Chapter 3 - Social Security Taxes
Download
Report
Transcript Chapter 3 - Social Security Taxes
SOCIAL SECURITY TAXES
FICA (1935)
SECA (1951)
Federal Insurance Contributions Act
Paid by employees and employers
6.2% OASDI plus 1.45% HI
Self Employment Contributions Act
Tax upon net earnings of self-employed
(6.2% + 6.2%) = 12.4% OASDI plus (1.45% + 1.45%) = 2.9% HI
3 issues
Are you an EE or independent contractor?
Is service rendered considered employment?
Is compensation considered taxable wages?
http://www.ssa.gov/employer
Employer “employs one or more individuals for
performance of services in U.S.”
IRS uses Common-Law Test to determine status
Certain occupations specifically covered
Agent- and commission-drivers of food/beverages or
dry cleaning
Full-time life insurance salespersons
Full-time traveling salespersons
Individual working at home on products that employer
supplies and are returned to furnished specifications
Government employees – certain exemptions from
OASDI/HI depending upon date of hire
Military personnel - certain types of pay exempt from FICA
In-patriates may be exempt from FICA (20 countries)
Family employees – in certain situations, children may be
exempt from FICA
Household employees
If they make cash wages of $1600 or more per year
Must pay if employee, like a nanny is under your control
ER must match FICA
Certain ministers/religious practitioners are exempt
Additional exemptions for inmates, medical interns, student
nurses and workers serving temporarily in case of
emergency
Persons may be classified as independent
contractors if they conduct an independent trade
or business
See Figure 3-2 (page 3-5) for characteristics of
independent contractors
Hiring agent does not pay/withhold FICA on
worker classified as independent
Independent contractor liable for his/her own
social security taxes on net earnings
Cash
Wages and salaries
Bonuses and commissions
Cash value of meals/lodging provided for
employee’s convenience
Fair market value of noncash compensation,
examples include:
Gifts (over certain amounts)
Stock options
Fringe benefits like personal use of corporate car
Prizes
Premiums on group term life insurance > $50,000
Other types of taxable wages found in Figure 3-3
(page 3-6)
Tips greater than $20 or more per month
EE must file Form 4070 with ER
ER calculates FICA on tips and withholds from regular
paycheck on these reported tips
Must withhold on first paycheck after tips are reported
ER must match FICA on reported tips
“Large employers” (11+ employees) must allocate
[(Gross receipts x .08) – reported tips]
Don’t have to withhold FICA on allocated tips, only reported
tips
Have to show allocated tip income on W-2
ER files Form 8027 at yea- end with IRS showing food/beverage
receipts and reported tips
Meals/lodging for ER convenience
Sick pay
After 6 consecutive months off (personal injury)
Sick pay by 3rd party (insurance company/trustee) with
specific stipulations for ER match
If paid directly to EE in lieu of health insurance payments is
taxable
Pay for difference between employees’ salary and military
pay (soldiers/reservists activated 30+ days)
ER contribution to pension plan
ER provided nondiscriminatory education assistance
Job-related educational expenses not subject to FICA
Payments for non-job related expenses up to $5,250
OASDI wages cap at $106,500 for 2009 (estimated)
HI wages never cap
FACTS: Tamara earn $132,000/year; paid semimonthly on the 15th
and 30th; determine FICA for 10/30/09 payroll
First must find prior payroll YTD gross $132,000/24 =$ 5,500.00
$5,500.00 x 19 payrolls (before today)= $104,500.00
How much will be taxed for OASDI?
$106,500.00 – $104,500.00 = $2,000.00
OASDI tax is $2,000.00 x 6.2% = $124.00
HI tax is $5,500.00 x 1.45% =$ 79.75
Total FICA is $124.00 + $79.75 =$ 203.75
Is this EE withholding or ER payroll tax expense?
Answer - both!!
FACTS: Ahmed earns $175,000/year; paid first of every month;
determine FICA for 8/1/09 payroll
What do we calculate first?
$175,000/12 = $14,583.33 per paycheck
YTD gross prior to current payroll =$14,583.33 x 7 = $102,083.31
$106,500.00 – %102,083.31 = $4,416.69 taxed for OASDI
$4,416.69 x 6.2% = $273.83 OASDI tax
$14,583.33 x 1.45% = $211.46 HI tax (remember - no cap!)
Total FICA = $273.83 + $211.46 =$ 485.29
Remember - the ER has withheld $485.29 from the employee’s
paycheck and must match this amount
EE and ER portion of FICA if net earnings exceeds $400
Partnerships
Distributive share of partnership net income subject to FICA
If you own more than one business - offset losses and
income and calculate FICA based on combined net
income
Can have W-2 and self employment income
Net Earnings = Net income + distributive share of
partnership income
Count both towards calculating cap of $106,500
Report on Schedule C “Profit or Loss from Business”
Also file Schedule SE “Self-Employment Tax”
Must include SECA taxes in quarterly estimated
payments
FACTS: W-2 = $107,768 and self employment income = $14,500;
how much is FICA on $14,500?
No OASDI because capped on W-2
HI = $ 14,500 x 2.9% = $420.50
Total FICA = $420.50
FACTS: W-2 = $78,000 and self employment income = $36,000;
how much is FICA on $36,000?
OASDI ($106,500 - 78,000) = $28,500 taxable OASDI wages x
12.4% = $3,534.00
HI = $36,000 taxable HI wages x 2.9% = $1044.00
Total FICA $3,534.000 + 1,044.00 = $4,578.00
One Federal Employer Identification Number (EIN)
per employer
Obtain
directly from http://www.irs.gov with no
preregistration necessary
TELE-TIN to obtain (EIN) immediately at 1-800-829-4933
Can still fax/mail Form SS-4
When purchasing an existing business, the new owner
needs a new EIN
SS-5 required for everyone one year old or older
To
apply for social security number
Required under SSA
W-7
for ITIN (aliens who must file a tax return, but are ineligible
for SS number)
Three ways available to verify social security numbers
Each November, based upon a look back period, IRS notifies ER as
to what ‘type ‘of depositor he/she is
Monthly - pay FICA and FIT by 15th of following month
or
Semiweekly
If payroll was W-F, deposit by next Wednesday
If payroll was S-T, deposit by next Friday
or
One day - $100,000 or more of federal payroll tax liability, taxpayer
has until close of next banking day
or
No deposit required - owe less than $2500 in entire quarter, wait
and pay when 941 report is filed
Different requirements for agricultural and household
employees
*New employers are monthly depositors unless $100,000+ of liability triggers one-day rule
EFTPS (Electronic Federal Tax Payment System)
Must use if total deposits exceed $200,000 for a year
10% penalty on every tax deposit not made through EFTPS if
required to do so
Enroll in EFTPS-Online at http://www.eftps.gov
All new employers automatically pre-enrolled
Two methods
ACH Debit Method – withdraw funds from employer’s
bank account and route to Treasury
ACH Credit Method – employer instructs his/her bank to
send payment directly to Treasury
Federal Tax Deposit Coupons, Form 8109
Take to Treasury Tax and Loan institution (federal
depository)
Or mail to Financial Agent in St. Louis, MO
Timely deposits requires postmarking two days before due date
Federal depository stamps date on coupon and forwards to IRS
IRS reconciles deposits with payments claimed by
employer on quarterly payroll return (Form 941)
Coupon has stub that ER keeps as payment record
File Form 941 (Employer’s Quarterly Federal Tax
Return)
Due on last day of month following close of quarter
January 31, April 30, July 30, October 31
Payments made with 941 if taxes for quarter are less
than $2500 or making monthly deposit
Download at www.irs.gov/formspubs/ or call 1-800-829-3676
Attach 941-V
941 e-file available for employers who meet
requirements
File Form 4996 and then electronically submit 941
Employers who owe $1000 or less per year may file
Form 944
Employer must have made timely deposits for prior two
years
Can also be used by new employers paying wages of
$4000 or less per year
IRS can require 941-M (monthly reporting) if employer
doesn’t deposit 941 taxes on time
Can amend previously filed Form 941s by filing Form
941X (replaces 941C)
Failure-to-comply penalties will be added to tax and
interest charges; negligence can also result in
fines/imprisonment
Interest set quarterly, based on short-term Treasury bill rate
Penalties imposed for following:
Not filing employment tax returns on time
Not paying full taxes when due
Not making timely deposits
Not furnishing W-2s to employees on timely basis
Not filing information returns with IRS on time
Writing bad checks
*Note: IRS estimates a full 30% of all employers incur penalties for insufficient/late
deposits of payroll taxes!!*