Effective January 1, 2005

PAYROLL TAXES:

1.      INCOME TAX WITHHOLDING

There are six basic tax brackets of 10%, 15%, 25%, 28%, 33%, and 35%.  The 2005 Withholding Table (Circular E) issued by the Internal Revenue Service reflects these rates.

2.      SOCIAL SECURITY EMPLOYEE TAX TABLE

There are two separate wage bases for the OASDI and Medicare (HI) portions of FICA. Social Security requires a withholding of 6.2% OASDI tax.  The related wage base is $90,000.  For 2005, Medicare requires a withholding of 1.45% which must be withheld from all wages paid. Employers also must pay Social Security and Medicare taxes on covered employees in the same amount as that withheld.

3.      FEDERAL UNEMPLOYMENT TAX

The wage base remains at $7,000.  Effective tax rate for 2005 will be .8% and deposits should be made at that rate. Effective January 1, 2005 , the IRS will require employers to make quarterly deposits for unemployment taxes only if the accumulated tax exceeds $500.  Prior to January 1, 2005 , the deposit threshold was $100.

4.      PENNSYLVANIA INCOME TAX

The Pennsylvania state withholding rate will be 3.07% for 2005.

5.      PENNSYLVANIA UNEMPLOYMENT TAX

Wages subject to unemployment contributions remain at $8,000 for 2005.  Employer rates vary based on experience and in 2005 their rate will be affected by a 7.2% surcharge on the contribution rate and an additional .6% tax.  In 2005, employees will also be subject to a withholding tax at the rate of .09% (90 cents per $1,000) on all wages.

6.      NEW JERSEY INCOME TAX

The New Jersey State withholding rates for 2005 range from 1.5% to 9.9% on graduated levels of income for 2005.  

7.      NEW JERSEY UNEMPLOYMENT TAX

Wages subject to unemployment contributions will increase from $24,300 to $24,900 for 2005.  Employer rates vary based on experience.  The withholding rate for employees will be .925% for a maximum withheld amount of $230.33.

8.      CITY OF PHILADELPHIA WAGE TAX

For 2005 the Philadelphia wage tax rate will be 4.3310% for residents and 3.8197% for non-residents.  This may change on July 1, 2005 .

OTHER MATTERS:

9.      RETIREMENT EARNINGS TEST FOR SOCIAL SECURITY RECIPIENTS

Employees age 62 through 64 can earn a maximum of $12,000 per year with no reduction in benefits.  In 2005 maximum earnings in the year an employee turns 65 will increase to $31,800.  However, there is no limit on earnings beginning in the month an employee attains age 65.

10.    401(k) PLAN LIMITATION

The annual employee elective deferral limit is $14,000 for 2005.  For employees 50-years-old and above there is an additional permitted deferral of $4,000.

11.    FORMS W-4, W-9, AND I-9

Remind all employees to complete Form W-4 and claim all the allowances to which they are entitled.  Be sure to receive Form W-9 for all commissions, interest, rents, etc. paid to individuals.  Form I-9 (Employment Eligibility Verification) and the New Hire form are mandatory for all employees and should be completed on the first day of employment.  These can be obtained from your payroll service.

For more information, contact an Asher tax professional at 215-564-1900 .

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