tax reporting fundamental payroll certification chapter 5 2011 1
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2011 Tax Reporting – TEST UPDATE Test will be using 2010 forms that are PRE ARRA
American Recovery and Relief Act 2009 Enacted February 13, 2009 Form 941 Change due to COBRA Credit
COBRA Premium Assistance EE Pays 35% of COBRA Premium ER Pays 65% COBRA Premium for EE and gets
Credit on 941 Return Subsidized for reduction in hours and involuntary
terminations between September 1, 2008 and December 31, 2009
Subsidy extended to March 31, 2010
2
Depositing Federal Taxes
The size and frequency of payroll tax liability determines the compliance dates for deposits
Penalties assessed for noncompliance What are Total Federal Taxes?
Employee Federal Taxes Federal Income Tax FICA 4.2% to Limit Medicare 1.45% No
Limit
Employer Federal Taxes No Federal Income
Tax FICA 6.2% to Limit Medicare 1.45% No
Limit
3
Depositing Federal Taxes
IRS tracks deposits and filings by EIN
EIN- Employer Identification Number Form SS-4 request for EIN to IRS EIN utilized on all:
Tax Deposits Tax Return filings Responding to IRS notices
4
Depositing Federal Taxes Total Federal taxes reconciled on Form
941 Employer Quarterly Tax Return
Tax deposit requirements based on the lookback period
4 Quarters For 2011:
3rd and 4th quarters of 2009 (July – December) 1st and 2nd quarter of 2010 (January – June)
5
Depositing Federal Taxes Deposit schedule – ER Responsible for Correct
Timing Based on Lookback period
If Deposit Status Changes IRS Notifies You in November
See and know chart on 5-5 Annual < $1,000 for the Year Quarterly < $2,500 for the Quarter Monthly $50,000 or Less Semiweekly>$50,000 and < $100,000 One-day Deposit $100,000 or more
6
Clarification –Annual $1,000
If aggregate annual is less than $1000 – may file by 1-31 with the Form 944 Employer’s Annual Tax Return
If annual is greater than or equal to $2500 can file 944 for this year but must file 941 for following years
If liability exceeds $100,000 on any day —deposit is due the next day and the company becomes a semi-weekly depositor
7
Clarification– Quarterly $2500 If less than $2500 liability per
quarter deposit with the quarterly filing (941)
If probability of exceeding the deposit liability of $2500 then it’s prudent to make deposits using monthly depositor’s rules This will avoid the interest on late
deposits8
$100,000 One day rule
Regardless of current deposit frequency- Once liability hits $100,000 that deposit must be made within one business day.
Monthly depositors then become semi-weekly for all future deposits in current and following year
9
Depositing Federal Taxes
Monthly depositor status change-see previous slide
Holiday deposit rules Quarter ends Manual checks
10
Holiday Deposit Rules
When a deposit is required on a day that is not a banking day: Monthly & one-day depositors -by the
close of the next banking day after the holiday
Semiweekly depositors-at least 3 banking days
State holidays are not banking days
11
Quarter end liability
When a semiweekly deposit period overlaps quarters – multiple deposits may be required to accommodate the appropriate payment in the correct quarter.
12
Manual Checks
In the eyes of the IRS– Manual checks are viewed as regular payroll checks
liability and deposit rules apply based on the check date and constructive receipt
13
Depositing Federal Taxes Safe Harbor rule (98% rule) Must deposit timely at minimum 98% of
liability—cannot exceed 2% or $100 whichever is larger
Make up deposits – Monthly– by due date of Form 941 Semiweekly- on the first Wednesday or
Friday after the 15th of the month – no later than the Form 941 due date
14
Depositing Federal Taxes EFTPS—Electronic Federal Tax Payment System
Two designated Treasury Financial Agents (TSA) Chase (Bank One) and Bank of America
ACH network ACH Debit – direct to TSA or EFTPS Direct ACH Credit -- Financial Institution initiates
15
Depositing Federal Taxes
ACH Credit-done through your bank EFTPS- Tax Payer tells bank to make the
payment Issuance of PIN to verify completed
transactions Payment deadlines are set by the bank
that initiates the payment Payments due on holiday- must be
initiated day prior for availability the day after the holiday
16
Depositing Federal Taxes
ACH Debit-EFTPS Direct IRS instructs ER’s bank to withdrawal funds
from ER’s account Issuance of a PIN to make payments via PC
or phone– 24 hours –seven days a week Must be made by 8:00 pm EST to be
effective the next business day PIN allows for payments and confirmations
17
Depositing Federal Taxes
ETA– Electronic Tax Application Allows for same day deposit to
Federal Reserve System-via Fedwire transfer
Must be completed by 2:00 pm their time
18
Depositing Federal Taxes
Non- EFTPS –Beginning 1/1/11 this is no longer an option!!
Immediate credit item – cash-money order- check from Federal Reserve city
Accompanied with Form 8109 --Federal Tax Deposit Coupon Name, address, EIN Legible as they are scanned
19
Quarterly Tax Return 941Form 941 used for reconciliation of Federal Tax
Payments Due end of month following end of quarter
Wages, tips and other comp (including nontaxable income)
Fed income tax from wages and tips Total wages & tips subject to SS/ MED Total deposits for the quarter& any balance
due Advanced earned income credit pd to ees COBRA Subsidy
20
Quarterly Tax Return 941
Filing timely– acceptable mediums USPS- return receipt requested-
postmarked date due PDS-Private delivery services
DHL- same day or overnight by 10:30 FedEx- Priority or Std Overnight-2day –
International Priority or First UPS-Next day or 2 day Air A.M.- worldwide
or worldwide Express
21
Quarterly Tax Return 941
Ensure efficient processing- No dollar signs or commas
1000.00 Negative numbers entered with the
negative sign -1000.00 Utilize the pre-printed labels!
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Quarterly Tax Return 941
Header Section EIN – Employer Identification
Number Employer Name and Address
Information Report for this Quarter of 2010 –
check box
24
Quarterly Tax Return 941
Part 1 Line 1- Number of employees Line 2 Total wages, tips & other
compensation subject to withholding Line 3- Total income tax withheld Line 4- check box if no wages subject to
Social Security and Medicare
25
Quarterly Tax Return 941
Line 5 – Taxable Soc Sec & Medicare Info Line 5a-
Column 1 Taxable Social Security Wages Column 2 Social Security Tax
Line 5b Column 1 Taxable Social Security Tips Column 2 Social Security on Tips
Line 5c- Column 1- Taxable Medicare Wages & Tips Column 2 Medicare Tax
26
Quarterly Tax Return 941 Line 6- Hire Act Information Line 7- Tax adjustments Line 8 – Total Taxes after Adjustments Line 9 – Advanced EIC Payments Made to
employees Line 10 – Total Taxes After Adjustments Line 11 – Total Deposits for this Quarter Line 12a & 12b COBRA Adjustments Line 12c & 12d Hire Act for Q2 2010 Line 13 Total Adjusted Deposits Line 14 Balance Due Line 15 Over Payment – check box on how to
handle 27
Quarterly Tax Return 941 Line 15 Over Payment – check box on how to
handle Part 2 Line 16 State or MU Line 17 – Decide which box to check
If first box, go directly to Part 3 If 2nd box, fill in Monthly Deposit Amounts If 3rd box, Complete Schedule B; file with this
formPart 3 Line 18 – complete if business closed Line 19 – complete if a seasonal employee 28
Quarterly Tax Return 941Part 4 – Authorization for Third Party Designee Associate authorized to work with IRS Part 5 - Sign here Must be Owner, President, VP, Corp. Officer,
etc. . . Any others require a Power of Attorney- Form
2848
Paid Preparer’s Use Only Sec 5 – unless already listed with IRS as filing agent with Form 8655
29
Alternative forms Form 941-X – Adjusted Quarterly
Federal Tax Return or Claim for Refund Form 943 - Employers annual Federal
tax return for agricultural employees Form 944 – Annual Employers Federal
Tax return<$1000 Form 945 - Annual Return of withheld
Federal Income tax- non payroll
30
State Unemployment
• All states must have a plan • Utilized to pay the unemployed• Employer tax• 3 states allowing ee taxation
• Pennsylvania, Alaska, New Jersey (PAN)
31
State Unemployment Calculations vary per state More than half need to be by mag media Commonalities
Total wages paid Taxable wages paid Nontaxable wages paid Number of ees each month Gross wages for each ee Breakdown of taxable & nontaxable wages
per ee Number of weeks worked by each employee
32
FUTA- Federal Unemployment Tax Act
Assistance via loans to subsidize federally mandated state UI programs
Rate 6.2% of initial $7,000 Credit of 5.4% -- Not Automatic!
Timely state deposits Not be in arrears in borrowed FUTA funds
Effective rate is .8% with the Credit (6.2% - 5.4%)
Some states don’t qualify for the full credit Example: MI FUTA Tax Rate 1.4% 6.2% - 4.8% = Paid 1.4% instead of .8% 33
FUTA- Federal Unemployment Tax Act
Calculating Federal UI Tax each Quarter Up to Wage Base $7,000 Deposit Using EFTPS by Deposit Due Date With full credit max withheld per ee is $56.0
$7,000 x .8% = $56.00 If liability for quarter is under $500 it can be
carried forward Due dates for Deposits:
35
Q1- April 30 Q2- July 31
Q3- October 31 Q4- January 31
FUTA- Federal Unemployment Tax Act
Annual filing – Form 940 – Federal Unemployment Tax Return
Due by January 31 unless all deposits were made by the due dates—extension to February 10
Penalties are the same as other Federal taxes
36
FUTA- 940 Annual Return Must file if Wages of $1500 pd in any qtr of 10 or
11, or At least one employee employed for any part of a
day in any of 20 different weeks in 10 or 11 Business Owner changes
Taxes re-start with each employer meeting either test;
Must file separately Non profit organizations do not pay FUTA
Section 501 (c)(3) of IRC (Go to Page 5-59 in your book to view Form 940)
37
FUTA- 940 Annual Return
Line by Line- Section by Section Type of return
A. Amended B. Successor employer C. No payments to ees in 2010 D. Final Business Return
38
FUTA- 940 Annual Return
Part 1 Tell about return Line 1a- State unemployment
postal code Line 1b- SUI to multiple states-
check and complete schedule A Line 2- check if credit reduction
state
39
FUTA- 940 Annual Return
Part 2 Determine FUTA tax before adj Line 3-Total payments for all
employees Line 4-Payments exempt from FUTA tax
4a- Fringe Benefits 4b- GTLC- 4c- Retirement Pension 4d- Dependent care 4e- Other amounts
40
FUTA- 940 Annual Return
Line 5-Payments made to each ee in excess of $7,000
Line 6- Subtotal Line 7- Total taxable FUTA wages Line 8- FUTA tax before
adjustments
41
FUTA- 940 Annual Return
Part 3- Determine your adjustments Line 9- FUTA wages exempt from
SUI(all) Line 10- Some FUTA wages exempt
from SUI Use the Tax x 5.4% Line 11- Credit reduction- copy line 3
amt
42
FUTA- 940 Annual Return
Part 4- Determine FUTA tax for 2010 Line 12- Total FUTA after
adjustment (8+9+10+11 = Line 12) Line 13- FUTA tax deposited Line 14- Balance due Line 15- Overpayment
43
FUTA- 940 Annual Return
Part 5- Report FUTA Liability by Quarter only if Line 12 is < $500. If not, skip and go to Part 6
Line 16- FUTA liability per quarter on lines 16a-16d
Line 17- Total liability for the year (16a+16b+16c+16d = Line 17)
44
FUTA- 940 Annual ReturnPart Six – Authorization for Third Party Designee Associate authorized to work with IRS Part Seven - Sign here Must be owner, president, VP, corp. officer,
etc. . . Any others require a Power of Attorney- Form
2848
Paid Preparer’s Use Only – unless already listed with IRS as filing agent with Form 8655
45
FUTA- 940 Annual Return
Schedule A– state unemployment paid to multiple states
Part one- Check state boxes that are applicable
Part 2-Information for states with credit reductions
46
FUTA- 940 Annual Return The lines for credit reduction states will
be listed and if FUTA wages were paid to these states the amount needs to be listed and the additional percentage, known as the credit reduction needs to be calculated.
This is done for each applicable state Total amount is calculated and entered
on line 11 of the 940
47
Wage and Tax Statement- Form W-2 (Go to Page 5-36 in your book) W2 provides
Employee documentation to file their Form 1040 IRS to track tax obligations, and Social Security Administration SSA to provide
social security benefits Form W-2 – Wage & Tax Statement Form W-2c - Corrected Wage & Tax Statement Form W3 – Transmittal of Wage & Tax
Statements Form W3c – Corrected Transmittal of Wage &
Tax Statements
49
Wage and Tax Statement- Form W-2Filing Deadlines Copy A – SSA– last day of February or if
electronic –March 31 Copy 1- State/ Local- state regulations Copy B- Employees- January 31 Copy C- Employees for personal file- January 31 Copy 2- Employees filed with state- January 31 Copy D- Employers for files – none Former ees – w/company unless requested in
writing-then 30 days from request Business ceasing operation – by final 941 filing Extension of 30 days if filing form 8809
50
Wage and Tax Statement- Form W-2
Ensure efficient processing No erasures, strikeouts or
whiteouts Do not use dollar signs or commas Use black ink only Legibility a must
51
Wage and Tax Statement- Form W-2
Box A– Employee SS # -- if none use all 0’s
Void- check box if error in processing & do not include in the Form W3
Box B- EIN Box C- Employer name, address and
zip code Box D- Control number
52
Wage and Tax Statement- Form W-2
Box E- Employees name Use full first name, middle initial and
full last name, and suffix if appears on SS card
Do not use titles or degrees Compound- hyphenated no -
Box F- Employees address and zip code
53
Wage and Tax Statement- Form W-2
Box 1- Wages, tips & other compensation
Box 2- Federal Income tax Withheld Box 3- Social Security wages Box 4- Social Security tax withheld Box 5- Medicare wages & tips Box 6- Medicare tax withheld
54
Wage and Tax Statement- Form W-2
Box 7- Social security tips Box 8- Allocated tips Box 9- AEIC Box 10- Dependent care benefits Box 11-Nonqualified plans
55
Wage and Tax Statement- Form W-2
Box 12- multiple codes A= Uncollected ss tax on tips B =Uncollected Medicare on tips C= Cost of GTL over $50,000 D= 401k Contributions E=403B Contributions F= 408k6 Contributions G= 457 b Contributions H= 501c18D Contributions
56
Wage and Tax Statement- Form W-2 J= Sick pay not included in income K=Tax on golden parachute L= Nontaxable part of employer
business expense reimbursements M= Uncollected SS tax on GTL N= Uncollected Medicare on GTL P= Excludable Moving expense
reimbursements Q= Nontaxable combat pay
57
Wage and Tax Statement- Form W-2 R=Archer Medical Savings Account
Contributions S= Simple retirement account
contributions T= Adoption benefits V=Income from exercise of
nonstatutory stock options W= Health savings accounts
58
Wage and Tax Statement- Form W-2 Y= Nonqualified Deferred Comp Deferrals Z= Income from 409A-Nonqualified
Deferred Comp Plans AA= Roth 401(k) deferrals BB=Roth 403(b) deferrals CC=Hire Exempt Wages & Tips DD=Cost of ER Health Coverage –Note
2011 Optional
59
Wage and Tax Statement- Form W-2
Statutory Employee – check if earnings are subject to soc sec and medicare but NOT subject to FIT
Retirement plan box – check if in plan even part of year
Third Party sick pay box- check if vendor providing separate payments or noting employer paid
60
Wage and Tax Statement- Form W-2
Box 14- Other usually for lease value method of company vehicle- state clearly
Box 15- Employers state tax ID number
Boxes 16-20– state and local tax information
61
Wage and Tax Statement- Form W-2 Reconcile the 941’s to the W2’s The W3 is a summarization and must
accompany the W2s to SSA All companies with 250 or more W2s
must file electronically If electronic poses hardship – file at
least 45 days prior to due date form 8508- Request for Waiver from Filing Information Returns on Magnetic Media
62
Wage and Tax Statement- Form W-2
USPS- - Certified mail– PDS– street address necessary Due dates are the dates postmark
or delivery commitment of PDS Memorize the chart for penalties
on page 5-52 & 53.
63
1099 Misc., Trade or Backup Withholding (Go to Page 5-68 in book)1099 Misc.
Filed to IRS by 2-28 or if electronic by 3-31
At least $10 in royalties, broker payments, or tax exempt interest
At least $600 in income, health care payments, rents, prizes
At least $600 in gross proceeds pd to an attorney
Any fishing boat proceeds 65
1099 Misc., Trade or Backup Withholding Non profit organizations, trusts , farmers
cooperatives Exceptions to Reporting:
Box 6- medical & healthcare payment Box 7- Services provided by attorney Box 7-payments by a federal executive agency Box 8- Substitute payments in lieu of dividends Box 14- gross procedures to attorney for legal
services
66
1099 Misc., Trade or Backup Withholding
- Payment for merchandise - Payment of rent for real estate
agents - Wages paid to employees-Use W2 - Business travel allowances pd to
employees-Use W2
67
1099 Misc., Trade or Backup Withholding
Company must withhold 28% federal withholding on recipients of 1099 Misc that do not provide a TIN.
Payments made as previously stated
Lookback period is the 2nd preceding calendar year.
68
Form 4070 Employee’s Report of Tips to Employer
EE provides the total tips rec’d in a time frame
Time frame can be no longer than a month but can be more frequent
No reporting for $20 in tips in a month
ER’s not required to provide the form; can use other methods for reporting
69
Tax Reporting
Study! Collecting & Depositing Federal
Taxes Quarterly Tax Return Form 941 Federal Unemployment & Form 940 Wage & Tax Statements Form W2s Form 1099 Misc
70
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