December 27, 2011

Dear Client:

This letter provides a summary of payroll reporting requirements for the 2011 calendar year‑end and a discussion of the applicable payroll changes you should be aware of for the Year 2012.  After reviewing the letter, please pass the information to the appropriate individuals within your organization.

In the last few years, preparing your own payroll has become a much more expensive and demanding task than any business person could ever have imagined.  The actual paycheck preparation itself has become only part of the total payroll process which includes a myriad of special reporting in the areas of federal, state, and local taxes, special government reporting, wage and hour laws, required record keeping, and electronic deposit requirements.

Our firm has been processing payrolls for clients for over fifty years.  Over these years, we have developed a payroll processing system that is far superior to outside payroll specialty firms in its simplicity of client input and cost to the client.  This service has proved to be immensely popular with our clients currently using it because of the time and cost savings realized.  Direct deposit of net payroll checks is available as part of our payroll service.

We currently prepare payrolls for clients with as few as two and as many as 200 employees.  If you are still preparing your payroll on a manual basis, please contact us to determine if our payroll services meet your needs.  You may be extremely surprised at the time and dollar savings to your business.

This letter is presented for general information purposes to those who are currently using our payroll services and to assist those preparing their own payrolls or using an outside preparer.

We hope the information we have provided for you is helpful.  Please call if we can provide you with additional assistance.

Very truly yours,

BLACK, BASHOR & PORSCH, LLP

Certified Public Accountants

 PAYROLL INFORMATION FOR 2011

 FICA

 2012

THE FOLLOWING LINK CONNECTS YOU TO THE INTERNAL REVENUE SERVICE INSTRUCTIONS REGARDING THE TEMPORARILY EXTENDED PAYROLL TAX CUT:

 http://www.irs.gov/newsroom/article/0,,id=251650,00.html

(The Temporary Payroll Tax Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through February 29, 2012):

IF THIS IS EXTENDED, IT WOULD PROBABLY WORK AS EXPLAINED BELOW:

The Social Security wage base - the maximum pay on which the Social Security tax (4.2 percent for employee and 6.2 percent for employer) is levied - is $ 110,100, but, the 1.45 percent for Medicare is payable on total wages.  Thus the amount an individual will pay is 5.65 percent of the first $ 110,100, plus 1.45 percent of the wages in excess of $ 110,100.  The amount his or her employer will pay is 7.65 percent of the first $ 110,100, plus 1.45 percent of the wages in excess of $ 110,100.

For the self‑employed, the rate is 13.3 percent on the first $ 110,100, and 2.9 percent on the excess over $ 110,100, with approximately half of the tax being deductible in calculating adjusted gross income.

2011

The Social Security wage base - the maximum pay on which the Social Security tax (4.2 percent for employee and 6.2 percent for employer) is levied - is $ 106,800, but, the 1.45 percent for Medicare is payable on total wages.  Thus the amount an individual will pay is 5.65 percent of the first $ 106,800, plus 1.45 percent of the wages in excess of $ 106,800.  The amount his or her employer will pay is 7.65 percent of the first $ 106,800, plus 1.45 percent of the wages in excess of $ 106,800.

For the self‑employed, the rate is 13.3 percent on the first $ 106,800, and 2.9 percent on the excess over $ 106,800, with approximately half of the tax being deductible in calculating adjusted gross income.

EARNINGS TEST FOR RETIRED WORKERS

SSA uses the formulas below, depending on your age, to determine how much your benefit must be reduced:

      ·If you are under full retirement age (see below):  when you start getting your Social Security payments, $ 1 in benefits will be deducted for each $ 2 you earn above the annual limit.  For 2012, that limit is $ 14,640; and for 2011, that limit was $ 14,160.  The earliest age that you can receive Social

        Security retirement benefits remains 62 even though the full retirement age is rising.

       ·In the year you reach your full retirement age (see below):  $ 1 in benefits will be deducted for each $ 3 you earn above a different limit, but only counting earnings before the month you reach the full benefit retirement age. 

        For 2012, this limit is $ 38,880; for 2011, this limit was $ 37,680.

       ·Starting with the month you reach full retirement age (see below):  you will get your benefits with NO limit on your earnings.

       Please Note:  Earned income is defined as income from wages or net earnings from self-employment.  Pensions, 401(k) distributions, dividends, interest, and IRA distributions are NOT earned income.

       What is Your Full Retirement Age?

       Year of Birth    Full Retirement Age

       1937 or earlier..65

       1938.............65 and 2 months

       1939.............65 and 4 months

       1940.............65 and 6 months

       1941.............65 and 8 months

       1942.............65 and 10 months

       1943-1954........66

       1955.............66 and 2 months

       1956.............66 and 4 months

       1957.............66 and 6 months

       1958.............66 and 8 months

       1959.............66 and 10 months

       1960 and later...67

       For various Social Security calculations - go to www.SSA.gov

NEW MILEAGE RATES FOR AUTOMOBILES

The 2012 mileage rates will be as follows:

      for charitable mileage                             14.0¢        14.0¢                         14.0¢         

      for medical travel                                    23.0¢        19.0¢                          23.5¢         

      for moving expense mileage                  23.0¢        19.0¢                         23.5¢           

ELECTRONIC (EFTPS) TAX DEPOSIT REQUIREMENTS

The Internal Revenue Service has issued regulations which provide that beginning January 1, 2011, you must deposit all depository taxes (such as employment tax, excise tax, and corporate income tax) electronically using the Electronic Federal Tax Payment System (EFTPS).  Under these regulations, Forms 8109 and 8109-B, Federal Tax Deposit Coupon, cannot be used after December 31, 2010.  For more information about EFTPS or to enroll in EFTPS, visit the EFTPS website at www.eftps.gov.

FEDERAL WITHHOLDING TAX

The new federal withholding tax tables will soon be available on www.irs.gov.  Search with keyword "2012 Circular E".  Withholding rates for certain special circumstances are 25 percent for bonuses and 20 percent for certain retirement plan payouts.

MINIMUM WAGE

The Pennsylvania minimum wage is $ 7.25 per hour effective July 24, 2009.  The Ohio minimum wage is $ 7.70 per hour effective January 1, 2012.  This is an increase from last year.

We would also like to remind all employers that the Fair Labor Standards Act requires that overtime be paid for hours worked over 40 hours in one (1) week in most instances.  For Pennsylvania, the minimum cash wage for tipped employees will remain at $ 2.83 per hour.  However, an employer will have to make up the difference if the employee's tips and the $ 2.83 per hour do not make up the Pennsylvania minimum wage.  For Ohio, the minimum cash wage for tipped employees will be $ 3.85 per hour effective January 1, 2012, which is an increase from the prior year.

PENNSYLVANIA STATE WITHHOLDING

The rate for Pennsylvania state withholding for 2012 currently remains unchanged at 3.07 percent (.0307).

PENNSYLVANIA UNEMPLOYMENT COMPENSATION

The taxable wage base on which an employer contributes to the Pennsylvania UC Fund remains at $ 8,000.  This is the same base as 2011.  Paper quarterly forms will no longer be mailed to employers.  Because the new Unemployment Compensation Management System is not available, employers should continue to file their quarterly unemployment forms using either paper UC‑2/2A forms, E-tides, or magnetic media.  All employers will be notified when the new UC system becomes available.

PENNSYLVANIA UNEMPLOYMENT WITHHOLDING

Effective January 1, 2003, the Commonwealth of Pennsylvania re-instituted its unemployment withholding (UC) tax on employees.  The tax rate for 2012 will be

.08 percent (.0008) on total employee wages, or 80 cents for each $ 1,000 paid.  This is the same rate as 2011.

OHIO STATE WITHHOLDING

Ohio withholding tables are the same as 2010.  If you do not have the Ohio tables, please contact our office or you can find the withholding tables at the following website:  http://tax.ohio.gov/divisions/employer_withholding/index.stm

OHIO UNEMPLOYMENT COMPENSATION

Ohio employers reporting Ohio unemployment should note that the Ohio Unemployment Taxable Wage Base is $ 9,000 per employee for 2012.  This is the same base as last year.

FEDERAL UNEMPLOYMENT COMPENSATION

The taxable wage base on which an employer contributes to the Federal UC Fund remains at $ 7,000.  This is the same base as last year.  The FUTA tax rate was 6.2% from January 1, 2011, through June 30, 2011 (quarters 1 and 2), and decreased to 6.0% July 1, 2011, through December 31, 2011 (quarters 3 and 4).

CREDIT REDUCTION STATE

A state that has not repaid money it borrowed from the federal government to pay unemployment benefits is a "credit reduction state".  The Department of Labor determines these states.  Both Pennsylvania and Ohio are credit reduction states.  If an employer pays wages that are subject to the unemployment tax laws of a credit reduction state, that employer must pay additional federal unemployment tax when filing its Form 940.

For 2011, there are credit reduction states.  If you paid any wages that are subject to the unemployment compensation laws of any of these states, you are not allowed the credit reduction rate (i.e., .003 or .006) of the regular .054 credit for the credit reduction state.  Use Schedule A (Form 940), to figure the tax.  For more information, see the Multi‑State Employer and Credit Reduction Information, Instructions for Schedule A (Form 940) or visit IRS.gov.

CITY WITHHOLDING TAX

The wage tax rates for Pennsylvania communities in our tax area are as follows:

      Residents of the City of Sharon......................... 2.25 percent

      Residents of the City of Hermitage...................... 2.25 percent

      Residents of the City of Farrell........................ 1.80 percent

      Residents of the Borough of Greenville.................. 1.65 percent

      Residents of other area communities..................... 1.00 percent

Non-residents working in the City of Farrell are subject to a 1.4 percent (.014) withholding tax, unless they are residents of Greenville, Hermitage, or Sharon. 

Non-residents working in the Borough of Greenville are subject to a 1.42 percent (.0142) withholding tax, unless they are residents of Farrell, Hermitage, or Sharon.  Non-residents working in the City of Sharon are subject to a l.0 percent (.01) withholding tax unless they are residents of Greenville, Hermitage, or Farrell.

CHANGES TO LOCAL INCOME TAX COLLECTION AND REPORTING

The municipality tax reporting and collection portion of Pennsylvania ACT 32 takes effect beginning January 1, 2012.

Under ACT 32, every employer must have every employee complete and sign a Local Earned Income Tax Residency Certification Form.  This form will identify the political subdivisions where the employee both lives and works.  This is Form CLGS‑32‑6 (8‑11) from the Department of Community and Economic Development.  It is available on the DCED website at www.newpa.com.  An employer must keep a copy of the Local Earned Income Tax Residency Certification Form in the employee's personnel file and have it available if they are audited.

You must have every employee currently working complete and sign a Local Earned Income Tax Residency Certification Form.

All new hires must complete and sign a Local Earned Income Tax Residency Certification Form before they can be paid.

If an employee moves, they must complete a new residency certification form.

A significant change that affects all employers:  ACT 32 places the responsibility to collect the proper rate of tax from each employee on the employer.  If the municipality tax is withheld incorrectly, the employer is liable for any tax not collected.  The correct rate is the higher of the tax rate where the employee lives or the nonresident tax rate where he works based on his current Local Earned Income Tax Residency Certification Form.

The tax rates for your employees should not change.

This link can be used to determine the political subdivision where the employee lives and works.  If you are having difficulty determining the correct PSD Code, we can assist you.  http://munstatspa.dced.state.pa.us/FindLocalTax.aspx

Berkheimer Tax Administrator has been selected as the collector for Mercer County.  Their website is www.hab-inc.com which details the new filing requirements.  Your local income tax report must include the following information:

            Name, address, social security number, wages, local withholding, and PSD Code (Political Subdivision Code)

 LOCAL SERVICES TAX (LST)

Information on withholding LST tax from employees' wages can be found at:

www.newpa.com/get-local-gov-support/tax-information/local-services-tax.

The City of Hermitage has increased its LST tax to $ 52.00 per year effective January 1, 2012.

 For other municipalities' rates, use the website mentioned above and click on "official tax register".

EMPLOYEE USE OF BUSINESS OWNED VEHICLES AND VEHICLE ALLOWANCES

Amount of income to recognize and withholding must be reported on a W‑2.

REQUIREMENTS TO FILE INFORMATION RETURNS

Please see pages 15 through 17 of the Employer's Tax Guide at http://www.irs.gov/pub/irs-pdf/i1099gi.pdf to assist you in your preparation of information returns for 2011.  Please contact our office if you have any questions concerning these information returns.  Please review the referenced pages indicating the various reporting requirements.  Also, please carefully review the 1099-MISC requirements.

W-2 AND 1099 ELECTRONIC REPORTING

The Social Security Administration encourages all employers to e-file.  If you are required to file 250 or more Forms W‑2, you must file the forms electronically unless the Internal Revenue Service granted you a waiver.  If you are required to e-file but fail to do so, you may incur a penalty.  Forms W‑2 may be submitted by creating them on‑line or by uploading a file in the EFW2 format.  Your must register with the Social Security Administration to submit W-2 information electronically.  Information is available at http://www.socialsecurity.gov/employer/.

If you are required to file 250 or more Forms 1099, 1097, 1098, 3921, 3922, 5498, and W‑2G, you must file electronically.  The 250‑or‑more requirement applies separately to each type of form.  For example, if you must file 500 Forms 1098 and 100 Forms 1099‑A, you must file Forms 1098 electronically, but you are not required to file Forms 1099‑A electronically.  To electronically file Forms 1099, 1097, 1098, 3921, 3922, 5498, and W‑2G, you must get approval by filing Form 4419 ‑ Application for Filing Information Returns Electronically (FIRE) at least 30 days before the due date of the returns.  For further information, see 2011 General Instructions for Forms 1099, 1097, 1098, 3921, 3922, 5498, and W‑2G.

You may request a waiver on Form 8508, Request for Waiver From Filing Information Returns Electronically.  Submit Form 8508 to the Internal Revenue Service at least 45 days before the due date of the forms.  For more information, see the instructions on Form 8508 for filing information or contact the Internal Revenue Service at 1‑866‑455‑7438.

Before submitting W-2 forms to the Social Security Administration (SSA), make sure all name/Social Security number combinations match the Administration's files.  The fines for failure to file using accurate names and Social Security Numbers are outlined in the 2011 Instructions for Forms W-2 and W-3 publication from the Internal Revenue Service.

The SSA provides the Social Security Number Verification Service (SSNVS) to allow online verification of employee names and Social Security numbers.  There is a handbook available at this link http://www.ssa.gov/employer/ssnvs_handbk.htm.  You must be registered and have an activation code in order to use the service.

Payroll tip:  When you hire a new employee ask to see his/her Social Security card and set up his/her payroll record using the name exactly as it appears on the card.  Only make name changes to payroll records if the employee provides an updated Social Security card.  Remind employees to promptly report name changes to Social Security Administration (e.g., marriage or divorce).  Consider sending an annual memo or e‑mail.  Tell them mistakes mean money out of their pockets - mismatches can seriously affect their eligibility for and amount of future Social Security benefits.  You cannot report name changes for employees.  They can call the Social Security Administration at 1-800-772-1213 and request Form SS-5, "Application for a Social Security Card", which covers name changes.  SS-5 can be downloaded from the Internet at http://www.ssa.gov/online/ss-5.pdf.

IMMIGRATION REFORM AND CONTROL ACT OF 1986

On November 6, 1986, a comprehensive reform of national immigration was made law.  All employers must comply.  Employers are required to verify employment eligibility of anyone hired after November 6, 1986, and complete and retain a one-page Form I‑9.

IMMIGRATION AND EMPLOYMENT LIABILITY

All employees must present proof of employment eligibility and identity, and complete an Employment Eligibility Verification Form (Form I-9).  Citizens of the United States include persons born in Puerto Rico, Guam, the U.S. Virgin Islands, and the Northern Mariana Islands.  Nationals of the U.S. include persons born in American Samoa, including Swains Island.

An employer needs to complete Form I-9 only for people who are actually hired.  For purposes of the I-9 rules, a person is "hired" when he or she begins to work for wages or other compensation.

You, the employer must examine the document(s) and, if they reasonably appear on their face to be genuine and to relate to the person presenting them, you must accept them.  To do otherwise could be an unfair immigration‑related employment practice.  If a document does not reasonably appear on its face to be genuine and to relate to the person presenting it, the employer must not accept it.

Employees must present original documents.  The only exception is an employee may present a certified copy of a birth certificate.

FORM I-9 EMPLOYMENT ELIGIBILITY VERIFICATION

PURPOSE OF FORM

All United States employers are responsible for completion and retention of Form I‑9 for each individual they hire for employment in the United States.  This includes citizens and noncitizens.  On the form, the employer must examine the employment eligibility and identify documents presented by the employee and record the document information on the Form I-9.  The list of acceptable documents has been amended in the 2009 version of the Form I-9 and can be found on the last page of the form.

 FORM'S EDITION DATE

August 7, 2009.  The February 2, 2009, edition is also accepted.

 WHERE TO FILE FORM I‑9

Do not file Form I‑9 with United States Immigration and Customs Enforcement (ICE) or United States Citizenship and Immigration Services (USCIS).  Form I‑9 must be kept by the employer either for three (3) years after the date of hire or for one (1) year after employment is terminated, whichever is later.  The form must be available for inspection by authorized United States Government officials (e.g., ICE, Department of Labor - Department of Homeland Security, Department of Justice).

Beginning of September 8, 2009, certain federal contractors and subcontractors must register for and use the federal government's Internet‑based electronic verification system called E-Verify, according to U.S. Citizenship and Immigration Services (USCIS).

Under the final rule, federal contracts awarded and solicitations issued with a period of performance longer that 120 days and a value above $ 100,000 must include a clause committing the contractor to use E-Verify.  The same clause will also be required in subcontracts over $ 3,000 for services or construction that flow from those prime contracts.  These contractors and subcontractors must use E-Verify to confirm that all their new hires and their employees "assigned to the contract" are authorized to work in the United States.  Companies awarded contracts with the E‑Verify clause on or after September 8, 2010, will be required to enroll in E‑Verify within 30 days of the contract award date. 

A supplemental guide for federal contractors on the rule can be found at:  www.uscis.gov.everify - keyword Federal contractors.

FILING FEE

There is no filing fee due with Form I‑9.

EARNED INCOME CREDIT

A refundable tax credit known as the "Earned Income Credit" is available for a low‑income worker who maintains a household for a child or meets certain other requirements.  Employees eligible for this credit will receive it on their tax returns.  You are required to notify employees not having income tax withheld that they may be eligible for this credit.  This notification should be made at the time W-2 forms are issued.

Earned income credits for 2011 may be available to employees at the following income levels:

One Qualifying Child...............    $ 41,132                $ - 0 - to 3,094      

Two Qualifying Children............    46,044                  - 0 - to 5,112      

No Qualifying Children.............      18,740                  - 0 - to   464      

                                                                      (Single)

One Qualifying Child...............        $ 36,052                $ - 0 - to 3,094      

Two Qualifying Children............        40,964                  - 0 - to 5,112      

No Qualifying Children.............          13,660                  - 0 - to   464       

Additional information regarding the earned income credit is available from Internal Revenue Service's Publication 596 which may be accessed from the Info Center of our website.

NEW HIRE REPORTING - OHIO

If your firm has employees, you have to report all newly hired and rehired employees to the Department of Human Resources.  Effective October 1, 1997, reports must be filed on paper or reported on the internet at www.OH-NewHire.com no later than 20 days after an employee is hired or returns to work following a separation of service.  If you have any questions, you can call toll free at 1-888-872-1490.

The data will help set‑up child support orders and detect unemployment and disability fraud.

NEW HIRE REPORTING - PENNSYLVANIA

Effective January 1, 1998, all employers are required to report information on newly‑hired employees and rehired employees.  To report new hires, go to www.cwds.state.pa.us under "Employers" - Report New Hires.  You can then register and submit your new hires electronically or by paper or fax.  All new‑hire reports must be filed within 20 days of the date of hire.  For more information, call Labor and Industry at: 1-888-724‑4737, or our office at 724‑981‑7510 for further assistance on this matter.