Payroll Tax Cut Temporarily Extended into 2012 IR-2011-124, Dec. 23, 2011 WASHINGTON — Nearly 160 million workers will benefit from the extension of the reduced payroll tax rate that has been in effect for 2011. The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012. This reduced Social Security withholding will have no effect on employees’ future Social Security benefits. Employers should implement the new payroll tax rate as soon as possible in 2012 but not later than Jan. 31, 2012. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012. Employers and payroll companies will handle the withholding changes, so workers should not need to take any additional action. Under the terms negotiated by Congress, the law also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year amount). This provision imposes an additional income tax on these higher-income employees in an amount equal to 2 percent of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).     This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions. The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. With the possibility of a full-year extension of the payroll tax cut being discussed for 2012, the IRS will closely monitor the situation in case future legislation changes the recapture provision. The IRS will issue additional guidance as needed to implement the provisions of this new two-month extension, including revised employment tax forms and instructions and information for employees who may be subject to the new “recapture” provision. For most employers, the quarterly employment tax return for the quarter ending March 31, 2012, is due April 30, 2012.     More Guidance on Reporting Employer Health Care Coverage on Forms W-2 IRS Notice 2012-09 provides additional guidance regarding the requirement that certain employers report the value of employer-sponsored health care coverage on the employees’ Forms W-2. The notice restates and amends the interim guidance in Notice 2011-28. Notice 2012-09 provides interim guidance that generally is applicable beginning with 2012 Forms W-2 (forms required for 2012 that employers are generally required to give employees by the end of January 2013). Read more about the provision on the ACA pages of IRS.gov.     New Payroll Process   E-Verify       The purpose of this letter is to further inform you about recent legislative changes that may have an effect on your employment tax liabilities. The new changes are outlined below. Please read over them carefully to see if they apply to your business.   · Hiring Incentives To Restore Employment Act of 2010 (HIRE Act)   Any employer that hires a qualified unemployed worker (a) after February 3, 2010 and before January 1, 2011, will get an exemption from the employer’s 6.2% share of the worker’s Social Security taxes on wages paid to the employee from March 19, 2010 through December 31, 2010.   (a)   qualified unemployed worker: Any new hire who began employment after February 3, 2010 and before January 1, 2011 will qualify if he or she: 1) has been employed for no more than 40 hours during the 60-day period immediately preceding the date the employment begins,  2) is not related to the employer (b), 3) signs an affidavit (using Form W-11 (c)) under penalties of perjury that he or she has not been employed more than 40 hours during the 60-day period ending on the employment starting date, and 4) was not hired to replace an existing worker who was terminated (unless the previous worker terminated voluntarily or was terminated for cause).   (b)   related to the employer: An employee is related to a qualified employer, and therefore will not qualify for the payroll tax exemption or the $1,000 tax credit for new hire retention (d) if the employee is the business owner’s son, daughter, or descendant of either; stepson or stepdaughter; brother, sister, stepbrother, or stepsister; father, mother, or ancestor of either; stepfather or stepmother; nephew or niece; uncle or aunt; son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. However, a spouse is currently not on the list of ‘related parties’. (The IRS has indicated that it will be reviewing whether the payroll tax exemption can be claimed on wages paid to a spouse. Employers should be alert for additional guidance from the IRS.)   (c)   Form W-11: “Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit” – an affidavit signed by the new employee certifying that he or she satisfies the 40-hour/60-day requirement discussed above. This form must be executed by the employee in order for the employer to claim the payroll tax exemption and the new hire retention credit. However, the employer is not required to file Form W-11 with the IRS; it only needs to be retained in the employer’s files. We have included some W-11 forms with this letter for you to use as needed.   (d)   $1,000 tax credit for new hire retention: For each qualifying worker retained for at least 52 consecutive weeks, the employer will get an additional tax credit, up to $1,000 per worker, when they file their 2011 income tax returns.    This temporary Social Security tax exemption will have no effect on the employee’s future Social Security benefits. Employers will still need to withhold the employee’s 6.2% share of Social Security taxes, as well as income taxes. Employers will also still be required to withhold and/or pay the employer and employee’s shares of the Medicare tax.   · New Electronic Deposit Requirements   The U.S. Department of Treasury has announced that employers currently using paper federal deposit coupons must make payroll deposits electronically (through EFTPS “Electronic Federal Tax Payment System”) beginning in 2011. Employers that currently use paper deposit coupons should enroll in EFTPS before 2011.   If, after reading this letter, you determine that you have “qualified employees” for the HIRE Act payroll tax exemption, please have them complete and sign the Form W-11. Please provide a copy of the completed Form W-11 to us, so we can appropriately adjust your employer’s share of the 6.2% Social Security tax for that particular “qualified employee”. You will also need to let us know if the “qualified employee” is terminated from your employment, and provide us with their termination date.   If you have any questions regarding the new legislative changes or need help enrolling in EFTPS, please do not hesitate to call us.   There is a new Internet-based verification program that verifies an employee’s eligibility to work in the United States. It is called E-Verify, and is run through the U.S. Citizenship and Immigration Services (USCIS) website. E-Verify is also a new requirement for all South Carolina employers effective July 1, 2010. All employees hired on or after July 1, 2010 must be ‘E-Verified’ through the USCIS website-based program. E-Verify compares the information an employee provides on Form I-9 against millions of Social Security Administration (SSA) records, as well as U.S. Department of Homeland Security (DHS) records.   We, Cline Brandt Kochenower & Co., P.A., are registered as a ‘Designated Agent’ through the E-Verify program, which means that we are able to provide this required verification service to our clients for their newly hired employees.   If you would like for us to perform this service for your company, we will need to get written permission from you to do E-Verify for all newly hired employees for your company. If you give us written permission, we will enroll your company in E-Verify. We will then be sending you a MOU (Memorandum of Understanding), which will need to be signed and dated by an officer of the company or a representative of the company responsible for overseeing the E-Verify program. We will need this MOU back from you, signed and dated, before we can E-Verify any newly hired employees of your company. We will also be sending you a ‘CLIENT COPY’ of this MOU for your records.    You will be given a set of four posters (two in English, and two in Spanish) that must be displayed in a place that is clearly visible to prospective employees, and all employees who are to be verified through the system. All four posters must be displayed together.   The newly hired employee must complete a W4 form and an I9 form. The information from the I9 form is what is used to E-Verify the employee’s work eligibility in the U.S., so please make sure that the I9 form is filled out completely and correctly. The newly hired employees must be verified through E-Verify within 3 business days after the employee is hired, but after the I9 form is completed.   If you use our services to E-Verify for your company, you will also receive a User Manual for Clients of Designated Agents that you will need to read through, in order to familiarize you and your company representatives with the rules and laws concerning the E-Verify system.