American Payroll Association (APA) Basic Guide to Payroll, 2013 Edition

It's more important than ever to be in compliance with payroll laws and regulations!

How do you stay in compliance and avoid penalties?

The APA Basic Guide to Payroll is written to make understanding the laws and regulations as easy as possible. And this single-volume guide is filled with tools to help you apply the law and make proper calculations – with ease!

Among the many, handy features, you'll find:

How to complete the W-2
Multistate surveys that give you at-a-glance answers to questions regarding key payroll requirements
Our Fingertip Guide that enables you to find payroll taxability and wage-hour ramifications of benefits immediately
Clear checklists that help you make precise determinations quickly and confidently
And much more

The APA Basic Guide to Payroll, 2013 Edition has been updated to include:

Guidance on how to withhold the additional Medicare tax
Enhanced information about reporting the cost of employer-sponsored health care coverage
The FUTA credit reduction states and their additional percentages for 2012
Line-by-line example of how to complete the Form W-2 for 2012
An alert if you pay your FUTA taxes with Form 940
Why flexibility with new technology should be a factor when choosing a payroll system
The new rules for the tax exclusion for employer-provided local lodging
Which expense reimbursement arrangements the IRS considers to be wage recharacterizations
What to do when a Form I-9 expires
An option for a small employer to avoid the 100% penalty
A line-by-line guide of how to complete the 2012 Form 940
The 2013 Social Security taxable wage base and benefit amounts
An example of how to complete a 4th quarter Form 941
Which benefits are set to expire if they are not extended
A calendar of 2013 federal due dates for Payroll
What’s new about the 2012 Form 944
What the U.S. Supreme Court had to say about a white-collar exemption for pharmaceutical reps
Minimum wage rates for each state for 2013
More cases and rulings to enhance the explanation of wage and hour laws
Pension contribution limits for 2013
Why tipped employers should worry about a new IRS initiative
The 2013 HSA and MSA limits
Why an age discrimination settlement was treated as FICA wages
What the 2012 Form 945 looks like
IRS-provided scenarios illustrating if local lodging is tax exempt
What you can expect (due to a new revenue procedure) when you hire a payroll tax reporting agent
Update on reporting lump-sum payments for child support purposes and verification of employment
Employment tax ramifications for health plan rebates
Additional explanation about the limit on contributions to a health FSA
2013 CONUS and high-low per diem rates
Updated statistics for e-filing
Additional information about reporting wages paid to deceased employees
Which industry is being targeted by the federal Department of Labor, especially in California
Synopsis of U.S. ruling on Arizona immigration law
Why you can’t always rely on a price quote from a consultant
2013 income limitations for contributions to IRAs and Roth IRAs
How to report payments made to foreign agricultural workers
Restriction on the number of EINs you can receive daily
What four issues the IRS is examining regarding transit reimbursements
The 2013 exam periods for the CPP and FPC exams
What suggested change to the Form 941 doesn't appear to be possible
How a restaurant association is responding to tip regulations
Why a court found that payments were not dividends, but rather compensation or wages subject to tax levy
Updates to chart denoting which states participate in electronic payment, web-based payment services, and e-IWO as electronic child support options
Revision to the procedure on letter forwarding when a former employee who is owed money can’t be located
How many companies (and respective EINs) receive their income withholding orders electronically
New example about the mileage rate for 2013
Updated listing of contact information for the state income tax withholding, unemployment, labor, and child support enforcement departments
Why you don't need to watch the mail for a Social Security benefits statement
Update to chart delineating state new hire reporting requirements

1. Introduction to Payroll
2. What's New in Payroll for 2013
3. How to Save Time and Trouble Filing the 2012 Form W-2
- What's New
- The Format
- Substitute Form
- State Wage and Tax Statement Deadlines
- Matching the Name and SSN
- The Ramifications
- How to Verify
- Reasons for a Mismatch
- What to Do if a Mismatch Occurs
- Furnishing Form W-2 to Employees
- When to Furnish
- How to Furnish
- Filing With the SSA
- Paper
- Electronic Submission
- Business Services Online
- Online Wage Reporting for Small Employers
- Electronic Data Transfer
- Extension for Filing
- Penalties for W-2 Filing Errors
- How to Report Retirement Plan Contributions and Deferred Compensation
- Retirement Plans
- Deferred Compensation
- Simplified Employee Pensions
- How to Report Noncash Fringe Benefits
- Company Cars
- The 100% Personal Use Option
- Subsidized Meals
- How to Handle Other Benefits and Payments
- Adoption Assistance Payments
- Deceased Employees, Payments to Dependent Care Assistance
- Educational Assistance Payments
- Golden Parachute Payments
- Group-Term Life Insurance
- Employee Coverage
- Spousal and Dependents' Coverage
- Former Employees' Coverage
- Medical Savings Accounts
- Military Personnel, Payments to
- Moving Expense Reimbursements
- Sick Pay
- State and Local Employees, Payments to
- Stock Options
- Tips
- Travel and Other Business Expense Payments
- How to Handle Per Diem and Other Fixed Allowances
- How to Handle Temporary Assignments
- Correcting Estimated Benefits
- Form W-2 and Notifying Employees About the Earned Income Credit (EIC)
- Step-by-Step Instructions for the 2009 Form W-2
- On the W-2 Horizon
- How to Avoid W-2 Discrepancies
- The Form W-2c
- How to Correct Income and Tax Amounts
- Step-by-Step Explanation of Form W-2c
- Filing the W-2c
4. How to Manage Payroll and HR Data
- Establishing Payroll Records on Employees
- What to Get From New Employees
- How to Cope With the Immigration Law Rules
- Form I-9
- E-Verify
- IMAGE
- The Employee's Withholding Allowance Certificate — Form W-4
- When to Get a New Form W-4
- State Withholding Allowance Certificates
- Electronic Forms W-4
- When to Give Effect to New Forms W-4
- What to Do With Invalid Forms W-4
- Send Forms W-4 to the IRS Only When Requested
- Let Employees Beware: Filing a False W-4 May Be Seen as Tax Evasion
- How to Handle Frivolous Forms W-4
- How Long to Retain Forms W-4
- Who Can Claim Exemption From Withholding
- Requirements for Exempt Status
- How to Fill Out Form W-4
- What Allowances Can an Employee Claim?
- How to Use the Worksheets and Complete the Form W-4
- Special Procedures for Nonresident Aliens
- Why Certain Current Employees Should (or Should Not) Filea New Form W-4in 2012
- Mid-Year Corrections in Withholding
- Taking Advantage of Tax Credits Through Withholding
- New Hire Reporting
- The Refundable Earned Income Credit — And Form W-5
- Who Can Claim the EIC
- How to Notify Employees About the EIC
- Advance Payments of the EIC
- Changing Basic Information on Employee Records
- Name Changes
- Employee Relocation
- Pay Rate Changes
- Terminations
- Employers Must Issue Certificate of Healthcare Coverage
- How to Cope With COBRA's Coverage Requirements
- COBRA Q&A
- Payroll and the Family and Medical Leave Act
- Reasons for Leave
- Employee Eligibility
- Leave Time
- Recordkeeping Requirements
- Health Coverage Maintenance
- Fair Labor Standards Act Implications
- School Employees
- Public Employees
- COBRA and FMLA Interaction
- Military Leave
- How to Take Advantage of a Valuable Hiring Credit
- The Work Opportunity Tax Credit
- Targeted Groups
5. Withholding Taxes from Gross Pay
- Federal Tax Withholding
- Income Tax Rates
- No Social Security Wage Base Increase for 2012
- Methods of Withholding Federal Income Tax
- Wage-Bracket Method
- Percentage Method
- Annualized Wages Method
- How and When to Use Cumulative Withholding
- Sales Employees
- Summer Workers
- Withholding on Supplemental Payments
- How to Withhold
- Low-Income Employees
- Commissions and Draws
- Signing Bonus
- Severance Pay
- Vacation and Sick Leave
- Determining the Payroll Period
- Sales Commissions
- Optional Method
- How to Withhold on Noncash Fringe Benefits
- Special Accounting Rule
- Company Cars
- How to Value Personal Use of a Company Car
- How to Withhold on Business Expense Advances And Reimbursements
- An Accountable Plan
- How to Handle Business Expense Allowances
- When to Withhold
- How to Withhold on Sick Pay
- Third-Party Sick Pay
- How to Pick Up the Employee's Share of Tax
- How to Withhold on Pensions, Annuities, and Other Deferred Income
- Nonqualified Deferred Compensation
6. Nontax Deductions from Gross Pay
- Cafeteria Plans
- Salary Reduction Agreements
- A Cafeteria Plan in Action
- Flexible Spending Arrangements
- Final Regs Allow Mid-Year Changes
- Dependent Care Assistance
- Health FSA
- Adoption Assistance
- Other Qualified Benefits
- Health and Accident Insurance
- Group-Term Life Insurance
- Long- and Short-Term Disability Insurance
- Savings Plans
- Cash-or-Deferred Arrangements/401(k) Plans
- Payroll Reporting Responsibilities
- Wage Garnishments
- Keeping Track of Involuntary Deductions and Remittances
- What Is Garnishment?
- Withholding for Child Support
- Interstate Orders for Child Support Withholding
- Medical Support
- Chart: State Provisions on Child Support Withholding
- Federal Tax Levies
- 2012 Tables for Figuring Amount Exempt From Levy on Wages, Salary, and Other Income — Forms 668-W(ACS), 668-W(c)(DO), and 668-W(ICS)
- How One Employer Handled a Levy
- What About Independent Contractors?
- Handling Creditor Garnishments
- Garnishment Restrictions
- Garnishment for Federal Nontax Debt
- Student Loans
- Discharging and Garnishment
- Wage Assignments
7. How to Pay Employees
- Timekeeping
- Traditional Versus Automated Timekeeping
- Automated Time and Attendance Systems
- Automation and Compliance
- How Automated T&A Works
- Streamlining Payroll
- Automation and Cost Control
- Automating Exempts' Hours
- Time Recording Procedures
- Methods of Recording Hours
- Checking Time Data for Accuracy
- Recordkeeping Requirements of Payroll Laws
- How Records You Must Keep Anyway Can Protect Your Company
- Fingertip Guide to Payroll Recordkeeping
- Record Retention
- Wage and Hour Records
- FICA and FUTA Taxes
- Computation of Pay Rates
- General Rules for Computing Pay
- Computing Overtime
- Computing Earnings
- Computing Gross Pay
- Computing Net Pay
- Payroll Check Requirements and Procedures
- The Payroll Account
- Issuing Employee Paychecks
- How and When to Pay Employees
- Direct Deposit
- Information Required on the Earnings Statement
- Why It's Vital to Pay an Employee's Final Wages Promptly
- When You Must Pay a Departing Employee
- Uncashed and Unclaimed Paychecks
- Procedure for Recording Unclaimed Checks
- States' Retention Schedules for Unclaimed Wages
8. FICA and Income Tax Deposits and Returns
- Federal Insurance Contributions Act (FICA) Taxes
- What Are Wages Under FICA?
- What Employment Is Covered Under FICA?
- FICA Savings Through a "Common Paymaster"
- What to File and When
- How to File Form 941
- General Federal Deposit Rules
- Frequency of Deposits
- Large Employers
- Semiweekly Rule
- The Safe Harbor Rule
- Next-Day Deposits for the Largest Employers
- Medium-Size Employers
- Small Employers
- Your Tax Deposits at Work
- How to Fill Out Form 941
- How to Complete Form 941's Schedule B
- Schedule D
- How to Fill Out Form 944
- Form 941-X
- How to Complete Form 941-X
- How to Correct Under- and Overreporting
- Correcting Underreported Tax
- Correcting Overreported Tax
- Correcting Underreported and Overreported Amounts for the Same Tax Period
- Misclassified Workers
- FICA Tax Considerations
- Income Tax Withholding Considerations
- How to Make Tax Adjustments When You Pay Out Too Much Compensation
- Deposits of Taxes Withheld From Nonpayroll Items
- Deposit Schedule
- Tax Deposits
- How to Avoid Personal Liability for Employment Taxes
- Company Penalized — But Sub-Par CFO Escapes
- Off-Site OfficerWas Still Responsible
- "Good Faith" SavesTwo Officers
- CFO Embezzles Funds; President Found Liable for Unpaid Trust Fund Taxes
- Why You Can't Outsource Your Payroll Tax Responsibility
- Company "Outsiders" May — Or May Not — Be Liable
- IRS Issued Regs for Lenders
- A Lender Bank Is Held Liable
- When Employers Share “Responsibility”
9. Federal and State Unemployment Taxes
- The Federal Unemployment Tax Act (FUTA)
- Which Employers Are Liable Under FUTA?
- What Are Wages Under FUTA?
- Claiming the FUTA Credit for State Tax Paid
- Federal Unemployment Tax Payments
- How to Deposit FUTA Taxes
- When Tax Deposits Are Due
- Examples of Unemployment Tax Deposits
- Credit for Timely State Tax Payments
- What to File and When
- Due Date
- How to Complete Form 940
- How to File Form 940
- How to Correct a Form 940
- Experience Rating for State Unemployment Tax
- How a Good Experience Rating Maximizes the FUTA Credit
- How the States Determine Experience Rating
- Reserve Ratio Method
- Benefit Ratio Method
- Benefit Wage Ratio Method
- Payroll Stabilization Method
- How to Save Unemployment Taxes
- Voluntary Tax Contributions
- Deadlines for Voluntary Unemployment Tax Contributions
- Hold Down Benefits Paid to Ex-Employees
- How "Making" an Employee Quit Can Leave Your Company Liable For Benefits Worksharing
- The California Plan
- How Joint Accounts Can Cut Your Unemployment Tax Liability
- How to Prepare for an Unemployment Benefits Eligibility Hearing
- Don't Overstate the Number of Employees on State Unemployment Reports
- How to Handle Unemployment Taxes When Employees Work in More Than One State
- Reciprocal Unemployment Coverage
- How to Get More Information
10. Payroll Advantages — and Pitfalls — of Hiring Workers Who Are Not Your Employees
- Where the Savings Come From
- Who Is an Independent Contractor?
- The Reasonable Basis Tests
- The Common-Law Rules and the Revised 20-Factor Test
- The Factor Test
- Characteristics of Independent Contractor Status
- How the IRS's Guidelines Work
- Audits
- Audit Subject Selection
- How to Resolve Your Worker Classification Disputes
- Classification Settlement Program
- Early Referral to Appeals
- How to Get Your Day in Court
- Penalties for Misclassifying Workers
- Some Typical Independent Contractors
- Who Is Not an Independent Contractor?
- What to Include and Exclude in Your Worker Contract
- Don't Get Burned on Benefits — The Microsoft Case
- "Control" Case Studies
- How to Get Government Approval for YOUR Payroll Tax Breaks
- Form SS-8
- Backup Withholding
- The B-Notice Process.
- Payments to Attorneys
- When Employment Status Is Set by Law
- Statutory Non-Employees
- Statutory Employees
- Independent Contractors and UnemploymentTaxes
- Who Is an Independent Contractor for State Unemployment Tax Purposes?
- Independent Contractors and Federal Wage-Hour Law
- Leased Workers
- Is Employee Leasing Right for Your Company?
- Selecting Benefits
- Whose Employee Is the Leased Worker?
- Retirement Plan Considerations
- Who Is an Employee for Retirement Plan Purposes?
- Safe Harbor Plans
- Other Benefits
- Will It Pay to Use Independent Contractors and Leased Employees?
- Cash Flow Benefits
- How to Avoid Hidden Traps When Using Non-Employees
11. How to Comply with the Federal and State Wage-Hour Laws
- Who Is Covered
- What the Law Requires
- The Minimum Wage and Pay Deductions
- Permitted Deductions
- Prohibited Deductions
- Exempt-From-Overtime Employees
- Executive Employees
- Administrative Employees
- Professional Employees
- Computer Employees
- Outside Sales Employees
- Retail Salespeople
- Motor Carrier Employees
- Motion Picture Employees
- Practical Tips About Exempt Employees
- Docking Employees’ Pay
- Company Paid the Price for Docking
- Docking for Infractions of Safety Rules
- Docking for Disciplinary Suspensions
- Docking for Losses
- Public Employees
- U.S. Supreme Court Case
- Docking and the FMLA
- Overtime and the Workweek
- Flextime
- Scheduling Long Workweeks
- Paying for Short Workweeks
- Paying for Irregular Workweeks
- Overtime and Actual Work Hours
- Before and After the Workday
- Supreme Court Rules on Donning and Doffing of Equipment and Reporting To the Worksite
- Breaks
- Sleeping Time
- On-Call Time
- Training Time.
- Overtime and the Regular Rate
- Premium Pay
- Stock Options
- Allocating Payments
- Establishing a Basic Regular Rate
- State Wage-Hour Laws
- State Minimum Wage Rates
- State Overtime Provisions
12. Payroll Technology
- Tools of the Profession
- Responsibility for Your Payroll System
- Selecting Your System
- Factors to Consider When Choosing a System
- Why Do Companies Outsource to a Payroll Service Provider?
- Should You Bring or Keep Your Payroll In-House?
- Control
- Cost
- Reports
- Service
- Will a Consultant Help?
- Choices
- Advantages and Disadvantages of Packaged Programs
- Important Questions to Ask When Shopping For Software
- Understanding Payroll Technology
- Local Area Networks (LANs)
- Benefits of Client/Server LAN Computing
- Other Technologies
- Planning: The Key to Successful Implementation of New Technology
- Meeting With Vendors
- If You Fail to Plan, You Plan to Fail
- Testing the New System
- The Big (Non-) Event
- Care and Maintenance of Your Computer System
- How to Protect Your Company's Computers From Viruses What to Do When a Virus Strikes
- How to Maintain Data Security
13. Payroll Accounting
- Uses of Payroll Data
- Types of Accounts
- Accounting Terminology
- Accounting Entries
- Accruals and Reversals
- Fiscal Year Versus Calendar Year
- The Flow of Accounting Information
- Balancing Payroll Entries
- Reconciling the Payroll Account
- Payroll Reporting Errors and the IRS
- IRS Underpayment Notices
Appendix A: Fingertip Guide to Benefits
Appendix B: Directory of State and Federal Agencies
Appendix C: 2013 Federal Payroll Tax Calendar
Appendix D: The 2013 Federal PerDiem Rates
Appendix E: Employer's Tax Guides
Appendix F: Glossary

Joanne Mitchell-George

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Delores Risteau

Delores Risteau, CPP, wrote the American Payroll Association Basic Guide to Payroll in 1985. She is a founding member of the American Payroll Association and the owner of DFR Consulting company in Southern California, where she lives with her family. Risteau currently teaches compliance issues to payroll practitioners.

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