The first, referred to as the payroll tax exemption, provides employers with an exemption from the employer’s 6.2 percent share of social security tax on wages paid to qualifying employees, effective for wages paid from March 19, 2010 through December 31, 2010.

In addition, for each qualified employee retained for at least 52 consecutive weeks, businesses will also be eligible for a general business tax credit, referred to as the new hire retention credit, of 6.2 percent of wages paid to the qualified employee over the 52 week period, up to a maximum credit of $1,000.

For more details, visit:
http://www.irs.gov/businesses/small/article/0,,id=220745,00.html

Related article:
The Federal HIRE Act: It Can Pay To Hire The Unemployed

In the article Dr. Sullivan shares some very valid reasons to think about before even considering outsourcing HR and payroll functions. Among them:

To us at Micro Systems Consultants, the issue of Information Security is of great importance. In an age of identity theft you must think twice before sending confidential personnel data to outsiders. Why would you send employee names, addresses, birth and hired date, dependents data, salary information to outsiders when you can’t disclose social security numbers on internal reports.

We invite you to read Dr. Sullivans interesting article at: http://www.workinfo.com/Free/Downloads/117.htm

This blog is published by Micro Systems Consultants.
Visit us at www.mscpr.com to lean more about MSC Payroll.

For more information click here.

See also:
Abogados Laborales Blog

This blog is published by Micro Systems Consultants.
Visit us at www.mscpr.com to lean more about MSC Payroll.

On August 7, 2008, the Governor of Puerto Rico signed into law Act 186, which increases the pre-tax contribution limits for Section 1165(e) savings plans. Under prior law, pre-tax contributions were limited to the lesser of 10 percent of compensation or $8,000 per year. The new law removes immediately the 10 percent cap, so that the limit for 2008 plan years is $8,000 regardless of compensation. It also increased the annual limits for plan years beginning in 2009 and thereafter as follows:
 

Plan Year	Contribution Limit
2009 and 2010	$ 9,000
2011 and 2012	$ 10,000
2013 and beyond	$ 12,000

Beginning with 2007 plan years, employees who have attained or will attain age 50 by the end of the plan year and whose pre-tax contributions have reached the applicable limit for the year may also make a pre-tax catch-up contribution of up to $1,000.

This blog is published by Micro Systems Consultants.
Visit us at www.mscpr.com to lean more about MSC Payroll.

Physical and Mailing address:
Micro Systems Consultants
268 Ponce de Leon
Suite 1008
San Juan, PR 00918

Phone: (787) 758-6430

Law #206 applies to all private employers and to all public corporations of the Commonwealth of Puerto Rico. The law establishes fines ranging from $500 to $5,000 per violation.

Users of MSC Payroll comply with this law by setting the “Mask Social Security” flag in the “Program Options” section. Once this flag is set Social Security numbers will only show the last four digits on reports, i.e. “XXX-XX-1234″. If this option is not available you are using an old version of the program and must upgrade it to comply with the law.

Call us at (787) 758-6430 if you have problems finding or setting this flag, or need to upgrade. We will be glad to help you.

The following links take you to other Internet articles related to this law:

This blog is published by Micro Systems Consultants.
Visit us at www.mscpr.com to lean more about MSC Payroll.

Micro System Consultants was founded in 1989 with one mission in mind: to provide the best payroll processing software in Puerto Rico.

Our payroll processing software, which was developed originally in 1979, had a large base of customers that required a strong organization to provide support, development, marketing and sales services to the product. That organization is Micro Systems Consultants.

Our staff consists of software developers, support agents and product consultants. All of them are experts in their fields, with a strong background in Human Resources, Payroll and Financial Accounting.

Need to impress someone quickly?

The procedure is simple. Think of any three-digit number; then select the corresponding buzzword from each column. For instance, number 257 produces “systematized logistical projection”, a phrase that can be dropped into virtually any report with that ring of decisive knowledgeable authority. No-one will have the remotest idea of what you’re talking about, but the important thing is that they are not about to admit it!

Four Letters

The new manager walks into his office and, while settling into his new desk, finds 4
envelopes. On one he finds the words “open me first,” and the other three are numbered 1 to 3.

He opens the first envelope and finds a letter from his predecessor saying:
“These three envelopes will save you a world of trouble. In case of emergency, please
open these envelopes in sequential order; envelope one first, envelope two second, and
envelope three third.”

The manager shrugs, puts the envelopes back, and forgets about them.

Six months later, the workers go on strike. The company closes, and is losing
money fast.

After a long night negotiating with the union, he remembers the 3 envelopes. So he
opens the first one and it says: “Blame me, your predecessor for every thing”.

Wonderful idea he thinks, and indeed it works and the crisis comes to its end. His job
is saved, and everybody’s happy.

A few months later, another strike hits. He goes to the drawer and opens the second
envelope. It reads, “Blame the government for everything”.

It works like a charm, and he breathes a sigh of relief as his job is, once again,
saved.

A month later the workers declare another strike. The manager goes to the third
envelope and it reads, “Prepare 4 new envelopes”.

The Federal Insurance Contributions Act is currently codified at Title 26, Subtitle C, Chapter 21 of the United States Code.

How the tax is calculated

Overview

The Center on Budget and Policy Priorities states that three-fourths of taxpayers pay more in payroll taxes than they do in income taxes. The FICA tax is considered a regressive tax on income (with no standard deduction or personal exemption deduction) and is imposed (for the year 2008) only on the first $102,000 of gross wages. The tax is not imposed on investment income (such as interest and dividends).

“Regular” employees (most wage-earners)

For 2008, the employee’s share of the Social Security portion of the tax is 6.2% of gross compensation up to a limit of $102,000 of compensation (resulting in a maximum of $6,324.00 in tax). For 2009, the employee’s share is 6.2% of gross compensation up to a limit of $106,800 of compensation (resulting in a maximum tax of $6,621.60). This limit, known as the Social Security Wage Base, goes up each year based on average national wages and, in general, at a faster rate than the Consumer Price Index (CPI-U). The employee’s share of the Medicare portion is 1.45% of wages with no limit. The employer is also liable for separate 6.2% and 1.45% Social Security and Medicare taxes, respectively, making the total Social Security tax 12.4% and the total Medicare tax 2.9% of wages. (Self-employed people are responsible for the entire FICA percentage of 15.3% (= 12.4% + 2.9%), since they are both the employer and the employed; however, see the section on self-employed people for more details.)

If a worker starts a new job halfway through the year and has already earned the wage base limit for Social Security, the new employer is not allowed to stop withholding it until the wage base limit has been earned with them. There are some limited cases, such as a successor-predecessor transfer, in which the payments that have already been withheld can be counted toward the year-to-date total.

If a worker has overpaid toward Social Security by having more than one job or by having switched jobs during the year, that worker can file to have that overpayment counted as tax paid when they file their Federal income tax return. If the taxpayer is due a refund, then the FICA overpayment becomes part or all of the refund.

Self-employed people

A tax similar to the FICA tax is imposed on the earnings of self-employed individuals, such as independent contractors and members of a partnership. This tax is imposed not by the Federal Insurance Contributions Act but instead by the Self-Employment Contributions Act of 1954, which is codified as Chapter 2 of Subtitle A of the Internal Revenue Code, 26 U.S.C. § 1401 through 26 U.S.C. § 1403 (the “SE Tax Act”). Under the SE Tax Act, self-employed people are responsible for the entire percentage of 15.3% (= 12.4% [Soc. Sec.] + 2.9% [Medicare]); however, the 15.3% multiplier is applied to 92.35% of the business’s net earnings from self-employment, rather than 100% of the gross earnings; the difference, 7.65%, is half of the 15.3%, and makes the calculation fair in comparison to that of regular (non-self-employed) employees. It does this by adjusting for the fact that employees’ 7.65% share of their SE tax is multiplied against a number (their gross income) that does not include the putative “employer’s half” of the self-employment tax. In other words, it makes the calculation fair because employees don’t get taxed on their employers’ contribution of the second half of FICA, therefore self-employed people shouldn’t get taxed on the second half of the self-employment tax. Similarly, self-employed people also deduct half of their self-employment tax (schedule SE) from their gross income on the way to arriving at their adjusted gross income (AGI). This levels the amount paid by self-employed persons in comparison to regular employees, who don’t pay general income tax on their employers’ contribution of the second half of FICA, just as they didn’t pay FICA tax on it either.

These calculations are made on Schedule SE: Self-Employment Tax, although that is not readily apparent to novice self-employed taxpayers, owing to the schedule’s rather opaque name, which makes it sound like it is part of the general federal income tax. Some taxpayers have complained that Schedule SE’s title should be changed to something such as “Self-Employment FICA Tax”, so that its separateness from the general income tax is apparent,[9], perhaps not realizing that the SE tax is not imposed by the Federal Insurance Contributions Act (FICA) at all, and that neither SE taxes nor FICA taxes are “income taxes” imposed under Chapter 1 of the Internal Revenue Code.

Exemption for certain full-time students

A special case in FICA regulations includes exemptions for student workers. Students enrolled at least half-time in a university and working part-time for the same university are exempted from FICA payroll taxes, so long as their relationship with the university is primarily an educational one.

History

Prior to the Great Depression, the following presented difficulties for working-class Americans:[citation needed]

* The U.S. had no federal-government-mandated retirement savings; consequently, for those people who had not voluntarily saved money throughout their working lives, the end of their work careers was the end of all income.
* Similarly, the U.S. had no federal-government-mandated disability income insurance to provide for citizens disabled by injuries (of any kind—work-related or non-work-related); consequently, for most people, a disabling injury meant no more income (since most people have little to no income except earned income from work).
* In addition, there was no federal-government-mandated disability income insurance to provide for people unable to ever work during their lives, such as anyone born with severe mental retardation.
* Finally, the U.S. had no federal-government-mandated health insurance for the elderly; consequently, for many people, the end of their work careers was the end of their ability to pay for medical care.

In the 1930s, the New Deal introduced Social Security to rectify the first three problems (retirement, injury-induced disability, or congenital disability). It introduced the FICA tax as the means to pay for Social Security.

In the 1960s, Medicare was introduced to rectify the fourth problem (health care for the elderly). The FICA tax was increased in order to pay for this expense.

* Source: Wikipedia

This blog is published by Micro Systems Consultants.
Visit us at www.mscpr.com to lean more about MSC Payroll.

While Social Security and Medicare rates have remained the same for the last 12 years, Social Security limit has grown 63% during the same time period.

The following table displays FICA rates and limits from 1997 to 2009.

This blog is published by Micro Systems Consultants.
Visit us at www.mscpr.com to lean more about MSC Payroll.