Summary of Payroll Tax Guidelines 2012 - Accounting, Audit, Tax
Payroll & Estimated Tax - Farm Office · Payroll & Estimated Tax Chapter 7 pp. 205-234 2018...
Transcript of Payroll & Estimated Tax - Farm Office · Payroll & Estimated Tax Chapter 7 pp. 205-234 2018...
Payroll & Estimated TaxChapter 7 pp. 205-234
2018 National IncomeTax Workbook™
Chapter Topicspp. 206 - 234
Payroll:▪ Withholding, Tax deposits, Payroll reporting▪ Penalties▪ Federal Unemployment Taxes▪ Paid Time Off▪ Business Expense Reimbursements▪ Fringe Benefits▪ Independent Contractors
Estimated Taxes
Income Tax Withholding pp. 206 - 207
Withholding Calculationp. 209
If using prior year W-4 data:▪ Keep same number of withholding allowances▪ Keep same additional withholding▪ Assume lines 5, 6, 7, and 8 are zero
New W-4: Basic withholding (Pub 15/15A)▪ 2 allowances MFS or single▪ 3 allowances for MFJ or H/H
Adjusting Withholding pp. 209 - 210
Adjust Withholding if entries on lines 5 through 9:1. Divide amounts on lines 5, 6, 7, and 8 by the total
number of pay periods in the year. 2. Add the results from step 1 to the employee’s wages
per pay period. 3. Subtract the result from step 1 for line 6 from the
result from step 2. 4. Figure the income tax withholding using the result
from step 3 as wages, allowances for the filing status on line 3
Adjusting Withholding, cont’d pp. 209 - 210
5. Reduce the income tax withholding result from step 4 by the income tax credits per pay period figured in step 1 for line 7 (Not below zero).
6. Separately figure the income tax withholding on the amount, if any, from step 1 for line 8.
7. Subtract the income tax withholding result from step 6 from the result in step 5, to figure the amount of income tax withholding per pay period.
8. Add the amount, if any, from line 9, to the income tax withholding per pay period figured in step 7.
Social Security & Medicare Taxpp. 210 - 211
Social Security Tax – 12.4%▪ 6.2% by employer and 6.2% by employee▪ 2018 maximum wage limit: $128,400
Medicare Tax – 2.9%▪ 1.45% by employer and 1.45% employee ▪ no wage base limit
Additional Medicare Taxp. 211
Imposed on employees if wages greater than:▪ $250,000 MFJ▪ $200,000 Single or HOH▪ $125,000 MFS
Tax is .9% on wages > $200,000
No employer share for additional Medicare tax
Successor Employerp. 211
Predecessor wages treated as paid by successor if:
1. Acquired substantially all property used in trade or business or used in separate unit of predecessor
2. Employee employed by the predecessor prior to and by successor after
3. Wages were paid during the calendar year of acquisition and prior to acquisition
Deposit Schedule p. 212
Current or prior quarter liability < $2,500, deposit quarterly with Form 941
Accumulates $100,000, next business day Use lookback period – 12 mos ending June 30
▪ Aggregate tax ≤ $50,000, deposit Monthly By 15th day of following month
▪ Aggregate tax > $50,000 deposit Semiweekly
Payroll Reportingpp. 213 - 214
Form 941: Filed quarterly:
Form 944: Employment taxes ≤ $1,000 and receives written IRS notice to file Form W-2: ▪ To Social Security & Employee by 1/31
Failure to File Correct W-2 p. 214
Unfiled, untimely, incomplete, incorrect Amount based on when correct filed Not applicable if: Reasonable cause & not willful neglect Error/omission inconsequential Safe harbor for de minimis error applies No single amount off > $100 and No single amount withheld off > $25
Failure to Furnish Correct W-2 p. 214
Unfiled, untimely, incomplete, incorrect
Amount based on when correct furnished
N/A if error/omission inconsequential
Required Deposit Penalties p. 214
2% - if 1- 5 days late
5% - if 6 - 15 days late
10% - if : ▪ ≥ 16 days late & < 10 days from 1st notice▪ Not deposited - paid directly to IRS/with return
15% - if unpaid > 10 days after earlier of:▪ 1st notice, or ▪ Date TP rec’d notice & demand for payment
Trust Fund Recovery Penaltyp. 215
Responsible person personally liable for penalty if:▪ They are responsible for collecting/paying
withholding amounts, and▪ They willfully fail to collect/pay the taxes
Responsible person: duty to perform & power to direct collection, accounting, paying the taxes
Willful: Was/should have been aware of unpaid taxes & intentionally disregarded/was indifferent
Federal Unemployment Taxes p. 215
Employer pays on wages to employees if:
▪ Employer paid wages ≥ $1,500 in any QTR of 2017 or 2018,
OR▪ Employer had ≥ 1 employee part of a day in any 20
or more weeks in 2017 or in 2018
6% on first $7,000 paid to each employee
Credit up to 5.4% for timely, fully pd state FUTA
FUTA Deposits p. 216
If liability < $500 for quarter, no deposit required▪ Carry forward to next quarter
If liability ≥ $500, EFT deposit by last day of 1st month following quarter
Generally Form 940 due January 31▪ If all FUTA deposited timely - due Feb 10
Paid Time Off (PTO) – Sick Pay p. 216
Sickness, disability, personal injury Can be paid by employer or 3rd party Does NOT include pay for:
▪ Disability retirement, workers’ comp, public employees work-related injury, medical expenses & unrelated to work absence
Generally subject to withholding, FICA, FUTA▪ Not taxable to extent employee paid/taxed on prem.▪ N/A if paid to estate in year after death
PTO – Sick Pay pp. 216 - 217
If both employee and employer contributed▪ Taxable portion = (Total sick pay) x (% of cost
employer paid in 3 prior years)
No SS, Medicare, FUTA if paid > 6 mos after last month in which employee worked
Reporting requirements▪ Same as for regular wages – Box 1▪ W-2 required even if all nontaxable –
nontaxable sick pay in Box 12, code J
Paid Time Off (PTO) –Vacation Pay pp. 217 - 218
Treat as regular wages for withholding/reporting
If paid in addition to regular wages = supplemental▪ ≤ $1M: withholding based on aggregate or flat rate▪ Aggregate: Reg + supp = single wage paymt▪ Flat rate: 22% on supplemental pd after 12-31-17▪ Subject to SS, Medicare, FUTA▪ If > $1M/year, excess subject to 37% flat rate
Accumulated PTO paymt = supplemental wage
Business Expense Reimbursements p. 218
General Rules:▪ Nonaccountable plan reimbursements are taxable▪ Accountable plan reimbursements are not taxable
Accountable Plan1. Business connection2. Substantiation3. Returns amounts in excess of expenses If not returned, excess is taxed
Nonaccountable Planspp. 218 - 219
Considered a nonaccountable plan if: ▪ Expense has no business connection▪ No substantiation required▪ Excess amounts are not returned
All treated as under nonaccountable
Employee cannot make plan accountable by substantiating and returning excess
Fringe Benefitspp. 219 - 220
Taxable unless specifically excluded
Examples of includable items:▪ Vehicle provided for personal use ▪ Flight on employer-provided aircraft ▪ Free/discounted commercial flights ▪ Vacations ▪ Discounts on property or services ▪ Country Club or Social Club membership ▪ Ticket’s to events
Excluded Fringe Benefitsp. 220
Examples of excludable items:
▪ Qualified tuition reductions - IRC § 117 (d)
▪ Meals/lodging - IRC § 119
▪ Dependent care assistance - IRC § 129
▪ No additional cost, discounts, working condition fringe, & de minimis - IRC § 132
Fringe Benefits Reporting & Withholding p. 220
Determine FMV of fringe by Jan 31 Can treat noncash as paid on any
frequency but not less than annually Exception: Investment and real property
treated as paid on actual transfer date Period can differ among EEs Must be treated as paid no later than Dec 31
Withhold on aggregate or flat rate
Noncash Wages for Farm Labor p. 221
Not subject to:▪ Federal income tax withholding▪ Social Security ▪ Medicare taxes
Exception: If substance of payment is cash payment, treated as cash wages▪ Subject to all wage taxes
Independent Contractor Withholding p. 221
No obligation to withhold on payments unless subject to backup withholding:
1. Fails to furnish TIN2. IRS notifies payer that TIN incorrect3. IRS notifies payer to withhold on interest or
dividends due to prior nonreporting4. Fails to certify not subject to backup withholding
24% rate
Backup Withholding & Reporting pp. 221 - 222
Generally no backup withholding on F1099 if:
▪ Paid < $600 ▪ No 1099 to payee previous year and▪ No prior year payments subject to B/U
If backup withholding required:
▪ File F945 (annual) by January 31▪ < $2,500 pay with return or EFT
Estimated Tax Topics pp. 223 – 234
When estimated payments required Calculating estimated payments When to make estimated payments How payments are applied How to pay estimated payments Estimated tax penalties Annualized income installment method
Estimated Tax p. 223
Estimated tax may be needed if withholding is less
than your tax liability
Estimated Payments Required p. 223
Estimated payments required if:
1. TP owes ≥ $1,000 after withholding & refundable credits
2. Withholding & refundable credits to be less than the smaller of:
a. 90% of tax on current year return, ORb. 100% of tax on prior-year return
(110% if AGI > $150,000 ($75,000 MFS)
Special Rules for Farmers & Fisherman p. 223
If ≥ ⅔ gross income from farming/fishing:
• Estimated tax required if withholding & refundable credits is < smaller of:• 66 ⅔ % of tax on current year, OR• 100% prior year tax
• Make one estimated payment by Jan 15
• File & pay full amount by Mar 1
Estimated Tax Not Required p. 223
No estimated payments required if:
▪ No tax liability for the prior year, AND
▪ US citizen/resident alien entire year, AND
▪ Prior tax year covered a 12-month period
Estimated Tax Flowchartp. 224
When to Make Estimated Payments p. 227
2019 Estimated Tax Payment Due Dates
For the Period Due DateJan 1 - March 31 April 15, 2019April 1 – May 31 June 17, 2019June 1 – Aug 31 Sept 16, 2019Sept 1 – Dec 31 Jan 15, 2020
If files by Jan 31 and pays remaining tax owed, no estimated payment required by January 15.
How Payments are Applied p. 227
If TP fails to make one payment, subsequent payment is applied
to earlier liability
How Payments are Applied p. 227
Withholding & Excess Social Security▪ Applied evenly among installments▪ To apply withholding against specific
income, must file Form 2210
Joint payments of estimated tax▪ Allocate to MFS returns as spouses agree▪ No agreement, IRS will allocate based on
spouses’ separate tax liabilities
How to Pay Estimated Tax p. 228
Credit an overpayment
Pay online – account transfer, debit/credit card, online payment agreement
Mail a payment with Form 1040-ES voucher
By phone
IRS2Go mobile app
Estimated Tax Penaltypp. 228 - 229
Payments due when income earned Penalty can apply even if refund due Penalty calculation
▪ Based on underpayment rate (Individuals: federal short-term rate + 3%)
▪ Calculated separately for each payment▪ Based on # days - due date to paymt date
Form 2210 p. 229
Form 2210 used to:
▪ Determine if penalty owed
▪ Calculate penalty
▪ Request a reduction in the penalty
▪ Apply excess withholding to specific income
Waiver of Estimated Tax Penalty p. 230
Waiver of the Penalty▪ Casualty or other unusual circumstance▪ Taxpayer retired (after 62)▪ Became disabled in either of 2 preceding years▪ Reasonable cause, not willful neglect
To request waiver check Box A or B in Part II▪ May require explanation & documentation
Annualized Income Installment Method p. 230
Use if income not earned evenly through the year
Calculates tax liability at end of each payment period using income/deductions from beginning of year to end of period