Payroll Tax Cut Temporarily Extended into 2012 ....translated so a user can understand and how it affects Microsoft Dynamics GP
There has been lots of questions around the recent passing of the Payroll Tax Cut in 2012. Below are a few tips that I hope will help alleviate your stress as you run your first 2012 payrolls!
With this tax cut / extension should we use the 2011 federal tax tables or 2012?
I have contacted the IRS and verified we should be using the 2012 federal tax tables that are released in publication 1035, see link: http://www.irs.gov/pub/irs-pdf/n1036.pdf
The Microsoft Dynamics GP 2012 Round 1 Tax Update has the correct rates installed.
Did Microsoft implement the "Recapture" provision in the round 1 tax tables for 2012?
No, we did not. If you review the guidelines, the article indicates that the additional 2% will be paid in 2013 when the employee files their 2012 tax return. If that’s the case then it looks like we should be OK with leaving the FICA at 4.2% even if they exceed the $18,350 threshold for these type of employees. At this point we are not changing anything around the recapture amount unless more guidelines are released.
Employee, 4.2 or 6.2?
On Tuesday, December 27, 2011, Microsoft Dynamics GP re-released the round 1 tax update for 2012 due to congress passing the 2 month payroll tax extension changing the employee FICA rate from 6.2 (previously released) to 4.2.
To tell you have the correct rate, the new date under Tools | Setup | System | Payroll Tax is 12/29/2011.
If it is 12/23/2011 that is the old rate (6.2)
You can also tell by pulling up the FICAS code from this window, choose Filing Status, choose NA, click Tables, you will see the rate and wage limit for 2012.
The Social Security wage base limit has been increased to $110,100 for employer and employee.
Note: If the date value in the Payroll Tax Setup window is 12/23/2011, you must reinstall this update in order for the FICA employee tax rate to be updated to 4.2%
If you paid an employee in 2012 and withheld at the 6.2 rate, you will need to pay them back this money by March 31, 2012. You can do this is Microsoft Dynamics GP as a business expense paycode to pay the employee back the money and then adjust your taxes through the manual check window. Further detailed instructions, contact support.
Check out our tax update pages for more detailed information:
Happy New Year to all...and hope the above tips help you with your payroll taxation stress!