let you off the hook from paying any tax due. If you think you might owe the government, send your estimated taxes with your filing extension paperwork to avoid penalties.)

    Payroll Taxes Extended: What it means for your business

    If you or your business is required to make quarterly estimated income tax payments, your deadline is also April 18 for the first quarter 2011.

    Don’t assume this extended tax deadline applies to your state or locality, so make sure you observe their tax filing deadlines (which are most likely found somewhere on the tax forms).

    Certain federal payroll tax deposits normally due on April 15 also are extended to April 18 this year. If you are a monthly depositor for federal payroll taxes, your March 2011 deposit won’t be due until April 18. If you are a semi-weekly depositor, any taxes withheld for pay dates falling between April 9 and April 12 also come due on April 18. (Remember to initiate your payroll tax deposit via EFTPS at least one banking day before the due date to be consider timely.)

    [RELATED ARTICLE: What is EFTPS?]

    Trust Online Payroll to Save You Time and Money

    As a small business owner, you’re good at what you do. You’ve built your business from the ground up. You know how to make your customers happy. It’s the paper-pushing that gets you down.

    One of the conundrums of owning a small business is learning how to manage all the administrative “stuff”. Building your business can get muddied with complicated and ever-changing taxes, laws, and regulations. Payroll, in particular, can be confusing and time-consuming.

    We understand. Anymore, running payroll goes beyond paying your employees for a good day’s work. There are payroll taxes and IRS forms that you need to send to the right people at the right time. And because no one business is the same, your payroll needs are different from the next company’s.

    Of course, you can tackle your payroll all by yourself, but you’ll need to invest time in learning the ins and outs of running payroll correctly (and time is money). You also run the risk of getting your payroll wrong, exposing you to unnecessary risks. And, who wants that?

    There is a better way to go. With basic online payroll software, you have the freedom to pay your employees from almost anywhere. Online payroll programs are generally comparable in price, or sometimes less costly, than traditional desktop software.

    Benefits of online payroll software

    There are benefits to having your payroll online:

    • No downloading means no extra programs gobbling up memory on your computer.
    • All data is stored outside your computer.  If there is ever a computer malfunction, you don’t lose your payroll records.
    • Tax table automatically update.
    • Software updates and enhancements occur automatically.
    • You can log in from any computer (with Internet connection).

    When looking for a payroll software program, be sure payroll calculations are guaranteed to be correct. Customer support should be included in your payroll program and provide help when you need it, without charge.

    Full service payroll programs

    Full service online payroll is the new generation of payroll services. You save money by entering employee hours into an online payroll software application by yourself. At the end of a pay period, you can pay your employees by direct deposit, printing paychecks, or hand writing checks.

    The online payroll company files and deposits all your federal, state, and local taxes. (Patriot Software includes local payroll tax filings with their service. Be aware, not all payroll companies will.) The online payroll company may also remit and file Form W-2 and Form W-3.

    Feel free to read our payroll software reviews. Then, sign up for a no-obligation free trial with our online payroll. Remember, we are here to help!

    Employers: Important Tax Form Deadlines Ahead

    Updated 9/19/2016.

    Employers, procrastinate no more! January 31 is looming, and it’s time to get your act together for some important tax form deadlines.

    A Quick Update for Employers on the Earned Income Tax Credit

    employees save on payroll taxesQ. Is the Earned Income Tax Credit going away?
    A. No. The EITC, also known as the EIC, which was enacted by Congress in 1975 to help low-income workers, has not gone away. But the AEITC has.

    Q. What was the AEITC?
    A. The Advanced Earned Income Tax Credit program was designed to give qualified employees a tax credit that was distributed throughout the year in their paychecks. This option has gone away as of Dec. 31, 2010.  

    Q. Why did the advance option go away?
    A. The law changed. Workers didn’t take advantage of the advance option as much as the government had hoped. The Education Jobs and Medicaid Assistance Act of 2010 repealed the AEITC, and it became unavailable to workers in 2011.

    Q. What will my employees do now?
    A. Eligible employees can still get the earned income credit in a lump sum when they file their personal tax return. And if they received the tax credit in 2010, they need to report it on their tax return.

    Q. What does it mean for me as an employer?
    A. As an employer, you are are no longer part of the equation for your employees’ EITC. You no longer will calculate the tax credit in your employee payroll. Your payroll provider should have already updated their payroll software and forms to prepare for this change.You no longer need to give employees Form W-5 (Earned Income Credit Advance Payment Certificate); that form has been eliminated. However, you still must notify employees that they may be eligible to receive the earned income credit. (To find out if your employees are eligible, read Notice 1015: Have You Told Your Employees About the Earned Income Credit?)

    You can satisfy the EITC notification requirement when you give employees their Form W-2 (required information is on the back of Copy B), or give them Form 797.

    Payroll Tax Cut Gives Employees More Take-Home Pay in 2011

    If you haven’t heard the news yet, employers will withhold less Social Security from their employee payroll taxes starting Jan. 1, 2011. The 2% payroll tax cut is designed to give employees more take-home pay for 2011. The Social Security “holiday” is one part of the recently passed Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

    Employers will calculate employee payroll taxes using the new Social Security rate of 4.2%, down from the current rate of 6.2%. The employer’s share of payroll taxes remains the same; they will contribute to the employees’ Social Security at a rate of 6.2% for 2011.

    According to the Internal Revenue Service, employers should withhold at the new rate as soon as possible in 2011 and no later than Jan. 31. If you’re using payroll software or a payroll service, the rate change should be automatic — check with your payroll provider to be sure. Also, notify your employees of the rate adjustment and how it will affect their pay (they may be pleasantly surprised at the new amount of their paycheck.)

    If you’re an employer still figuring payroll by hand, and you forget and continue to use the old rate, the IRS advises you to make an offsetting adjustment to your employees’ Social Security withholding no later than March 31, 2011 (the end of the first quarter.) For more details about this change in payroll tax withholding and the recently passed Act, read IRS notice 1036.

    Changes Ahead for Employers Making Federal Payroll Tax Deposits

    Employers, put away your #2 pencils, and say goodbye to the old yellow coupon books for payroll tax deposits.

    Effective Jan. 1, 2011, most employers must use the Electronic Federal Tax Payment System (EFTPS) to make federal payroll deposit payments, either by the Internet or by phone. After you sign up, EFTPS will transfer payroll tax funds from your bank account directly to the Treasury. (And by the way, you can make all federal tax payments through this service.)

    New Change May Affect Your Schedule
    Employers, procrastinate no more! Take note: You can’t wait until the last minute anymore to make your payroll tax deposits. According to the EFTPS, you must schedule your payment one calendar day before the due date, and pay it online or by phone by 8 p.m. Eastern time to be considered timely. (So, if you’re a creature of habit known for dashing to the bank at 4:55 p.m. on the 15th of the month to make your payroll deposit — you’ll now need to dash to your phone or computer before 8 p.m. on the 14th instead.)

    Super-Small Businesses May Qualify for Exception
    If you’re a small business with a federal tax liability of less than $2,500 per quarter, you may have the option of mailing a check with your annual or federal returns (call the IRS at 1-800-830-5215, as they decide which businesses qualify, not me!)

    How to Enroll in EFTPS
    You most likely received an IRS mailing that detailed this coming change. If you haven’t opened this envelope, it’s time to find it and do it now. While the IRS has pre-enrolled employers in EFTPS and issued each employer a Personal Identification Number (PIN), you must activate your enrollment in the program. The brochure explains how, and your assigned PIN number is included in the mailing.

    Call EFTPS at 1-800-555-3453 to activate your enrollment, and follow the prompts to enter your PIN number, 9-digit Employer Identification Number (EIN), banking info and phone number. Once you complete your enrollment, follow more prompts to get a temporary log-in password to make payroll tax payments at EFTPS online.

    After you activate, you can make EFTPS deposits online, by phone, or by one additional method. Some banks may still be able to make federal deposits via EFTPS on your behalf, but you’ll still need to initiate the transaction a day early (sorry.) Contact your bank for more details and any costs for this service.

    The Info You Need at a Glance
    Yes, it is a lot to process. Here are some answers to questions you might be asking:

    I activated my enrollment and I’m ready to make a payroll tax payment online or by phone — what’s next? Go to www.eftps.gov or call 1-800-555-3453.
    How do I activate my enrollment in EFTPS? Call EFTPS at 1-800-555-3453.
    Who do I call if I didn’t get my EFTPS enrollment info (or can’t find it)? Call EFTPS Customer Service at 1-800-555-4477 or visit www.eftps.gov.
    I think my business might be small enough to qualify for mailing payments with my payroll tax return. What should I do? Call the IRS at 1-800-830-5215 to see if your business qualifies.
    I have questions about my bank and EFTPS. Who do I call? Call EFTPS Customer Service at 1-800-555-4477 or visit www.eftps.gov.
    I want to know more about why this is happening. Read the Federal Register report on EFTPS.

    Note: Thinking about chancing it and mailing in a old tax deposit coupon with your liability payment? That may not be the best idea. According to the IRS, they may charge you a 10% penalty for each non-electronic deposit – even if your payment is on time.

    I’ll try to keep you updated on important info regarding this change. Meanwhile, if you’ve had enough already and you’d like more info on payroll solutions (and let someone else worry about your payroll taxes for a change), check out our online payroll software and Full Service Payroll.

    When’s the Best Time to Switch Your Payroll Provider?

    switch your payroll system software provider

    Updated on June 24, 2013
    If you’ve been thinking about calling it quits with your current payroll provider, you may be wondering: When’s the best time to switch payroll providers and move on already? The answer is ANYTIME! Perhaps you thought the start of a new year would be the best time to make a fresh start with a new payroll service provider; so you wouldn’t need to enter data from any previous paychecks to get up-to-date? Actually, if your new accounting and payroll software provider is Patriot Software, we will do the data entry for you. For FREE. So you can switch to Patriot’s payroll system software at any point during the year.

    Patriot’s Payroll System Software offers FREE payroll setup. Whether you are using another payroll provider, an accountant, or your spouse, Patriot Software can help you get set up. We can enter all necessary payroll information for the current year from your records. The system will identify the taxes you are responsible for and, if needed, it can help clean up issues with previous tax payments.

    Of course, whenever you break up with someone, it’s vitally important to get all your stuff back. Whether you make a clean break at year-end or change your payroll provider in the middle of a tax year, make sure you get your payroll records from your old payroll provider (before they forget that they’re yours, like your favorite sweater you never got back).

    Also, if you switch payroll processing companies midstream, clarify with them that you really are leaving (and you don’t want them to send you flowers or candy, or continue to file any forms with the government that your new payroll provider might duplicate, causing unnecessary confusion and more work on your end). It’s really best to wrap up this relationship with an email letter for documentation and to clarify all break-up details. Follow up with a phone call to confirm.

    Ready to make the switch? Try Patriot Online Payroll free for 30 days with a no-obligation trial. Get started today!

    DOL Cracks Down on Retirement Plan Contributions

    piggy bankAs a follow up to my article Depositing 401(k) Contributions On Time, the Department Of Labor (DOL) is taking further steps to protect the assets of employer retirement and health plans.  The DOL has recently announced the roll-out of a new Retirement Security Initiatives program. This program serves not only to enforce employer rules for making timely deposits into employee benefit plans and investigating employer plan practices, but also to educate employees and notify them of their rights.

    When it comes to protecting employee benefits, the DOL isn’t messing around.  In past years, the DOL has conducted numerous investigations into employers who did not deposit their employee contributions and instead used the money for another use unrelated to the retirement plan.  Recently, the DOL has filed 24 new civil suits on 11/16/10.  The DOL has also launched a new Contributory Plans Criminal Project to investigate individuals and service providers who have committed fraud against the plan.  The above fact sheet illustrates several recent criminal prosecutions which have resulted in prison sentences.

    According to the DOL press release, “Workers are often the first line of defense in identifying problems with their benefit programs early,” said Phyllis C. Borzi, assistant secretary for EBSA. “Therefore, we want to equip them with information to help the department protect and preserve their right to plan benefits.”  The DOL has issued a publication geared toward employees called Ten Warning Signs That Your 401(k) Contributions Are Being Misused.

    To stay off of the DOL naughty list, you must deposit your employees’ contributions into the plan as soon as administratively feasible, and do not use employee contributions for any other purpose other than for their benefit under the plan.

    For more information see the DOL Retirement Security Initiatives Fact Sheet.

    Health Reform Checklist for Open Enrollment

    If your health plan renews on January 1, 2011, you’ll need to tell your employees about several important changes, including two special enrollment periods, as a result of the Patient Protection and Affordable Care Act (“PPACA”), otherwise known as the healthcare reform law.  These changes go into effect for all health plans renewing on or after September 23, 2010.  Assuming your open enrollment period is now or coming very soon, it makes sense to include this information with other open enrollment materials.

    First, determine whether your plan is grandfathered or non-grandfathered.  See the article What Is A Grandfathered Plan? for more details.

    Notices For Both Grandfathered and Non-Grandfathered Plans:

    Notice of Grandfathered Status – Plan participants need to be made aware of whether or not the plan is grandfathered.  See the model notice language Word document issued by the HHS.

    Special Enrollment Notice for Child Dependent Coverage Up to Age 26 – For plans that provide dependent coverage, newly eligible children will have a one-time 30-day opportunity to enroll in the coverage, if they:

    • had originally lost coverage due to reaching the prior age limit
    • are on COBRA due to losing coverage
    • or were never covered because they were above the age limit.

    Note that some states already have laws in place with the same or higher age limits than this new federal law.  If you have a grandfathered plan, you don’t need to allow adult children who are eligible for coverage through their own job until 2014.  See the model notice language issued by the HHS.

    Special Enrollment Notice for Those Who’ve Reached Their Lifetime Limit – The elimination of lifetime dollar limits is one of the PPACA changes.  Therefore, anyone on your plan who lost coverage due to meeting the lifetime dollar limit, and is otherwise still eligible for coverage now has a chance to re-enroll in the plan.  See the model notice language issued by the HHS.   Note:  Only send this special enrollment notice to those who had met the lifetime limit.

    Other Plan Changes

    Work with your insurance carrier or third party administrator to make sure your summary plan descriptions are updated with the following changes:

    Pre-Existing Conditions for Children Under Age 19 – Previously, plans could limit or exclude coverage for pre-existing conditions if the individual did not have prior coverage when they enrolled in the plan.  The PPACA changed this rule so that coverage for pre-existing conditions of children under age 19 could be covered right away.  This provision will eventually be extended to anyone (adults or children) with pre-existing conditions effective 1/1/2014.

     Notice of Rescission of Coverage – The PPACA has limited the reasons that coverage can be revoked retroactively.  Plans are required to give a notice of 30 calendar days when this happens.

    Additional Notice for Non-Grandfathered Plans:

    Patient Protection Disclosures – For new plans or existing plans that have made changes and are no longer grandfathered, you must notify plan participants of their rights to choose a primary care provider for themselves and pediatricians for their children.  The law also allows obstetrical or gynecological care without prior authorization.  See the model notice language issued by the HHS.

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