Tax Reporting

Tax Reporting

Fundamental Payroll CertificationChapter 5

2012

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2012 Tax Reporting – TEST UPDATE Test will be using 2012 forms that are PRE ARRA

American Recovery and Relief Act 2009 Enacted February 13, 2009 Advance Earned Income Credit is not available to EE’s

through payroll refunds & is not on the 941 No Hire Act Information on the 941 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

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

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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

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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 2012:

3rd and 4th quarters of 2010 (July – December) 1st and 2nd quarter of 2011 (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 5-5 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

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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

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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 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

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Monthly depositor status change-see previous slide

Holiday deposit rules Quarter ends Manual checks

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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

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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 or EFTPS Direct ACH Credit -- Financial Institution initiates

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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

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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

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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

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Quarterly Tax Return 941

Form 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 COBRA Subsidy

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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

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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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Look at Form 941


Header Section EIN – Employer Identification

Number Employer Name and Address

Information Report for this Quarter of 2011 –

check box

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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

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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

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Quarterly Tax Return 941 Line 6- Tax adjustments Line 7- Fraction of Cents Adj. Line 8 – Sick Pay Adj. Line 9 – Tips & GTL Adj. Line 10 – Total Taxes After Adjustments Line 11 – Total Deposits for this Quarter Line 12a & 12b COBRA Adjustments Line 13 Total Adjusted Deposits & COBRA Credit Line 14 Balance Due Line 15 Over Payment – check box on how to

handle

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Quarterly Tax Return 941 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

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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. . . 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

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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

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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

FUTA is an ER tax!! No FUTA is withheld from EE’s Wages.

Assistance to states via loans to subsidize federally mandated state UI programs

Rate of 6.2% made up of a 6% permanent FUTA tax and a 2% temporary surtax

Rate 6.2% of initial $7,000 before 7/1/11 Effective 7/1/11 the FUTA rate is 6.0% of

initial $7,000

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Federal UI Tax Rate Up to Wage Base $7,000 FUTA wages paid before 7/1/11 use 0.8%

(6.2%-5.4%) for the first $7,000 With full credit max withheld per EE is $56.0 $7,000 x .8% = $56.00

FUTA wages paid after 6/30/11 use 0.6% (6.0%-5.4%) for the first $7,000 With full credit max withheld per EE is $42.0 $7,000 x .6% = $42.00

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Credit of 5.4% -- Not Automatic! Timely state deposits Not be in arrears in borrowed FUTA

funds Federal effective rate is .6% with the

Credit (6.0% - 5.4%) Some states don’t qualify for the full

credit Example: MI FUTA Tax Rate 1.4% 6.0% - 4.8% = Paid 1.2% instead

of .6% 34


Calculating Federal UI Tax:Q1 10 EE’s at $2,800 per month Q1 Taxable wages & Tax = Q2 1 EE at 2,000 for 3 months Q2 Taxable wages & Tax =Q3 New EE terminated-No new wages Q3 Taxable wages & Tax =Q4 State don’t qualify for the full credit of 5.4% Reduced by 1.2%. The rate is now (5.4-1.2=4.2)

6.0% - 4.2% = Pay 1.8% instead of .6% Calculation:

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Look at Form 940


Deposit Using EFTPS by Deposit Due Date

If liability for quarter is under $500 it can be carried forward

Due dates for Deposits:

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Q1- April 30 Q2- July 31

Q3- October 31 Q4- January 31


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 11 or

12, or At least one employee employed for any part of a

day in any of 20 different weeks in 11 or 12 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 5-57 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 EE’s in 2011 D. Final Business Return

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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

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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

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Line 5-Payments made to each ee in excess of $7,000

Line 6- Subtotal Line 7- Total taxable FUTA wages

broken out by 7/1/11 Line 8- FUTA tax before

adjustments

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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 from Schedule A (form 940)

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Part 4- Determine FUTA tax for 2011 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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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)

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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. . . 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

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Schedule A– state unemployment paid to multiple states

Part one- Check state boxes that are applicable

Part 2-Information for states with credit reductions

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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 940

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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 5-34 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

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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 EE’s – 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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Ensure efficient processing No erasures, strikeouts or

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

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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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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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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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Box 7- Social security tips Box 8- Allocated tips Box 9- AEIC-Not Used Repealed

1/1/11 Box 10- Dependent care benefits Box 11-Nonqualified plans

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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

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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 DD=Cost of ER Health Coverage –Note

2011 Optional EE=Roth 457 (b) deferrals

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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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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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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 & 51.

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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 5-66 in book)1099 Misc.

To recipient by 1-31 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 67

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

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- Payment for merchandise - Payment of rent for real estate

agents - Wages paid to employees-Use W2 - Business travel allowances pd to

employees-Use W2

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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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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

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Tax Reporting

Study! 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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Thanks For Attending!

Tax Reporting

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