To all of our valued Ovation Payroll clients,
There are several noteworthy changes as we move from 2010 to 2011 in the payroll world. I thought I'd take a minute to share some of them with you.
You've no doubt heard that Congress has recently passed legislation to extend the Bush Era tax cuts, which affects the 2011 federal withholding tables that determine how much federal income tax is withheld from each of your employees' paychecks. While the tables were only made available a couple of days ago, Ovation's payroll system is already updated and ready to calculate 2011 checks accurately.
There was a surprising, and very significant, change to the Social Security tax rate attached to the legislation as well. The employee Social Security rate for 2011 is reduced from 6.2% to 4.2%. While the employer rate remains fixed at 6.2%, this is similar to a 2% raise for most employees!
There are two more changes involving payroll taxes that you and your employees should be aware of, not related to the most recently passed legislation.
Advance Earned Income Credit payments are eliminated in 2011. Eligible employees will still be able to claim the credit on their personal returns at the end of the year, but advance payments will no longer be added to the employees' checks throughout the year. You may get questions from employees that are accustomed to seeing the credit added to their payroll check each cycle. Let them know that the credit has not been eliminated, but must be applied on their 1040 at year end.
The HIRE wage credit, which allowed employers to claim a credit toward payroll taxes equal to the 6.2% employer Social Security rate for qualified employees, also expires on 12/31/2010. This credit was enacted on March 18th, and applied to wages paid to new or recent hires meeting certain criteria for wages paid through 12/31/2010.
Best wishes to each of you for a healthy and successful 2011!
For more detailed information from the IRS, click here.
Senior Vice President of Operations
Ovation Payroll Inc.