Payroll…The Naughty or Nice List Season

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As we are in the midst of this holiday season, year-end in accounting and payroll is looming like a spectre, overshadowing our fun and joy.  Here are some things to remember for your Naughty or Nice List.

W2s are in season…and it’s time to prepare for them.  Many things get overlooked, or rushed through at this time of year, creating an even more stressful January (which is already a dreary, gray month this side of the equator).  Don’t forget things like Third Party Sick Pay and Excess Life Insurance – have you gotten your numbers together?  Another question I’ve been asked quite a bit this year concerns the cost of health insurance that eventually will need to be reported on your employee’s W2.  Currently the IRS is not requiring this for 2011 (Nice…), and has not yet divulged any specifics on how the cost is to be obtained or calculated.  Until the IRS issues their final guidance, most payroll systems are not making any changes to take care of this; don’t be surprised if it isn’t addressed yet in your software.

Isn’t there anything about W2s that can go on the Nice list?  Actually, there is…the forms have not changed much from last year, so there shouldn’t be any major forms updates required in your software.  Something else that might add to your Nice list—check your payroll software: does it allow you to print your W2s four to a page?  If so, then order your forms now.  The four to a page option should allow you to print a single employee’s set of W2s on a single page.  That way, you run a single set of printing, then just fold the form in half and stuff it into the envelope.  How many of you get your forms two to a page from your local office supply chain?  Those require at least four separate print runs and then you have to collate the forms while making sure that you don’t accidentally mix up multiple employees into the same envelope.  Four to a page forms just might move W2s almost entirely onto the “Nice” list!  [Not!  But it does get them closer…]

1099s are also in season…and due at the same time as the W2s.  The good news is there are no major changes to this form and its reporting (so far…keep your fingers crossed), so it’s just like it was at the very end of last year.  Remember, though:  attorney proceeds are required to be reported on a 1099, and are not subject to the $600 minimum like your other vendors.

Annual Maximums & Rates
Great.  W2s and 1099s…what else is on the “Naughty List” for year end?  Well, there are the usual changes to annual maximums and rates—social security maximum wage goes up to $110,100.00 for 2012, and unless Congress acts quickly, the employee rate for social security returns to the pre-2011 rate of 6.2% (this year everyone got a “increase” when the social security rate for employee contributions decreased to 4.2%).  Watch out for late-breaking software updates if Congress passes a bill keeping this “tax holiday” for employees.  It’s yet to be determined where this will end up on the Naughty or Nice list.

State and Federal Unemployment Tax Act
Also note that a lot of states may be increasing their SUTA (State Unemployment Tax) wage.  Have you gotten your letters concerning your new SUTA rates and wage maximums for next year?  It’s time to find the pile where you filed those letters away, so that you can be ready for your first January payroll.  A late entry to the naughty list is the IRS has finally issued new rates for mileage for 2012.  However, the “Nice” part is that the IRS mileage rate for businesses remains at the rate set July 1, 2011 of $0.555 per mile.

Now for the big Naughty entry this year…FUTA rate changes, AGAIN.  What do I mean, AGAIN?  Yes, FUTA changed for most employers as of July 1, 2011.  Let me start with the actual rate itself as of January, 2011.  At the beginning of this year, the FUTA rate was 6.2%.  Most employers are entitled to a credit of 5.4% against that rate because of their SUTA laws and payments, making the net rate 0.8%.  [Whew! That’s the rate most of you were expecting to see.]  On June 30, 2011 a 0.2% surcharge enacted in 1975 expired and was not renewed by Congress.  That reduced the overall FUTA rate to 6.0%, less the credit of 5.4%, resulting in a new FUTA rate of 0.6% for most employers as of July 1, 2011.

That’s not all…in late November, changes were made again.  Several states are getting their credit amount reduced for 2011 to pay back loans made to their state unemployment funds, and will owe additional FUTA taxes with the 940 in January.  Most states with changes are getting their credit reduced by 0.3% to 5.1% (which now makes the FUTA rate 0.9%).  Indiana’s net FUTA rate is going to be 1.2%, and Michigan’s is 1.5%.

To see if your state is affected, you can download the 2011 Form 940 and the new 2011 Schedule A for Form 940 from the IRS website ( in the Forms and Publications section.

One Last Reminder…
Check on your software updates…With changes still being possible, I’m sure that there will be updates to the software updates, and possibly updates to the updates that updated the first update…oh, never mind. Just grab your favorite warm winter beverage and keep checking for payroll/AP software updates well into January.