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Tax Reporting

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  1. Tax Reporting Fundamental Payroll Certification Chapter 5 2012

  2. 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

  3. 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

  4. 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

  5. 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)

  6. 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

  7. 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

  8. 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 deposits

  9. $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

  10. Depositing Federal Taxes • Monthly depositor status change-see previous slide • Holiday deposit rules • Quarter ends • Manual checks

  11. 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

  12. Quarter end liability • When a semiweekly deposit period overlaps quarters – multiple deposits may be required to accommodate the appropriate payment in the correct quarter.

  13. 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

  14. 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

  15. 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

  16. 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

  17. 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

  18. 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

  19. 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

  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!

  22. Quarterly Tax Return 941 Look at Form 941

  23. Quarterly Tax Return 941 Header Section • EIN – Employer Identification Number • Employer Name and Address Information • Report for this Quarter of 2011 – 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- 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

  27. 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 form Part 3 • Line 18 – complete if business closed • Line 19 – complete if a seasonal employee

  28. Quarterly Tax Return 941 Part 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 • 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

  33. FUTA- Federal Unemployment Tax Act 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 33

  34. FUTA- Federal Unemployment Tax Act 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

  35. FUTA- Federal Unemployment Tax Act 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: 35

  36. FUTA- Federal Unemployment Tax Act Look at Form 940

  37. FUTA- Federal Unemployment Tax Act • Deposit Using EFTPS by Deposit Due Date • If liability for quarter is under $500 it can be carried forward • Due dates for Deposits: • Q1- April 30 • Q2- July 31 • Q3- October 31 • Q4- January 31

  38. 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

  39. 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)

  40. 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

  41. 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

  42. 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

  43. 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 broken out by 7/1/11 • Line 8- FUTA tax before adjustments

  44. 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 from Schedule A (form 940)

  45. FUTA- 940 Annual Return 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

  46. 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)

  47. FUTA- 940 Annual Return Part 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

  48. 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

  49. 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

  50. Wage and Tax Statement- Form W-2 Look at Form W2