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Orange County Chapter, American Payroll Association (OCCAPA)

Orange County Chapter, American Payroll Association

Monthly Archives / November 2020

  • Nov 19 / 2020
What's New

Year End Checklist 2020…


Year End Checklist 2020…

  • Audit, Audit, Audit…. Ask employees to verify name, address and social security number.Ensure recent new hires are correct (2020).  Place address update forms in the lunchroom, on bulletin boards
  • Send Self Service flyers to employees who have not registered
  • Update/Review your 2021 payroll calendar in your payroll system
  • Create your 2021 Payroll Processing Calendar for your employees. Include all Company Holiday dates.  Post on company intranet, bulletin boards, payroll stuffer (last payroll of the year)
  • Create your 2021 Paid Holiday List. Once approved post on company bulletin boards, intranet and payroll stuffer (last payroll of the year)
  • Prepare for employee 2020 Bonus Payroll Runs. Create in your payroll system and verify with your direct representative that correct taxes and no regular set deductions are taken
  • Create your 2021 Benefit Rate Sheet (if any changes). Include in Open Enrollment packets and post on your company intranet
  • Verify with Accounting Department if any new General Ledger numbers are needed and/or if there a changes such as inactive departments or GLs. Verify if any Fringe or imputed income needs to be included in payroll before the last payroll of the year (Life insurance for officers, employee personal use of company vehicle)
  • Review mapping of Healthcare Cost Memo Codes to ensure premiums populated in Box 12, Code DD on Form W-2 setup
  • Verify all voided checks have been reversed in your payroll system. Verify all corrections have been made before the last payroll of the year (manual check adjustments).
  • Order Labor Law Posters for 2021 for CA and any other states you have
  • Send new Workers Compensation Rates to your payroll provider so your monthly reports are accurate for reporting
  • Verify your Work Comp classification/EEOC codes match employee job titles (especially if EE has transferred or promoted).
  • Update 401k, HSA, FSA limits for 2021, ensure your payroll provider has updated on your behalf or update yourself
  • If you provide Group Term Life to your employees, any earnings over $50k will need to be reported on the W-2, Box 12, code C. Review the imputed income amounts and make adjustments, if needed.
  • Add Third party sick pay amounts, if needed. Check with your vendor first to see if they do this on your behalf
  • Verify the Retirement Plan Indicator is checked for W-2’s, if applicable
  • Audit location sites of your employees for the Multi Worksite Report (CA)
  • Audit your Timekeeping system to remove archive terminated employees, update new supervisors
  • Create new files for 2021 payroll files, tax files, timekeeping files
  • Create new binders for 401k plan updates, employee changes, deferral payments
  • Send out memo to employees who still receive a live check, to promote Direct Deposit/Paycards
  • Audit any FFCRA credits taken on your 941 form with your payroll vendor, run reports for verification Q3, Q4, 2020
  • Audit any CARES credit taken by your employees with your payroll vendor
  • Hope your year end is successful!
  • Nov 02 / 2020
What's New

2021 social security wage base will be $142,800


The Social Security Administration (SSA) announced on Tuesday, October 13that the 2021 social security wage base will be $142,800, which is an increase of $5,100 from $137,700 in 2020(view the SSA Fact Sheet). As in prior years, there is no limit to the wages subject to the Medicare tax; therefore all covered wages are still subject to the 1.45% tax. As in 2020, wages paid in excess of $200,000 in 2021 will be subject to an extra 0.9% Medicare tax that will be withheld only from employees’ wages. Employers will not pay the extra tax.

The FICA tax rate, which is the combined social security tax rate of 6.2% and the Medicare tax rate of 1.45%, will be 7.65% for 2021 up to the social security wage base. The maximum social security tax employees and employers will each pay in 2021 is $8,853.60, an increase of $316.20 from $8,537.40 in 2020.

The social security wage base for self-employed individuals in 2021 will also be $142,800.There is no limit on covered self-employment income that will be subject to the Medicare tax. The self-employment tax rate will be 15.3% (combined social security tax rate of 12.4% and Medicare tax rate of 2.9%) up to the social security wage base. In 2021, the maximum social security tax for a self-employed individual will be $17,707.20.

FICA coverage threshold for domestic, election workers

The threshold for coverage under social security and Medicare for domestic employees (i.e., the “Nanny tax”) will be $2,300in 2021, up from $2,200 in 2020; the coverage threshold for election workers will be $2,000 in 2021, up from $1,900 in 2020

Courtesy of the APA

  • Nov 02 / 2020
What's New

IRS Releases Revised Form 941, Instructions


The IRS released a revised 2020 Form 941,Employer’s Quarterly Federal Tax Return, and its instructions. The form will be used to report employment taxes beginning with the third quarter of 2020. The IRS revised Form 941 to allow employers that defer the withholding and payment of the employee share of social security tax on wages paid on or after September 1, 2020, to report the deferral.

Adjustments for Payments or Deposits Made in Same Quarter as a Deferral

The instructions provide guidance on how to report a deferral of the employer and/or employee share of social security tax that is subsequently paid or deposited in the same quarter it was deferred.

Revised Instructions for Schedules B and R

The IRS also updated the Instructions for Schedule B (Form 941), and the Instructions for Schedule R (Form 941), to reflect changes made to the Form 941
Courtesy of the APA –  Curtis E. Tatum

  • Nov 02 / 2020
What's New

2021 Pension, Other COLAs Announced

401(k), 403(b), 457(b) Pre-Tax Contribution Limit Remains $19,500 for 2021

The IRS has announced the changes to the dollar limits on benefits and contributions under qualified retirement plans, as well as other items, for tax year 2021 [Notice 2020-79, 10-26-20].

IRC §415, which provides for dollar limits on benefits and contributions under qualified retirement plans, also requires that the IRS annually adjust these limits for cost-of-living changes. The IRC also requires various other amounts to be adjusted at the same time and in the same manner as these dollar limits.

  • The limitation on the exclusion for elective deferrals under §402(g)(1) (e.g., §401(k) and §403(b) plans) remains unchanged at $19,500.
  • The limit on annual additions to defined contribution plans under §415(c)(1)(A) increases to $58,000 (from $57,000).
  • The limit on the annual benefit under a defined benefit plan contained in §415(b)(1)(A) remains unchanged at $230,000.
  • The annual compensation limit under §401(a)(17), §404(l), §408(k)(3)(C), and §408(k)(6)(D)(ii) increases to $290,000 (from $285,000).
  • The compensation amount under §408(p)(2)(E) regarding elective deferrals to SIMPLE retirement accounts remains unchanged at $13,500.
  • The limitation under §457(e)(15) concerning elective deferrals to deferred compensation plans of state and local governments and tax-exempt organizations (§457(b) plans) remains unchanged at $19,500.
  • The limitation under §416(i)(1)(A)(i) concerning the definition of “key employee” in a top-heavy plan remains unchanged at $185,000.
  • The limitation under §414(v)(2)(B)(i) for catch-up contributions to §§401(k), 403(b), and 457(b) plans for individuals age 50 or over remains unchanged at $6,500; the limitation under §414(v)(2)(B)(ii) for catch-up contributions to an employer’s SIMPLE plan for individuals age 50 or over remains unchanged at $3,000.
  • The limitation used in the definition of “highly compensated employee” under §414(q)(1)(B) remains unchanged at $130,000.
  • The compensation amount under §408(k)(2)(C) regarding simplified employee pensions (SEPs) increases to $650 (from $600).
  • The compensation amount under Treas. Reg. §1.61-21(f)(5)(i), concerning the definition of “control employee” for fringe benefit valuation purposes, remains unchanged at $115,000. The compensation amount under §1.61-21(f)(5)(iii) increases to $235,000 (from $230,000).
  • The limit on annual contributions to an Individual Retirement Arrangement, remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

IRS Announces 2021 COLAs for Transportation Fringes, FSA Deferrals, Foreign Earned Income Exclusion, and More

The IRS has also released inflation-adjusted tables for 2021 reflecting any increases in the FSA deferral limit, foreign earned income exclusion, and excludable transportation fringes, among other changes [Rev. Proc. 2020-45, 10-26-20].

Qualified transportation fringes

The amounts that may be excluded from gross income for employer-provided qualified transportation fringe benefits (transportation in a commuter highway vehicle and any transit pass) and qualified parking for 2021 both remain at $270.

Health flexible spending arrangements

For plan years beginning in 2021, the dollar limitation under IRC §125(i) on voluntary employee salary reductions for contributions to health flexible spending arrangements remains at $2,750. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $550.

Standard deduction

The standard deduction amounts for 2021 increase to $25,100 for married couples filing jointly or surviving spouses ($24,800 in 2020), $12,550 for single taxpayers and married taxpayers filing separately ($12,400 in 2020), and $18,800 for heads of household ($18,650 in 2020).

Federal tax levies

The Tax Cuts and Jobs Act altered the way the amount of wages, salary, or other income exempt from a federal tax levy is calculated. For taxable years beginning in 2021, the dollar amount used to calculate the amount determined under IRC §6334(d)(4)(B) remains unchanged at $4,300.

Foreign earned income exclusion

For 2021, the maximum foreign earned income exclusion amount under IRC §911(b)(2)(D)(i) is $108,700 (up from $107,600 in 2020). The maximum amount of the foreign housing cost exclusion is $15,218 (up from $15,064 in 2020).

Medical Savings Accounts

To be eligible to make contributions to a Medical Savings Account (or to have the employer make the contributions), an employee must be covered by a high deductible health plan. For 2021, a high deductible health plan is a plan with an annual deductible of $2,400-$3,600 for individual coverage (up from $2,350-$3,550 in 2020) and $4,800-$7,150 for family coverage (up from $4,750-$7,100 in 2020).

Maximum out-of-pocket expenses can be no more than $4,800 for individual coverage (up from $4,750 in 2020) and $8,750 for family coverage (up from $8,650 in 2020).

Long-term care insurance benefits

If a long-term care insurance contract makes per diem benefit payments, the amount of the payments that is excluded from income in 2021 is capped at $400 per day (up from $380 in 2020).

Adoption assistance

For 2021, the maximum amount that can be excluded from an employee’s gross income for qualified adoption expenses under an employer’s adoption assistance program is $14,440 (up from $14,300 in 2020). The maximum amount that can be excluded in connection with the adoption of a child with special needs is $14,440 (up from $14,300 in 2020).

The amount excludable from an employee’s gross income begins to phase out for taxpayers with adjusted gross income of $216,660 (up from $214,520 in 2020) and is completely phased out for taxpayers with adjusted gross income of $256,660 (up from $254,520 in 2020).

Qualified small employer HRA

For 2021, a qualified small employer health reimbursement arrangement (QSEHRA) is an arrangement which, among other requirements, makes payments and reimbursements for qualifying medical care expenses of an eligible employee that do not exceed $5,300 (up from $5,250 for 2020), or $10,700 in the case of an arrangement that also provides for payments or reimbursements for family members of the employee (up from $10,600 for 2020).

Pipeline construction industry per diem option

For 2021, an eligible employer may pay certain welders and heavy equipment mechanics up to $18 per hour for rig-related expenses that will be deemed substantiated under an accountable plan (unchanged from 2020) and up to $11 per hour for fuel (unchanged from 2020), when paid in accordance with Rev. Proc. 2002-41 (2002-23 IRB 1098).

Courtesy of the APA
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