2012 Payroll Deduction Rates

2012 RATES FOR PAYROLL DEDUCTIONS

Social Security Rate:

The social security rate for employees will remain at 4.2% until the end of February, 2012.  The reduction in 2011 was set to expire, but it was extended.  This reduction may be extended longer, but will require a law change.  Please be aware that when you are calculating your 941 payroll tax payments for January and February, you cannot double the employee social security withholding amount as that rate is different than the social security rate for employers for those two months.

Act 32:

As you may already be aware, a new Pennsylvania state law (Act 32 of 2008) is mandating some changes in local tax collection.  The primary provision of Act 32 is to consolidate tax offices within the state so that there will typically be only one office per county.  Act 32 also requires that all employers use a new uniform 6-digit political subdivision (PSD) code to represent the resident and work municipality of each employee.  Another mandated change of Act 32 that will go into effect January 1, 2012 is the withholding requirement.  Under Act 32, employers are now required to withhold the higher of the employee’s resident earned income tax amount (rate of total resident EIT where they reside) versus the employee’s municipal non-resident earned income tax amount (rate of non-resident EIT where they are employed).  In most cases, the employee’s resident rate where they live will be higher than the non-resident rate where they are employed.  PSD codes and withholding rates can be obtained by calling your local tax office or visiting the following website:  http://munstatspa.dced.state.pa.us/FindLocalTax.aspx.

Federal Unemployment Compensation Taxes (FUTA):

The FUTA tax liability will remain at 0.6% for 2012.  However, there are many states known as “credit reduction” states that will be required to pay additional FUTA tax when filing their Annual Form 940 each year beginning with the 2011 return which is due by 1/31/12.  “Credit reduction” states are states that have borrowed money from the federal government to pay unemployment benefits but have not paid those loans back.  Pennsylvania and Virginia are both “credit reduction” states that will be required to pay an additional 0.3% on their FUTA taxable wages when filing their Annual Form 940.  There is an additional schedule included with the Annual Form 940 to be used to calculate the additional FUTA tax owed.  Maryland and West Virginia are not “credit reduction” states so they will not owe additional FUTA tax when filing their Annual Form 940.  The additional FUTA tax required to be paid with the Annual Form 940 each year will continue every year until these “credit reduction” states eliminate their outstanding debt to the federal government.

Pennsylvania Unemployment Compensation Taxes

Pennsylvania Unemployment Compensation Taxes vary with every employer.  The 2012 PA Unemployment Contribution (UC) rate notices usually mailed on December 31^st will be delayed.  The rate notices will be mailed to employers prior to April 1, 2012.

According to a new law, Act 6 of 2011, the definition of a “credit week” has been changed.  Beginning with the fourth quarter of 2011, any calendar week in which an employee earns $100 or more must be reported as a credit week for the employee.  Prior to Act 6, a credit week was any week in which an employee earned at least $50.

Minimum Wage:

The minimum wage remains at $7.25.

Tipped Employees:

The minimum wage for tipped employees in Pennsylvania will remain at the current $2.83 per hour.  However, the employer must make up the difference if the employee’s tips and the $2.83 per hour do not meet the regular minimum wage in effect for non-tipped employees.  The tipped wage applies only if an employee receives over $30 in tips for a given month.  If an employee does not make more than $30 per month in tips, the employer must pay the regular minimum wage.  The minimum wage for tipped employees varies with each state.  If you are an employer with tipped employees and are located in another state, please call our office at 717-267-2100 for the appropriate rates.

If you have any questions on any of the above items,
please call our office at (717) 267-2100.