Transcript CPP Review Course

Chapter 8
DEPOSITING AND REPORTING
WITHHELD TAX
8.1 Employer Identification Numbers
 To ensure all payments are credited to the correct
employer, an EIN is assigned
 How to get an EIN?
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Application online – able to get and use EIN immediately
By Fax-TIN – EIN issued within 4 business days
By Phone – able to get and use EIN immediately
Paper form SS-4 – 4 to 5 weeks for receipt of EIN
If EIN not received in time for quarterly/annual filing, write
“APPLIED FOR” in EIN space and date of application
8.1 Employer Identification Numbers
Mergers, consolidations & reincorporation
 Proper EIN to use after a corporate merger or
acquisition depends on its characterization under the
Internal Revenue Code.
 If a reorganization, use the previously assigned EIN
 A new EIN is required if a new company merges as a
result of the reorganization if it does not qualify as a
reorganization by IRS rules
8.2 Depositing Withheld Income & Employment Taxes
 Taxes are not necessarily paid when filing a return
 Must deposit the taxes per the IRS’ assigned
frequency
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Payroll Tax Deposit Rules
Based on the look back period
 Example 1: For calendar year 2014 the look back period is July
1, 2012 to June 30, 2013
 Monthly
 If total tax liability for the look back period equals $50,000 or
less
 Semiweekly
 If total tax liability for the look back period exceeds $50,000
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8.2 Depositing Withheld Income & Employment Taxes
2013 Look back Period
2014 Look back Period
3rd qtr 2011 - $12,000
4th qtr 2011 - $12,000
1st qtr 2012 - $12,000
2nd qtr 2012 - $12,000
$48,000
3rd qtr 2012 - $13,000
4th qtr 2012 - $13,000
1st qtr 2013 - $13,000
2nd qtr 2013 - $13,000
$52,000
Total employment tax
liability
$48,000 < $50,000
= Monthly Depositor
Total employment tax
liability
$52,000 > $50,000
= Semi-Weekly Depositor
8.2 Depositing Withheld Income & Employment Taxes
 Nonpayroll withholding treated separately
 Employers must also withhold federal income from
“nonpayroll” payments it makes, including:
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Reportable payments subject to backup withholding
Gambling winnings
Retirement pay for service in the Armed Forces
Pension, annuities, IRAs & other deferred income
 These are all reported on Form 945 annually. They
are not included on the quarterly 941.
8.2 Depositing Withheld Income & Employment Taxes
 Very small employers with annual tax liability of
$1,000. or less would file a Form 944 and pay
liability annually
 IRS only sends depositor status notices to employers
with a change in their deposit schedule for the
upcoming tax year
8.2 Depositing Withheld Income & Employment Taxes
New Employers
 Classified as monthly depositors because they have no
tax liability experience during the look back period OR
until they accumulate more than $50,000. in tax liability
during a look back period OR trigger the one-day rule
 Look back period begins on first day of operations and
ends on the next June 30.
Successor Employers
 Successor company with the same EIN as predecessor
company has the same deposit frequency as the
predecessor.
 Successor company with new EIN is considered a
monthly depositor.
8.2 Depositing Withheld Income & Employment Taxes
Railroad & Farm employers
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File annual employment tax returns rather than quarterly
Look back period is the second calendar year preceding the
current calendar year
Agricultural employers may have both farm and nonfarm
employees
Will file both Form 943 and Form 941
Separate determinations for depositor status
8.2 Depositing Withheld Income & Employment Taxes
Monthly Deposit Requirements
Accumulated tax liability for the
calendar month
Must be paid by
The 15th of the following month
8.2 Depositing Withheld Income & Employment Taxes
Semiweekly Deposit Requirements
Wages paid on Wednesday, Thursday & Friday
Must be paid by
The following Wednesday
Semiweekly Deposit Requirements
Wages paid on Saturday, Sunday, Monday & Tuesday
Must be paid by
The following Friday
8.2 Depositing Withheld Income & Employment Taxes
One-day deposit rule
Accumulated tax liability reaches $100,000
on any day during a deposit period
Must be paid by
The close of the next business day
8.2 Depositing Withheld Income & Employment Taxes
One – day Deposit Rule
 If accumulated employment tax liability reaches
$100,000 on any day during a monthly or
semiweekly deposit period, the taxes must be
deposited by the close of the next business day
 Monthly depositors then become a semiweekly
depositor for the remainder of the current calendar
year and the entire next calendar year.
8.2 Depositing Withheld Income & Employment Taxes
 Quarterly “de minimis” deposit rule
 Accumulated tax liability of less than $2,500 for any
quarter can be deposited according to the employer’s
depositor status or pay with their Form 941
 Effective in 2010, this safe harbor also applies if the
tax liability was less than $2,500 for the
immediately preceding quarter.
8.2 Depositing Withheld Income & Employment Taxes
 Form 944 – Annual employment tax liability reporting
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for small employers
Employment tax liability of $1,000 or less qualifies small
employers for this annual filing.
Employers are notified by the IRS of their qualification
for the Employers’ Annual Federal Tax Program (EAFTP)
Tax liability is paid with a timely filed Form 944
Not held to the monthly or semiweekly depositor statuses
If liability of $1,000 is exceeded, employer is no longer
qualified; however, will still file Form 944 for that
calendar year & Form 941 for the succeeding years
8.2 Depositing Withheld Income & Employment Taxes
 Saturday, Sunday and holiday extension
 If the due date of the deposit is not a business day (Saturday, Sunday,
or a federal legal holiday), the deposit is due on the very next banking
day
 Semiweekly depositors are guaranteed at least 3 business days after the
last day of the semiweekly period to make their deposit
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*If any of the 3 days is not a business day, the employer has an
additional day to deposit
8.2 Depositing Withheld Income & Employment Taxes
Shortfall rule
 IRS allows a “safe harbor” shortfall so employers are not
penalized for depositing a small amount less than the
entire amount of the deposit obligation and not be
penalized
 Obligation is satisfied if the shortfall is no more than the
greater of $100 or 2% of the entire amount due
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All deposits must be made timely & shortfall is deposited by the
appropriate make-up date.
Monthly depositors – shortfall must be deposited by the 941 due date
Semiweekly depositors – shortfall must be deposited by the 1st
Wednesday or Friday occurring on or after the 15th of the month
after the month during which the original deposit was due
8.2 Depositing Withheld Income & Employment Taxes
Timeliness of deposits
 Generally, deposits are considered timely by the IRS
if received via EFTPS and the amount is withdrawn
from the employer’s account on or before the due
date
8.2 Depositing Withheld Income & Employment Taxes
How to Deposit Payroll Taxes
 Electronic Deposits have now replaced FTD coupons
 A provision of the North American Free Trade
Implementation Act (NAFTA) amended the IRC &
requires the implementation of an Electronic Federal
Tax Payment System (EFTPS) for the collection of federal
depository taxes.
 Exception: Does not apply to employers with total
employment liability of less than $2,500. Payment is
made with Form 941 or 944.
8.2 Depositing Withheld Income & Employment Taxes
EFTPS requirements
 Organizations that deposit more than $200,000 in
total federal tax deposits in any year must use EFTPS
to make all their federal deposits beginning with the
first return period in the second succeeding calendar
year.
 Once an employer is required to file electronically, it
cannot go back to using paper coupons.
8.2 Depositing Withheld Income & Employment Taxes
Electronic Federal Tax Payment System
 Employers that are required to deposit electronically
must use EFTPS
 Enrollment:
 New business taxpayers are pre-enrolled
 Newly required taxpayers enroll with Form 9779,
Business Enrollment form for EFTPS or online at
www.eftps.gov
 Enrollment verifies company info & notifies the IRS of
the deposit method selected
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EFTPS-Direct (ACH Debit)
EFTPS-Through a Financial Institution (ACH Credit)
8.2 Depositing Withheld Income & Employment Taxes
Paper Deposits
 Employers who are not required to use EFTPS may
use federal tax deposit coupons and pay check, cash
or money order.
 Along, with the deposit the employer must provide
the bank with a completed Form 8109, Federal Tax
Deposit Coupon
 Non-payroll withheld taxes and FUTA payments are
made the same way if there is no EFT requirement.
8.2 Depositing Withheld Income & Employment Taxes
Penalties for Failure to Deposit on Time
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2% x undeposited amount for 1-5 days
5% x undeposited amount for 6-15 days
10% x undeposited amount for > 15 days
15% x undeposited amount if not paid within 10 days after the ER
receives its first IRS delinquency notice
 Special Rule for electronic depositors:
 An employer required to deposit electronically, that uses
a paper coupon & check is subject to the 10% failure-todeposit penalty because it failed for more than 15 days to
make the deposit in the correct manner, even though the
paper deposit was made timely
8.2 Depositing Withheld Income & Employment Taxes
Employer Relief
 IRS allows for instances to waive penalties for late
deposits:
 IRS may waive the failure-to-deposit penalty for an
employer’s inadvertent failure to make a deposit with
certain criteria
 IRS may also waive the failure-to-deposit penalty if
the employer can show reasonable cause
8.2 Depositing Withheld Income & Employment Taxes
Deposit changes were mandated by the IRS
 Restructuring & Reform Act of 1998
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Require IRS to apply deposits to the most recent period within
the tax period to which the deposit relates
Shortfall rules: The payment is treated as a liability for a
deposit period IMMEDIATELY BEFORE the shortfall make-up
date and after the end of any other deposit period ending
before the shortfall make-up date
Penalty notices for specific tax period – can contact IRS within
90 days and redesignate where the deposit is to be applied.
8.2 Depositing Withheld Income & Employment Taxes
Redesignating estimated tax payments as
employment tax deposits
• If employer determines its corporate income tax
liability for the current tax year will be less than the
amount of estimated income tax payments already
made, the employer can redesignate some of the
estimated income tax it has paid as employment tax
deposits
8.2 Depositing Withheld Income & Employment Taxes
 Employer can avoid an averaged failure-to-deposit
penalty by:
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Monthly payer – verify monthly liability section of Form 941 is
completed properly
Semiweekly payer – verify the Schedule B is properly
completed (tax LIABILITY dates are to be used instead of tax
PAYMENT dates)
If employer is a semiweekly payer per IRS rules and does not
complete a Schedule B, the penalty is computed by taking the
total adjusted tax liability and distributing it equally
throughout the period
8.2 Depositing Withheld Income & Employment Taxes
IRS can … and WILL … apply a 100% penalty
for not withholding and paying taxes
 Known as the “Trust Fund Recovery Penalty” or the
“100% Penalty”
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Responsible person must have acted willfully in not
withholding and paying over withheld income and
employment taxes
Notice must be given at least 60 days before IRS can issue a
notice & demand for payment of penalty
The liability for the penalty can be shared
PEO’s can face trust fund penalties as well
8.2 Depositing Withheld Income & Employment Taxes
 Criminal Penalties can also be assessed
 If found guilty, the person(s) are guilty of a felony and can be
fined up to $10,000. and/or imprisoned for up to 5 years
 Penalty and interest notices must be detailed – part
of IRS Restructuring & Reform Act of 1998
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Include name of penalty
IRC section under which it is imposed
Computation of the penalty
If interest is imposed, must include IRC section and
calculation of the interest
8.3 Form 941
Who Must File Form 941
Employers exempt from filing Form 941
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Seasonal employers that do not pay wages regularly
Businesses that withhold federal income tax from only
nonpayroll items
Employers that report only withheld taxes on domestic
workers
Employers that report only wages for employees in US
territories
Agricultural employers
Employers that have an annual employment tax liability of no
more that $1,000 & file Form 944
8.3 Form 941
Who Must File Form 941
Business Reorganizations
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If an employer sells or transfers its business, a separate Form 941
must be filed by both the previous and current owners
Each must only report the wages it paid and taxes it withheld
Statutory merger or consolidation of two
businesses
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Surviving corporation must file Form 941 for the quarter during
which the change took place, reporting for both companies
The reporting results in discrepancies between the amounts shown
on the surviving corporation’s Forms W-2 and 941 for the year of the
merger or consolidation
Surviving corporation should file Schedule D (Form 941) Report of
Discrepancies Caused by Acquisitions, Statutory Mergers, or
Consolidations with final 941 of year
8.3 Form 941
Completing the Form
Form 941 is scannable
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Created so that it can be scanned by IRS
Scanning requires conformity
Substitutes that follow the format will be acceptable
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Forms should not be submitted to the IRS for specific approval
Software developers and form producers send in a PDF format
to assist the IRS in preparing to scan the forms
Beginning 1 Qtr 2011, no business packages will be mailed out
by IRS. To get forms, go to www.irs.gov.
8.3 Form 941
Completing the Form
Completing Form 941
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12-point Courier font
Omit dollar signs
Enter dollars to the left of the pre-printed decimal points &
cents to the right
Use of commas is optional
Leave blank any data field with a value of zero
Enter negative amounts using a minus sign, if possible,
otherwise use parentheses
Enter the employer’s name & EIN on all pages & attachments
Staple multiple sheets in the upper left corner for filing
8.3 Form 941
Completing the Form
 Form must have employer’s signature
 Owner, if sole prop
 Principal corporate officer, if corporation or LLC (treated as a
corp)
 Authorized member or partner of an unincorporated
association or partnership (including LLC treated as a
partnership)
 Owner of a single member LLC
 A fiduciary if the employer is a trust or estate
8.3 Form 941
Completing the Form
 Forms signed by agents
 Agent obtains authorization from the IRS by having the
employer designate the agent on Form 2678, Employer /
Payer Appointment of Agent
 Attorney, accountant, other representative or employee must
obtain a proper power of attorney by completing Form 2848,
Power of Attorney and Declaration of Representative
8.3 Form 941
Completing the Form
 Third party can discuss form with IRS
 Employer must check the “Yes” box in Part 4 of Form 941 and
 Enter the name, phone number, & 5-digit personal
identification number of the third party
 This authorizes the designee to:
Provide the IRS with any missing information from the Form 941
 Call the IRS for any information about processing
 Respond to the IRS concerning IRS notices that the employer has
shared with the designee about math errors on the form and
return preparation
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8.3 Form 941
Completing the Form
 Does not authorize the designee to receive a refund
check
 Bind the employer to anything or otherwise
represent the employer
 Designation expires one year from the due date of
the Form 941
 Can be revoked beforehand by either the employer or
designee
8.3 Form 941
Completing the Form
 Alternative signature methods
 1998 – IRS Restructuring and Reform Act – Electronic
signatures
 2005 – Facsimile signatures allowed
 This procedure is primarily a convenience for payroll service
providers
 New Employers
 Yet to be assigned an EIN should type the words “Applied For”
and the date of the application in the EIN space provided on
the form
8.3 Form 941
Completing the Form
 Employers going out of business
 Check the box on Line 18 when completing its last Form 941 &
enter the last date on which wages will be paid
 Attach a statement showing the address where the employer’s
records will be kept, name of the person keeping the records, &
if business was sold, the name & address of the new owner
8.3 Form 941
Completing the Form
 Claiming the COBRA credit on Form 941
 American Recovery and Reinvestment Act of 2009
 Refundable payroll tax credit
 Taxes to offset:
Employee federal income tax withholding
 Employee share of social security & Medicare taxes
 Employer share of social security & Medicare taxes
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If the COBRA credit taken exceeds the amount of the
employer’s payroll tax liabilities, the employer is entitled to a
tax refund from the US Treasury or a credit to the next quarter
8.3 Form 941
Completing the Form
 Form 941 was amended in 2009 by adding Lines 12a
and 12b.
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12a = amount of the credit being claimed
12b = number of eligible individuals who paid the discounted
COBRA premium
 Employers can claim the credit as soon as the eligible
individual pays the 35% discounted premium
 IRS will apply the full amount of the COBRA credit
reported on Line 12a & treat it as deposited on the 1st
day of the quarter; each deposit thereafter will be
treated as timely up to the amount of the credit
8.3 Form 941
Completing the Form
 Look back period is unaffected
 Computed from Line 8 of Form 941 – Total Taxes After
Adjustments – before taking into account any credits.
 Next Day deposit rule applies to employment tax
liability prior to applying the credit to the payment
 COBRA credit does not have to be taken in the
quarter in which it was paid, can be taken in a later
quarter in the same calendar year or on Form 941-X
for the quarter in which the subsidy was provided
8.3 Form 941
Completing the Form
 COBRA credit does not affect Schedule B reporting
 Schedule B (Form 941) is used to report an employer’s tax
liability for each time it makes payments subject to
employment taxes, not the amount of the tax deposits
 For Monthly depositors, the monthly tax liability
totals reported in Part 2 of Form 941 is unaffected
 Employers must maintain supporting
documentation related to the discounted subsidy
claim; currently IRS does not require reporting of
these items other than the offset amount (list on
page 8-31)
8.3 Form 941
Completing the Form
 Payments made with Form 941
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For employers that qualify with employment tax liability of less than
$2,500 in the current or preceding quarter
Include Form 941-V, Form 941 Payment Voucher with the
employer’s Form 941 and include the following:
EIN or “Applied For” if unassigned
 Darken the oval for the quarter
 Employer’s name & address
 Amount paid
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 These employers cannot take advantage of the 10-day
extension granted to employers that have deposited their
entire tax liability on time throughout the quarter
8.3 Form 941
Completing the Form
 Payment can be made via phone or internet using a
credit or debit card.
 If filing Form 941 via e-file, you can e-pay balance
due using a tax preparation software or through a tax
professional. This payment is known as EFW –
Electronic Funds Withdrawal.
 And, of course, you can ALWAYS pay using EFTPS!
8.3 Form 941
When & Where to File Form 941
FORM 941 FILING DEADLINES
QUARTER
QUARTER
ENDS
941 DUE DATE
AUTOMATIC
EXTENSION
JAN – MAR
MARCH 31
APRIL 30
MAY 10
APR – JUNE
JUNE 30
JULY 31
AUGUST 10
JULY – SEPT
SEPTEMBER 30
OCTOBER 31
NOVEMBER 10
OCT – DEC
DECEMBER 31
JANUARY 31
FEBRUARY 10
If the Form 941 due date falls on a Saturday, Sunday or legal FEDERAL holiday,
the due date becomes the next business day.
8.3 Form 941
Completing the Form
 Mailed Forms 941
 Considered filed on the date of the postmark on the envelope
by the USPS and can be timely filed even if received after the
due date
 “Post Mark Rule” – applicable for IRS designated PDS (Private
Delivery Service)
 Important to retain certified mail receipts to serve as proof of
timely filing
8.3 Form 941
Completing the Form
 Proof of mailing vs proof of delivery
 Certified or registered mail are the only way to prove mailing &
support the presumption that a document has been delivered
even if the IRS shows no record of receipt
 IRS provides addresses for mailing paper Form 941
in the Form 941 instructions
8.3 Schedule B (Form 941)
 Filed by:
 Semiweekly depositors
 Monthly depositors that accumulate at least $100,000 in
employment tax liability during a month
 Records an employer’s payroll tax liability on the
date payments were made subject to payroll taxes
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Not deposits made
Not recorded on date paid
 IRS uses it to determine if the employer has
deposited its federal employment tax liabilities on
time
8.3 Schedule B (Form 941)
 Amending a previously filed Schedule B
 Semiweekly depositor: If an employer has been assessed a
failure-to-deposit penalty for a quarter & made an error on
Schedule B that will not change the total liability for the
quarter that was reported on Schedule B may be able to reduce
the penalty by filing a corrected Schedule B
 Monthly depositor: Employers can also file a Schedule B if they
have been assessed a failure-to-deposit penalty for a quarter &
made an error on the monthly tax liability section of Form 941.
Only the correct monthly totals should be entered, daily entries
are not required
 File Amended Schedule B with the Form 941-X for a tax
decrease or a tax increase ONLY.
8.3 Schedule R (Form 941)
 Allocation Schedule for Aggregate Form 941 Filers
 Form released in 2010
 Filer has to be approved by the IRS as an agent to file
this form
8.3 IRS Advise on Avoiding Form 941 Errors
 IRS has offered employers advice to help them avoid
the most common errors made when completing
Form 941.
 At the bottom of Page 8-43 and top of 8-44 in your
book is the list adapted for the 2013 Form 941
8.3 Form 945
 IRS developed Form 945, Annual Return of
Withheld Federal Income Tax and removed all
nonpayroll items from Form 941
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This was done to reduce the complexity of Form 941 & ease the
reconciliation among Forms 941, W-2 & W-3
 Form 945, businesses report amounts withheld
throughout the year from nonpayroll items
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Also report total deposits of these nonpayroll withheld taxes &
any amount withheld but not yet deposited for the form is
completed
8.3 Form 945
 A monthly summary of tax liability is reported on
Form 945 Lines A-L with the total being entered on
Line M
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Completed by monthly depositors with at least $2,500
 Semiweekly depositors complete Form 945-A,
Annual Record of Federal Tax Liability
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Also monthly depositors that accumulate at least $100,000 in
nonpayroll withheld tax
 Third party can be designated
8.3 Form 945
 When & where to file Form 945?
 Due on January 31st of the following year
 Extension to February 10th if all deposits are made timely
throughout the year
 Mailing address is provided in the Form 945 instructions
8.3 Form 941-M
 Monthly reporting for Delinquent Employers
o Effective January 1, 2012, the IRS no longer requires
employers that continuously fail to withhold or deposit taxes
or file returns on time to report employment taxes monthly
rather than quarterly, using Form 941-M, Employer’s Monthly
Federal Tax Return.
 The IRS declared the monthly filing and special
deposit procedures obsolete and said employers who
had been required to use those procedures must file
Form 941.
8.3 Form 941-PR & 941-SS
 Form 941-PR is filed by employers with employees in:
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Puerto Rico
 Form 941-SS is filed by employers with employees in:
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American Samoa
Guam
Northern Mariana Islands
Virgin Islands
 Each of these forms is used to report an employer’s
liability for social security & Medicare taxes, but not
federal income tax withholding
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Form 941 must also be filed to report federal income tax withholding
8.3 Domestic Employees
 Individuals hiring domestic employees must report & pay
both employer & employee share of social security &
Medicare taxes on wages it pays these employees on their
personal tax return, Form 1040, on Schedule H
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Threshold requirement is $1,800 per year for 2013
Employer must withhold, report & pay federal income tax if the
employee requests it.
Household employers are required to make payments of withheld
taxes throughout the year.
 Sole prop who file Form 941 for business employees may
report the household employee wages on Form 941 as
well if the $1,800 threshold is met
8.3 Form 943 – Annual Reporting by Agricultural
Employers
 Employers of farmworkers
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Must withhold federal income tax & withhold and pay social security
& Medicare taxes on farmworker wages
Annually report the wages paid & taxes withheld on Form 943
 A monthly summary of tax liability is reported on Form
943 Lines A-L with the total being entered on Line M
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Completed by monthly depositors
 Semiweekly depositors complete Form 943-A,
Agricultural Employer’s Record of Federal Tax Liability
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Also monthly depositors that accumulate at least $100,000 in payroll
tax liability
 When & where to file?
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Due date is January 31 of the following year
8.5 Form 944 – Annual Reporting by Small Employers
 2006 – Employers’ Annual Federal Tax Program
(Form 944) (EAFTP) was developed by the IRS
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Benefited small employers by reducing the filing burden
 2008 – Employers were notified by the IRS if they
were eligible for the program
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Required to file Form 944 until they were no longer eligible
 2009 – IRS changed the rules to make EAFTP
voluntary
 Annual employment liability of $1,000 or less
qualifies employers for eligibility
8.5 Form 944 – Annual Reporting by Small Employers
 Opting out of the Program - In 2010, employers who wish
to opt out of the program, must do so by calling or writing
the IRS & get written confirmation that their filing
requirement has been changed
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Call by April 1
Postmarked written request by March 15
 Opting into the program – In 2013, employers that believe
they are eligible to file Form 944 and wish to do must
request notification of their eligibility from the IRS.
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Call by April 1
Postmarked written request by March 15
8.5 Form 944 – Annual Reporting by Small Employers
 Minimal differences between the 944 & the 941
 No question regarding the number of employees on the payroll
on any specified date
 If total employment tax for the year is $2,500 or more, each
month’s liability must be indicated in Part 2
 There is no check box for seasonal employers
8.5 Form 944 – Annual Reporting by Small Employers
 When & where to file?
 Due date is January 31 of the following year
 Qualifies for 10-day automatic extension if all deposits have
been made on time
 Correcting Form 944
 On or after January 1, 2009, corrections should be made on
Form 944-X, Adjusted Employer’s Annual Federal Tax Return
or Claim for Refund
 Prior to January 1, 2009, corrections should be made on Form
941c, Statement to Correct Information
8.6 Making Corrections / Adjustments
 Form 941-X used to correct the following:
 Wages, tips & other compensation
 Income tax withheld from compensation
 Taxable social security wages
 Taxable social security tips
 Taxable Medicare wages and tips
 Advanced EIC payments made to employees
 Not used to correct number of employees reported
8.6 Making Corrections / Adjustments
 Form 941-X due dates are dependent upon when the error
was discovered & if taxes are over- or under-reported

Underreported taxes discovered in:







Q1 due by April 30
Q2 due by July 31
Q3 due by October 31
Q4 due by January 31
The final deadline for filing is 3 years from the date the original Form 941 was
filed
Overreported taxes final deadline is 3 years from the date the original
Form 941 was filed or 2 years from the date you paid the tax reported on
Form 941
Can request funds in two different ways:


Credit to next quarter liability, or
Refund mailed to the employer
8.6 Making Corrections / Adjustments
 Form 843, Claim for Refund and Request for
Abatement


Prior to 2009, this form was filed with Form 941c to request a
refund of overpaid taxes
In 2009 & beyond, Form 941-X replaces both forms

However, Form 843 should still be used to request a refund or
abatement of assessed interest or penalties
8.7 Penalties for Late Reporting and Paying Tax
 Late filing of employment tax returns results in an
“addition to tax”

5% of the tax shown on the return for each month the return is
late up to the maximum of 25% (higher % if fraudulent)
 Failure to pay employment taxes results in an
“addition to tax”
 Additions to tax, civil penalties & interest are not the
only penalties employers face

Criminal fines & imprisonment can also be enforced
8.7 Penalties for Late Reporting and Paying Tax
 Late filing of employment tax returns results in an
“addition to tax”

5% of the tax shown on the return for each month the return is
late up to the maximum of 25% (higher % if fraudulent)
 Failure to pay employment taxes results in an
“addition to tax”
 Additions to tax, civil penalties & interest are not the
only penalties employers face

Criminal fines & imprisonment can also be enforced
8.7 Penalties for Late Reporting and Paying Tax
 1998 – IRS Restructuring and Reform Act, IRS
penalty & interest notices have to include details as
to how they were determined & also including:



Name of the penalty
IRC section under which it is imposed
Computation of the penalty
8.8 Information Reporting for Employees
 Should a Form W-2 be provided?



IRC requires a Form W-2 to be provided by any employer engaged in
a trade or business that pays compensation to an employee for work
performed, even if the employee is not paid in cash
IRC requires Form W-2 if the employer withheld federal income tax
from the employee or would have done so if the employee had
claimed no more than one withholding allowance
IRC requires Form W-2 reporting for all wages, as defined for federal
income tax withholding purposes and for all noncash compensation
provided to an employee that is not subject to withholding, if the
total of the wages and the noncash compensation is at least $600 in a
calendar year
8.8 Information Reporting for Employees
 Surviving corporation after a merger or
consolidation issues W-2’s for all employees during
the year
 Successorship options:


Standard: Predecessor makes final payment of wages & reports
the wages on Form W-2; successor reports only the wages it
pays
Alternate: Successor provides Forms W-2 for all wages & taxes
from both parties; predecessor only issues Forms W-2 for
employees who did not work for the successor after the
acquisition – Requires each company to file Schedule D to
explain discrepancies between their Forms 941 and W-2
8.8 Information Reporting for Employees
 Special problems in providing Forms W-2
 Undeliverable Forms W-2: The employer has been unable,
after reasonable effort, to deliver the employee’s copies; it
must keep those copies for 4 years
 Reissued Forms W-2: If an employee loses a Form W-2, the
employer can issue a new copy to the employee and should
write “Reissued Statement” on it unless the form is provided to
the employee electronically
 Corrected Forms W-2: If Copy A has not been sent to the SSA,
the employer provides the employee with corrected copies of
the Form W-2 with “CORRECTED” written on them
8.8 Information Reporting for Employees
 When & where to furnish Form W-2
 Copy A, Form W-2 is an information return & must be sent to
the SSA
Paper copy due by February 28
 Electronically due by March 31 (this was extended by the IRS
Restructuring and Reform Act of 1998)


Copies B, C & 2, Form W-2 are the employee’s copies; these
information statements must be sent to the employee by
January 31 of the following year
Copy B – Employee Federal copy
 Copy C – Employee’s Records
 Copy 2 – Employee State or Local copy

8.8 Information Reporting for Employees
 Employer can provide copies electronically with the
employee’s consent





Employer must provide the employee with a clear statement
containing the required disclosures
Electronic copy must contain all the required information as a
substitute statement
Must be accessible by January 31
Employee must be notified by January 31 the electronic copy is
available
Employer must maintain access to the electronic copy through
October 15 of the following year
8.8 Information Reporting for Employees
 Substitute Forms W-2 are acceptable as long as they
meet IRS requirements & maintain the core
information
 Miscellaneous Form W-2 Issues



Hyphenation – Employer EIN & Employee SSN must contain
hyphens
Dollar amounts – Entered without commas or dollar signs, but
with decimal points & cents portion shown
Electronic reporting – Employers filing 250 or more Forms
W-2 for a calendar year are required to file them electronically
8.9 Information Reporting for Employers to SSA
 Providing Wage & Tax Info to the SSA – Form W-3
 If filing paper W-2 (Copy A) with the SSA, Form W-3,
Transmittal of Wage and Tax Statements
 Form W-3 contains totals of the amounts reported on the
employer’s W-2 forms, acting as a “reconciliation” of those
forms
 Form W-3 not for electronic filers; employers that file
electronically do not file a transmittal document
8.9 Information Reporting for Employers to SSA
 When and where to file Form W-3?
 Due date for filing is the same as Copy A of Form W-2 with
SSA – last day of February
 Mailed with all Copy A Forms W-2
 W-2c consists of six parts, same as the W-2
 Copy A of Form W-2c must be sent to the SSA along
with Form W-3c which totals the information from
all the W-2c forms being submitted
 Electronic filing requirement applies only for the
immediate prior year
8.11 The Reconciliation Process for Employers
 With the differing aspects to the tax collection,
payment & reporting process – it is imperative that
employers keep track of each step and its
relationship to the others
 To help prevent “out-of-balance” conditions and
reduce their confrontations with federal and state tax
agencies, employers must periodically “reconcile”
their wage and tax information
8.11 The Reconciliation Process for Employers
 If an employer’s totals from its four quarterly Forms
941 do not agree with the totals from its Forms W-2
the IRS or SSA will inquire as to why & expect
corrections to be made
 These amounts include:




Social security wages
Social security tips
Medicare wages and tips
Advanced EIC payments
8.11 The Reconciliation Process for Employers
 If an employer’s totals from its four quarterly Forms
941 do not agree with the totals from its Forms W-2
the IRS or SSA will inquire as to why & expect
corrections to be made
 These amounts include:




Social security wages
Social security tips
Medicare wages and tips
Advanced EIC payments
8.12 Information Returns for 1099 Series
 Pension and Retirement Plan Distributions – Form
1099-R



Payers who make distributions of retirement income must
report those payments and any amount withheld for federal
income tax on From 1099-R, Distributions From Pensions,
Annuities, Retirement or Profit-Sharing Plans, IRAs,
Insurance contracts, etc
Distributions from all types of retirement plans must be
reported on Form 1099-R
Must report taxable and nontaxable amounts distributed;
gross distribution is entered in Box 1, taxable amount in Box
2a, & the nontaxable amount in Box 5
8.12 Information Returns for 1099 Series
 Pension and Retirement Plan Distributions – Form
1099-R

Determining Taxable & Nontaxable amounts:
All employee contributions to a qualified retirement plan, as well
as employee pre-tax contributions plus the earnings on all plan
contributions are included in the taxable amount of a distribution
 The nontaxable amount is the portion of the distribution
attributable to employee after-tax contributions, which were
already taxed as wages before the contribution was made

8.12 Information Returns for 1099 Series
Designated Roth contributions



Effective in reporting year 2006, trustees must report the
year when the employee began making designated Roth
contributions from a 401(k) or 403(b) plan in the box, “1st
year of design. Roth contrib.”
Designated Roth account distributions that are not qualified
distributions must be reported on form 1099-R, with
distribution code B in Box 7. Use code Q for qualified
distributions from a Roth IRA. The employee’s basis in the
distributions is reported in Box 5.
8.12 Information Returns for 1099 Series
Direct rollovers:



Payers making a direct rollover of a plan distribution must report
the amount distributed on Form 1099-R as it would any other
distribution
The payer must also add a distribution code in Box 7 identifying
the distribution as a direct rollover
Filing form 1099-R





Copies B, C and 2 of Form 1099-R must be sent to the payee by
January 31 of the year after the year during which the distributions
were made
Paper Copy A due by February 28, with transmittal Form 1096
Electronic Copy A due by March 31
Electronic filing is required if filing 250 or more Forms 1099-R
8.13 Penalties for Incorrect or Late Information Returns &
Statements
Failure to File Information returns

Penalties are assessed against employers or payers that file
information returns with the IRS or SSA:









After the due date “Failure to file timely”
Incorrect/Incomplete Info “Failure to file correct information”
The severity of the penalty generally depends on how late
the return is filed or how late the correct or complete info is
provided
Willful failures bring higher penalties
Payers can be sued for filing fraudulent returns
Agency allows for a small number of incorrect or incomplete
returns corrected at no cost
Insignificant errors are not penalized
No penalty for errors due to reasonable cause
8.13 Failure to Provide Information Statements to Employees
 Employee Statements if not provided to an






employee or other payee on time or with correct
info, a penalty of $50 per statement may be
imposed, up to a maximum of $100,000
No lower maximums for small business
Willful failures bring higher penalties
No “de minimis” exception
No penalty for inconsequential errors
No penalty for errors due to reasonable cause
Fraud brings criminal & civil penalties
8.14 Electronic Reporting Requirements
 Employers that file 250 or more Forms W-2 , Copy A




must file them electronically
Same applies to 1099 filing
250-threshold applies to each type of form
separately, not in total
SSA no longer accepts mag media for Form W-2
filing
Forms W-2c, effective in 2007, IRS requires file 250
or more during a calendar year to be filed
electronically with the SSA, only applies to Forms W2 corrected for the immediate prior year
8.14 Electronic Reporting Requirements
 Electronic wage reporting over the Internet
 Electronic Forms W-2 are filed over the Internet through the
SSA’s Business Services Online (BSO)
 Can be used to file Forms W-2 from the third week of
December through the end of the filing season (March 31)
 Employers can fill in and submit W-2s/W-3s and W-2cs/W3sc online


This encourages small employers to submit online without
incurring programming costs
Electronic Forms 1099 are filed with the IRS through the
Filing Information Returns Electronically (FIRE) system at
http://fire.irs.gov
8.14 Electronic Reporting Requirements
 Employment tax e-file system for Forms 940, 941 &
944

Allows electronic return originators (EROs) to offer their
clients electronic employment tax filing
Features:
 Filing options, flexible filing, explicit error conditions, instant
acknowledgements, integrated payment option, electronic
signature process
 Who can participate?
 EROs, Reporting agents, third party transmitters, software
developers, online filing providers

8.15 Reporting “Special Wage Payments” to the SSA
 Special Wage Payments refer to payments made by
an employer to an employee or a former employee
that the employee earned in a prior year


These payments significantly impact retired employees unless
the SSA is notified about such payments; benefits can be
reduced when the annual earnings test is applied
However, wages or payments received in one year but earned
in a previous year are not counted under the “annual earnings
test”
8.15 Reporting “Special Wage Payments” to the SSA
 Examples of special wage payments
 Bonuses
 Accumulated vacation or sick pay
 Severance pay
 Back pay
 Standby pay
 Sales commissions
 Stock options
 Payments on account of retirement, or deferred compensation
reported on a Form W-2 for one year but earned in a prior year
8.15 Reporting “Special Wage Payments” to the SSA
 Reporting requirements:
 Guidance for reporting special wage payments can be found in
IRS Publication 957, Reporting Back Pay and Special Wage
Payments to the Social Security Administration
 Can report electronically through SSA’s BSO or via magnetic
media
Questions