The IRS has issued the 2016 Pubs. 15, 15-A, and 15-B. Publication 15-A contains the alternative withholding tables. The alternative percentage method withholding tables are reproduced in this Report Letter on pages 18—21. All of the alternative tables will be reproduced in the PAYROLL MANAGEMENT GUIDE beginning at ¶31, in a future release.
Social security and medicare
The social security tax rate is 6.2% each for the employee and employer, unchanged from 2015. The social security wage base limit is $118,500, unchanged from 2015.
The Medicare tax rate is 1.45% each for the employee and employer, unchanged from 2015. There is no wage base limit for Medicare tax. Social security and Medicare taxes apply to the wages of household workers you pay $2,000 or more in cash or an equivalent form of compensation. Social security and Medicare taxes apply to election workers who are paid $1,700 or more in cash or an equivalent form of compensation.
The 2016 amount for one withholding allowance on an annual basis is $4,050.
New due dates
Both paper and electronically filed 2016 Forms W-2 and W-3 must be filed with the Social Security Administration (SSA) by January 31, 2017. Both paper and electronically filed 2016 Form 1099-MISC must be filed with the IRS by January 31, 2017.
Work opportunity tax credit
The work opportunity tax credit (WOTC) is now available for eligible unemployed veterans who begin work after December 31, 2014, and before January 1, 2020. Qualified tax-exempt organizations that hire eligible unemployed veterans can claim the work opportunity tax credit against their payroll tax liability using Form 5884-C. For more information, visit IRS.gov and enter “work opportunity tax credit” in the search box.
Employment tax examinations
Pub. 5146 provides employers with information on how the IRS selects employment tax returns to be examined, what happens during an exam, and what options an employer has in responding to the results of an exam, including how to appeal the results. Pub. 5146 also includes information on worker classification issues and tip exams.
Motion picture project employers
Beginning January 1, 2016, all wages paid by a motion picture project employer to a motion picture project worker during a calendar year are subject to a single social security tax wage base ($118,500 for 2016) and a single FUTA tax wage base ($7,000 for 2016) regardless of the worker’s status as a common law employee of multiple clients of the motion picture project employer. For more information, including the definition of a motion picture project employer and motion picture project worker, see Code Sec. 3512.
The business mileage rate for 2016 is 54 cents per mile. You may use this rate to reimburse an employee for business use of a personal vehicle, and under certain conditions, you may use the rate under the cents-per-mile rule to value the personal use of a vehicle you provide to an employee.
The Consolidated Appropriations Act, 2016, increased the monthly transit benefit exclusion from $130 per participating employee to $250 per participating employee for the period of January 1, 2015, through December 31, 2015. Employers will be provided instructions on how to correct the social security and Medicare taxes on the excess transit benefits in future guidance.
Qualified transportation benefits
Qualified parking exclusion and commuter transportation benefit. For 2016, the monthly exclusion for qualified parking is $255 and the monthly exclusion for commuter highway vehicle transportation and transit passes is $255.
Contribution limits on FSAs
For plan years beginning after December 31, 2015, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $2,550.
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