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Withholding Taxes KATHLEEN L. MIZEJEWSKI, CPP, GBA March 5, 2011 E-Mail:...
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Transcript of Withholding Taxes KATHLEEN L. MIZEJEWSKI, CPP, GBA March 5, 2011 E-Mail:...
Withholding TaxesKATHLEEN L. MIZEJEWSKI,
CPP, GBA
March 5, 2011
E-Mail: [email protected]: 708-363-5986
2
Constructive Payment of Wages 6-2
Wages made available to EE Without “substantial limitation or restriction”
Employer makes payment and Wages become available to EE = constructive payment:
– Cash – Paid to EE– Available at office – To Pick Up– Direct deposit – EE Account Credited– Mail – Check Delivered to Home
3
Social Security Numbers 6-5
3 - SSN Verification methods: Internet, Phone and Paper
» Internet Verification Process: New June 2005 – Registration Required - Social Security Number Verification Service (SSNVS) –
– 10 EE’s per screen (immediate results), or – up to 250,000 per file submitted – results next
business day. Must register first.
» TNEV –Telephone Number ER Verification (11/2009) - Automated Phone Service - To verify up to 10 names/SSNs: Employers can telephone 1-800-772-6270 or 1-800-772-1213. Must register first. 24/7.
4
Social Security Numbers 6-5
» SSN Verification methods (continued)
» To verify up to 50 names/SSNs: Employers can submit the names/SSNs on paper lists to the local Social Security office. Some offices accept faxed lists
» For 51 to 300 Names/SSN’s: An employer or 3rd Party Service Provider can register and then submit a paper list for verification to SSA
5
Social Security Numbers 6-7
Name changes (Marriage, divorce)» Employee should promptly complete
Form SS-5 - Application for Social Security Number (New or Change) and submit to SSA. Request form by calling SSA at 800–772–1213 or download from www.socialsecurity.org
» Employer should refuse to make name change until EE provides new SS card with new name
6
Form W-4 6-10 Employee Withholding Allowance
Certificate
Original, complete, valid, signed» Single-zero, if no W-4 on file» Before first day of work» Within 10 days after decrease
Effective W4-Form» New EE- first payroll period ending after
filing» Current EE - first payroll ending 30 days
after filing
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Form W-4 6-13Employee Withholding Allowance
Certificate
Exempt if:» Employee had no liability in prior year» Expects no liability in current year» Can be claimed as a dependent on another
person’s return» Income >$950 which includes >$300 in non-
wage income (e.g. interest and dividends)
Exemption effective for one year only - must re-file each year
8
Form W-4 6-13Employee Withholding Allowance
Certificate
Invalid W-4
» Altered in Any Way– Strike outs or Changes to Form– Additions - Written in – Not Allowed– Invalid: (Must be allowances + $)
»Flat Dollar Amount Only»Percentage Only
» False Info on Form – Invalidates Form
9
Form W-4 6-13Employee Withholding Allowance
Certificate
Perjury Statement – Beginning 2005
» Employee Examines & Acknowledges all Information on W-4 Form is Correct:– Allowances– Social Security Number– Exemptions– Name, Address, Marital Status
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Form W-4 6-14 Employee Withholding Allowance
Certificate
Submit copy of W-4 to IRS» Only upon written notice to Employer from IRS
» W-4’s Sent to IRS – EE Withholding:– Withhold based on W-4 on file until notified
by IRS– IRS Lock-In-Letter will specify maximum
number of exemptions employee can claim– ER must give EE copy of IRS notice
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Retention - 4 years after date of last return filed, using info on the W-4
Successor / Predecessor» Standard procedure – Predecessor
reports and continues to maintain W-4’s» Alternate procedure – Successor
reports and maintains W-4’s
Form W-4 6-16Employee Withholding Allowance
Certificate
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Form W-4 6-17 Employee Withholding Allowance
Certificate
W-4 - Electronic filing – Must meet requirement of Paper W-4 Form filing with perjury statement and signature
W-4 - Also used for New Hire Reporting for Child Support» With additional information such as
Employer Name, Address and EIN
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Form W-4 6-17
Form W-4P - Pension» Withholding Certificate for Pension or
Annuity Payments – Retirees must complete
Form W-4S - Sick Pay» Submit for Federal Income Tax W/H
From Sick Pay (Non Job Related Sick)– 3rd Party Sick Pay – No withholding unless
W-4 filed by EE. Flat dollar amount only
14
Form W-4 6-18
State Withholding Certificates
» More than 40 States have Withholding Tax and require withholding from wages
» Approximately 50% will accept Federal W-4 Form – others required their own Withholding Certificate (Table p. 6-18)
15
Federal Withholding Methods 6-20
Useful link:» http://www.paycheckcity.com - free paycheck calculation –
registration required
Wage Bracket method
Percentage method
Supplemental
Annualized
Cumulative
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Federal Withholding MethodsWage Bracket Method 6-22
Tables issued by IRS in Publication 15, Circular E, Employers Tax Guide
» Based on Employer pay period or frequency
» Two tables for each payroll period– Married, Single
» Pay periods– Weekly, Biweekly, Semimonthly, Monthly,
Quarterly, Semiannual, Annual or Daily/Misc.
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Federal Withholding Methods Wage Bracket Method 6-23
Daily or Miscellaneous
» (1) Number of days in that misc period – Not the Payroll Period (Includes Sat, Sun, Holiday)
» (2) Daily wage rate (Taxable Wage / # of days)
» (3) Daily withholding rate (Per Tables in Circular E)
» Multiply daily withholding rate (3) by number of days (1) and withhold from Taxable Wages
18
Federal Withholding Methods Wage Bracket Method 6-23
Payments above max table amount – use Percentage Method
Payments equal to bracket amount – use next higher wage bracket
More than 10 allowances :» use 10 allowances column (may result in over
withholding), or » multiply # of allowances > 10 by value of one
allowance and then subtract from EE wages
19
Federal Withholding Methods Percentage Method 6-24
Automated systems – easily programmed – use Annual
More Flexible
More Unusual Payroll Frequencies» Quarterly, Semiannual, Annual,
Daily/Misc
20
Federal Withholding Methods Percentage Method 6-25
» 2010 Payroll Period - One Allowance – Weekly 70.19 x 52 = 3,650– Biweekly 140.38 x 26 = 3,650– Semimonthly 152.08 x 24 = 3,650– Monthly 304.17 x 12 = 3,650– Quarterly 912.50 x 4 = 3,650– Semiannually 1,825.00 x 2 = 3,650– Annually 3,650.00 – Daily or Misc. 14.04
21
Federal Withholding Methods Percentage Method 6-25
Example using 2010 biweekly % table:» Harvey’s biweekly taxable compensation is
$2,300. He is married and claims 3 allowances.– $ 140.38 x 3 = $ 421.14– $2,300.00 - $ 421.14 = $1,878.86– $1,878.86 - $ 942.00 = $ 936.86– $ 936.86 x 15% = $ 140.53– $ 140.53 + $ 41.30 = $ 181.83
22
Federal Withholding Methods Alternative Methods 6-25
Annualized wages» Calculate on annual payroll period» Used by automated systems
Cumulative wages – Inconsistent $$» Commissions» Bonuses» Employee must request in writing» Same frequency for entire year
23
Federal Withholding MethodsAlternative Methods 6-26
Average estimated wages» Tipped employees
Part-year employment» Seasonal, unemployed» Request in writing-expires at year end» Term of Continuous employment
24
Federal Withholding 6-28 Supplemental Wage Payments
Paid at same time as regular or any other time
Supplemental Wages Include:» Reported Tips, Overtime Pay, Bonuses,
Back Pay, Commissions, Expense Allowance, Non Qualified Deferred Comp, Non-cash Fringe, 3rd Party Sick Pay, Amounts under Sec. 409A (see full list on Page 6-29)
25
Federal Withholding 6-30 Supplemental Wage Payments
Taxed as regular payment if» Supplemental pay combined with regular wage
and amounts not indicated separately
Flat rate - 25% - Allowed when» Amounts indicated separately (Regular pay &
Supplemental Pay) » Combined payment with amounts listed
separately» Only if Fed Tax was withheld from last regular
wage payment
26
Federal WithholdingSupplemental Wage Payments
» Supplemental Wage Payments over $1,000,000 in one calendar year:– Due to American Jobs Creation Act of
2004 (AJCA)– Requires Higher income tax when
Supplemental Wages are over $1 Million to one employee in one calendar year
– 2010 Mandatory tax rate is 35% on Supplemental Wages over $1 Million.
27
Federal Withholding 6-32 Supplemental Wage Payments
Aggregate method» Use if employee has no federal tax withheld
from regular wages due to # of allowances– Combine supplemental and regular– Calculate on total, subtract previous tax,
withhold remaining
» Exempt from withholding providing YTD is not over $1,000,000
» See 2008 IRS Guidelines for treating certain payments – 9 Situations (p. 6-32 to 6-35)
28
Federal Withholding 6-37 Pensions and Annuities
W4-P – For Pension and Annuity Payment
Depends on type of payment» Periodic vs. non-periodic
Periodic (payments made over period of one year). Indicate on W4-P:» Can request no withholding on W4-P» Marital status, allowances» Additional amount to withhold
If No W-4P - Use Married 3 allowances
29
Federal Withholding Pensions and Annuities 6-38
Non-periodic» Not eligible for rollover and > $200
– Withhold 10%
» Eligible for rollover– Mandatory Withholding of 20% unless
rolled to another qualified plan, IRA or §403(b) annuity
» Tax is withheld by plan administrator or payer
30
Federal WithholdingBackup Withholding 6-42
Tax rate of 28% required on payments if:» No TIN furnished (TIN = SS#, ITIN, EIN)» TIN is obviously incorrect» IRS CP2100 notice received – issued annually» IRS Notification that TIN is incorrect» No certification from payee receiving interest /
dividend payments (certification means they signed Form W-9 – Request for Taxpayer Identification Number and Certification)
31
Federal WithholdingEarned Income Credit 6-43
EIC is a tax credit that reduces the taxes owed by the employee. The 2010 EIC rates are:» 7.65% of $5,980 (max $457) - no qualified dependent
children
» 34% of $8,970 (max $3,050) - one qualified dependent child
» 40% of $12,590 (max $5,036) - two or more qualified dependent children
» 45% of $12,590 (max $5,666) – three or more qualified dependent children
32
Federal Withholding Earned Income Credit 6-43
EIC Phases Out as Modified Adjusted Gross Income Increases. Max AGI Amounts are:
Special Eligibility Rules – Must meet other requirements: Must be > 25 and < 65, Live in US for ½ of year, cannot be claimed as a dependent on another return, etc.
Maximum AGI Single Married
No dependents $13,460 $18,470
One dependent $35,535 $40,545
Two dependents $40,363 $45,373
33
Federal Withholding 6-44Advanced Earned Income Credit
Advance payments» Form W-5, Earned Income Advanced Payment
Certificate (expires 12/31) must be filed by EE» 60% may be received in advance up to max
annual amount. 2010 is $1,830.– Wage bracket or percentage tables are in Circular E.– Add amount to net pay
Required to provide notice to employees IRS offers EITC Website for Employers:
– www.irs.gov/individuals/article/0%2C%2Cid=118888%2C00.html for forms, pubs, schedules, online tools
34
Social Security and Medicare
Taxes 6-47 FICA (Federal Insurance Contribution
Act) - Social Security & Medicare
» Social Security– OASI (Old Age and Survivors
Insurance)– DI (Disability Insurance)
» Medicare– HI (Health Insurance)
35
Social Security and Medicare Taxes 6-47
Employee share withheld from employee wages
Matching amount paid by employer
Fixed rate – Same since 1990» 6.2% of wages to Social Security wage limit» 1.45% of wages - No Medicare wage limit
No rounding on SS or Medicare
36
Social Security and Medicare Taxes 6-49
Employees Working for more than one
Employer» Credit for tax withheld from employee from previous
employer in current year >> NO!
Wages by Common Law ER’s Can’t be Combined
Predecessor / Successor employers» Acquisition of all or substantially all property» Employed by predecessor and successor
Wages paid in next year » Subject to tax rate in effect when actually paid
37
Social Security and Medicare Taxes 6-50
Subject to tax when deferred: (not when paid)» Elective deferrals to §401(k) & other deferred
compensation plans» Non-qualified deferred compensation that is not
subject to substantial risk of forfeiture Dependent Care Assistance benefits are
treated as received in year when benefit costs are incurred, not when paid, for determining how much of benefits are taxable for SS and Medicare
38
Social Security and Medicare Taxes 6-51
Common Paymaster for SS & Medicare (Not WH)» Related corporations-must meet one of:
– Controlled group - 50% stock owned by one Corporation– Board of directors - 50% voting power on the other Board– Concurrent officers - 50% on other Board– Concurrent employees - 30% by both Corporations
» Concurrent employment for two or more related corporations
» Then Payroll responsibility - payment, tax withholding, depositing and reporting may be treated as one employer
39
Self –Employment Tax 6-52
SE Individuals Pay both Employer and Employee shares of Social Security and Medicare – Rate is 12.4% for SS Tax up to Base. For Medicare 2.9% on total wages (to total of 15.3%).
Tax Determined and Paid with Personal Income Tax Return (Form 1040)
40
Social Security and Medicare Exempt Wages 6-52
All compensation is taxable unless
specifically exempted under IRC:» Workers compensation payments» Sick / disability payments - after 6 mo.» §125 flexible benefit plan contributions» Qualified moving expense reimbursements» Cash tips <$20 per month» Wages paid after year of death» See List of Additional Exempt Wages on page 6-
52 & 6-53
41
Social Security and Medicare Exempt Employment 6-53
Employment exempt:
» Temporary foreign agricultural work
» Work by child <18 for parents
» Student work for school where enrolled and attending classes
» Work by student nurses
» Non-resident aliens with F, J, M, Q visas
» Domestic service performed if <18 years
42
Social Security and Medicare 6-54 State and Local Government
Employees
Prior to 1986 - §218 agreement to cover under federal system
4/1/86 hired or rehired - Became covered by Medicare
7/2/91 - Became covered by Social Security and Medicare » If not members of public employee
retirement system or not subject to §218 agreement
43
Failure to Withhold Penalties 6-56
No tax withheld by employer:» If employer can prove that employee
later paid tax - employer not liable for amount not withheld
» Penalties for – Late deposits or returns– Responsible person– 10 year time limit to collect taxes
44
State and Local Withholding 6-57
All but 9 States have Personal Income Taxes and require Employers to Withhold
Many Localities also have Income Taxes and require Withholding
Directory of State Agencies – Table 6.3
45
Thank You and Good Luck !!!!
Kathy Miz, CPP, GBA
March 5, 2011E-Mail:
[email protected]: 708-363-5986