Tax Reporting

Fundamental Payroll CertificationChapter 5

20091

2009 Tax Reporting – TEST UPDATE Test will be using 2009 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

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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 6.2% to Limit Medicare 1.45% No

Limit

Employer Federal Taxes No Federal Income

Tax FICA 6.2% to Limit Medicare 1.45% No

Limit3

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 2009:

3rd and 4th quarters of 2007 (July – December) 1st and second quarter of 2008 (January – June)

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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 5-2 Annual < $1,000 for the Year Quarterly < $2,500 for the Quarter Monthly $50,000 or Less Semiweekly>$50,00 and < $100,000 One-day Deposit $100,000 or more

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Clarification –Annual $1,000 If aggregate annual is <$2500 /

annual tax history shows <$1000– may file by 1-31 with the Form 944 Employers Annual Tax Return

If liability exceeds—deposit is due the next day and the company becomes a semi-weekly depositor

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Clarification– Quarterly $2500 If less than $2500 liability per quarter

deposit with the quarterly filing (941) If probability of exceeding the deposit

liability then prudent to make deposits on semiweekly basis

This will avoid the interest on late deposits

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$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

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Depositing Federal Taxes Monthly depositor status change Fixed deposit liability Holiday deposit rules Quarter ends Manual checks

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Quarter end liability When a semiweekly deposit period

overlaps quarters – multiple deposits may be required to accommodate the appropriate payment in the correct quarter.

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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

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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

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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 ACH Credit -- Financial Institution initiates

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Depositing Federal TaxesACH Credit Issuance of PIN to verify completed

transactions Payments due on holiday- must be

initiated day prior for availability the day after the holiday

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Depositing Federal TaxesACH Debit 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

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Depositing Federal TaxesETA– Electronic Tax Application Allows for same day deposit to

Federal Reserve System-via Fedwire transfer

Must be completed by 2:00 pm their time

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Depositing Federal TaxesNon- EFTPS 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

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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

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Quarterly Tax Return 941Filing 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

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Quarterly Tax Return 941 Ensure efficient processing-

No dollar signs or commas 1000.00

Negative numbers in parentheses (1000.00)

Utilize the pre-printed labels!

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Quarterly Tax Return 941

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Look at Form 941

Quarterly Tax Return 941Header Section EIN – Employer Identification

Number Employer Name and Address

Information Report for this Quarter of 2009 –

check box

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Quarterly Tax Return 941Part 1 Line 1- Number of employees Line 2 Total wages & tips subject to

withholding + other compensation Line 3- Total income tax withheld from

wages, tips & sick pay Line 4- check box if no wages subject

to Social security and Medicare24

Quarterly Tax Return 941Line 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

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Quarterly Tax Return 941 Line 6- Total taxes before adjustments Line 7- Tax adjustments (7a+7b+7c = 7d) 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 13 Total Adjusted Deposits Line 14 Balance Due Line 15 Over Payment – check box on how to handle

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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 form

Part 3 Line 18 – complete if business closed Line 19 – complete if a seasonal employee

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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. . .Paid Preparer’s Use Only – unless already

listed with IRS as filing agent with Form 8655

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Alternative forms Form 943 - Employers annual Federal

tax return for agricultural employees Form 945 - Annual Return of withheld

Federal Income tax- non payroll Form 941-X – Adjusted Quarterly

Federal Tax Return or Claim for Regund Form 944 - Employers Federal Tax

return<$1000

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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)

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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

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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 Some states don’t qualify for the full credit

Example: In 2005, NY FUTA Tax Rate 1.4%

6.2% - 3.7% = Paid 1.4% instead of .8% 32

FUTA- Federal Unemployment Tax Act

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Look at Form 940

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:

34

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

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FUTA- 940 Annual Return Must file if Wages of $1500 pd in any qtr of 08 or 09,

or At least one employee employed for any part of a day

in any of 20 different weeks in 08 or 09 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 5-55 in your book to view Form 940)

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FUTA- 940 Annual Return Line by Line- Section by Section Type of return

A. Amended B. Successor employer C. No payments to ees in 2009 D. Final Business Return

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FUTA- 940 Annual ReturnPart 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

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FUTA- 940 Annual ReturnPart 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

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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

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FUTA- 940 Annual ReturnPart 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

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FUTA- 940 Annual ReturnPart 4- Determine FUTA tax for 2009 Line 12- Total FUTA after adjustment

(8+9+10+11 = Line 12) Line 13- FUTA tax deposited Line 14- Balance due Line 15- Overpayment

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FUTA- 940 Annual ReturnPart 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)

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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. . .Paid Preparer’s Use Only – unless

already listed with IRS as filing agent with Form 8655

44

FUTA- 940 Annual ReturnSchedule A– state unemployment

paid to multiple states Part one- Check state boxes that are

applicable Part 2-Information for states with

credit reductions See information pg. 5-63– not

applicable for this year (good to know)

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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 94046

Wage and Tax Statement- Form W-2

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Look at Form W2

Wage and Tax Statement- Form W-2 (Go to Page 5-33 in your book) Employee documentation for filing Form 1040

IRS 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

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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

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Wage and Tax Statement- Form W-2 Ensure efficient processing No erasures, strikeouts or

whiteouts Do not use dollar signs Use black ink only Legibility a must

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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

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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

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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

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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

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Wage and Tax Statement- Form W-2Box 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

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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

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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

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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

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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

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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

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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

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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 5-50.

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1099 Misc., Trade or Backup Withholding

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Look at Form 1099 Misc.

1099 Misc., Trade or Backup Withholding (Go to Page 5-65 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 proceeds64

1099 Misc., Trade or Backup Withholding Non profit organizations, trusts , farmers

cooperatives Exceptions:

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

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1099 Misc., Trade or Backup Withholding Box2- Payment for merchandise Box 3- Payment of rent for real

estate agents Box 4- Wages paid to employees Box 5- Business travel allowances

pd to employeesMust report if >= $5000

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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.

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Tax ReportingStudy! Collecting & Depositing Federal

Taxes Quarterly Tax Return Form 941 Federal Unemployment & Form 940 Wage & Tax Statements Form W2s Form 1099 Misc

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Tax Reporting

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