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									Withholding Taxes
 KATHLEEN L. MIZEJEWSKI,
       CPP, GBA
       March 10, 2012
   E-Mail: kathmiz@msn.com
     Phone: 708-363-5986
 Constructive Payment of Wages 6-2
 Wages made available to EE Without
  “substantial limitation or restriction”


 Employer makes payment and Wages become
  available to EE = constructive payment:
     Cash – Paid to EE
     Available at office – To Pick Up
     Direct deposit – EE Account Credited
     Mail – Check Delivered to Home


                                             2
      Social Security Numbers 6-5
 3 - SSN Verification methods: Internet, Phone and Paper

   Internet Verification Process: New June 2005 – Registration
    Required - Social Security Number Verification Service (SSNVS) –
     10 EE’s per screen (immediate results), or
     up to 250,000 per file submitted – results next business day.
      Must register first.

   TNEV –Telephone Number ER Verification (11/2009) - Automated
    Phone Service - To verify up to 10 names/SSNs: Employers can
    telephone 1-800-772-6270 or 1-800-772-1213. Must register first.
    24/7.


                                                                       3
Social Security Numbers 6-5
 SSN Verification methods (continued)

 To verify up to 50 names/SSNs: Employers
  can submit the names/SSNs on paper lists to
  the local Social Security office. Some offices
  accept faxed lists

 For 51 to 300 Names/SSN’s: An employer or
  3rd Party Service Provider can register and
  then submit a paper list for verification to
  SSA

                                                   4
  Social Security Numbers 6-7
 Name changes (Marriage, divorce)

   Employee should promptly complete Form SS-5 -
    Application for Social Security Number (New or
    Change) and submit to SSA. Request form by
    calling SSA at 800–772–1213 or download from
    www.socialsecurity.org


   Employer should refuse to make name change until
    EE provides new SS card with new name

                                                       5
                    Form W-4                      6-10
 Employee Withholding Allowance Certificate
 Original, complete, valid, signed
   Single-zero, if no W-4 on file
   Before first day of work
   Within 10 days after decrease

 Effective W4-Form
   New EE- first payroll period ending after filing
   Current EE - first payroll ending 30 days after filing




                                                             6
                Form W-4                   6-13
 Employee Withholding Allowance Certificate
 Exempt if:
   Employee had no liability in prior year
   Expects no liability in current year
   Can be claimed as a dependent on another
    person’s return
   Income >$950 which includes >$300 in non-wage
    income (e.g. interest and dividends)


 Exemption effective for one year only - must
  re-file each year

                                                    7
                Form W-4                6-13
 Employee Withholding Allowance Certificate
 Invalid W-4
  Altered in Any Way
    Strike outs or Changes to Form
    Additions - Written in – Not Allowed
    Invalid: (Must be allowances + $)
      Flat Dollar Amount Only
      Percentage Only

  False Info on Form – Invalidates Form
                                               8
                 Form W-4                  6-13
 Employee Withholding Allowance Certificate
 Perjury Statement – Beginning 2005

   Employee Examines & Acknowledges all Information
    on W-4 Form is Correct:
     Allowances
     Social Security Number
     Exemptions
     Name, Address, Marital Status



                                                       9
                   Form W-4                   6-14
 Employee Withholding Allowance Certificate
 Submit copy of W-4 to IRS
   Only upon written notice to Employer from IRS

   W-4’s Sent to IRS – EE Withholding:
     Withhold based on W-4 on file until notified by IRS
     IRS Lock-In-Letter will specify maximum number of
      exemptions employee can claim
     ER must give EE copy of IRS notice



                                                       10
                  Form W-4                  6-16
 Employee Withholding Allowance Certificate


 Retention - 4 years after date of last return
  filed, using info on the W-4
 Successor / Predecessor
   Standard procedure – Predecessor reports and
    continues to maintain W-4’s
   Alternate procedure – Successor reports and
    maintains W-4’s



                                                   11
                    Form W-4                        6-17
 Employee Withholding Allowance Certificate


 W-4 - Electronic filing – Must meet requirement of
  Paper W-4 Form filing with perjury statement and
  signature

 W-4 - Also used for New Hire Reporting for Child
  Support
   With additional information such as Employer Name,
    Address and EIN
   Aids Fed and States to increase Child Support
    withholding


                                                           12
                   Form W-4                        6-17
 Form W-4P - Pension
   Withholding Certificate for Pension or Annuity Payments
    – Retirees must complete

 Form W-4S - Sick Pay
   Submit for Federal Income Tax W/H From Sick Pay (Non
    Job Related Sick)
     3rd Party Sick Pay – No withholding unless W-4
      filed by EE. Flat dollar amount only




                                                          13
                  Form W-4                      6-18
 State Withholding Certificates

   More than 40 States have Withholding Tax and
    require withholding from wages

   Approximately 50% will accept Federal W-4 Form –
    others required their own Withholding Certificate
    (Table p. 6-18)



                                                        14
  Federal Withholding Methods 6-20
 Useful link:
      http://www.paycheckcity.com - free paycheck calculation –
      registration required

 Wage Bracket method
 Percentage method
 Supplemental
 Annualized
 Cumulative



                                                                   15
  Federal Withholding Methods
  Wage Bracket Method 6-22
 Tables issued by IRS in Publication 15, Circular
  E, Employers Tax Guide

   Based on Employer pay period or frequency

   Two tables for each payroll period
     Married, Single
   Pay periods
     Weekly, Biweekly, Semimonthly, Monthly,
      Quarterly, Semiannual, Annual or Daily/Misc.
                                                     16
  Federal Withholding Methods
    Wage Bracket Method 6-23
 Daily or Miscellaneous

   (1) Number of days in that misc period – Not the
    Payroll Period (Includes Sat, Sun, Holiday)

   (2) Daily wage rate (Taxable Wage / # of days)

   (3) Daily withholding rate   (Per Tables in Circular E)

   Multiply daily withholding rate (3) by number of days
    (1) and withhold from Taxable Wages


                                                         17
  Federal Withholding Methods
    Wage Bracket Method 6-23
 Payments above max table amount – use
  Percentage Method

 Payments equal to bracket amount – use next
  higher wage bracket

 More than 10 allowances :
   use 10 allowances column (may result in over
    withholding), or
   multiply # of allowances > 10 by value of one
    allowance and then subtract from EE wages


                                                    18
  Federal Withholding Methods
     Percentage Method 6-24
 Automated systems – easily programmed
 – use Annual
 More Flexible
 More Unusual Payroll Frequencies
  Quarterly, Semiannual, Annual, Daily/Misc




                                               19
Federal Withholding Methods
   Percentage Method 6-25
 2011 Payroll Period - One Allowance
   Weekly               71.15 x 52 = 3,700
   Biweekly            142.31 x 26 = 3,700
   Semimonthly         154.17 x 24 = 3,700
   Monthly            308.33 x 12 = 3,700
   Quarterly           925.00 x 4 = 3,700
   Semiannually     1,850.00 x 2 = 3,700
   Annually         3,700.00
   Daily or Misc.       14.23


                                              20
  Federal Withholding Methods
    Percentage Method 6-25
 Example using 2011 biweekly % table:
   Harvey’s biweekly taxable compensation is $2,300.
    He is married and claims 3 allowances.
     $ 142.31 x 3         = $ 426.93
     $2,300.00 - $ 426.93 = $1,873.07
     $1,873.07 - $ 958.00 = $ 915.07
     $ 915.07 x 15%       = $ 137.26
     $ 137.26 + $ 65.40 = $ 181.83



                                                    21
      Federal Withholding Methods
         Alternative Methods 6-25

 Annualized wages
   Calculate on annual payroll period
   Used by automated systems

 Cumulative wages – Inconsistent $$
     Commissions
     Bonuses
     Employee must request in writing
     Same frequency for entire year

                                         22
    Federal Withholding Methods
     Alternative Methods 6-26
 Average estimated wages
  Tipped employees


 Part-year employment
  Seasonal, unemployed
  Request in writing-expires at year end
  Term of Continuous employment


                                            23
       Federal Withholding 6-28
    Supplemental Wage Payments

 Paid at same time as regular or any other
 time
 Supplemental Wages Include:
  Reported Tips, Overtime Pay, Bonuses, Back
   Pay, Commissions, Expense Allowance, Non
   Qualified Deferred Comp, Non-cash Fringe,
   3rd Party Sick Pay, Amounts under Sec. 409A
   (see full list on Page 6-29)

                                             24
       Federal Withholding 6-30
     Supplemental Wage Payments
 Taxed as regular payment if
   Supplemental pay combined with regular wage and
    amounts not indicated separately


 Flat rate - 25% - Allowed when
   Amounts indicated separately (Regular pay &
    Supplemental Pay)
   Combined payment with amounts listed separately
   Only if Fed Tax was withheld from last regular wage
    payment



                                                          25
       Federal Withholding
   Supplemental Wage Payments

 Supplemental Wage Payments over $1,000,000 in
  one calendar year:

   Due to American Jobs Creation Act of 2004
    (AJCA)
   Requires Higher income tax when Supplemental
    Wages are over $1 Million to one employee in one
    calendar year
   Mandatory tax rate is 35% on Supplemental
    Wages over $1 Million.


                                                  26
       Federal Withholding 6-32
    Supplemental Wage Payments
 Aggregate method
  Use if employee has no federal tax withheld from
   regular wages due to # of allowances
    Combine supplemental and regular
    Calculate on total, subtract previous tax, withhold
     remaining

  Exempt from withholding providing YTD is not over
   $1,000,000

  See 2008 IRS Guidelines for treating certain
   payments – 9 Situations      (p. 6-32 to 6-35)


                                                           27
          Federal Withholding 6-37
          Pensions and Annuities
 W4-P – For Pension and Annuity Payment
 Depends on type of payment
   Periodic vs. non-periodic

 Periodic (payments made over period of one
  year). Indicate on W4-P:
   Can request no withholding on W4-P
   Marital status, allowances
   Additional amount to withhold

 If No W-4P - Use Married 3 allowances
                                               28
           Federal Withholding
         Pensions and Annuities 6-38
 Non-periodic
   Not eligible for rollover and > $200
     Withhold 10%

   Eligible for rollover
     Mandatory Withholding of 20% unless rolled to
       another qualified plan, IRA or §403(b) annuity

   Tax is withheld by plan administrator or payer



                                                        29
           Federal Withholding
         Backup Withholding 6-42
 Tax rate of 28% required on payments if:
     No TIN furnished (TIN = SS#, ITIN, EIN)
     TIN is obviously incorrect
     IRS CP2100 notice received – issued annually
     IRS Notification that TIN is incorrect
     No certification from payee receiving interest /
      dividend payments (certification means they signed
      Form W-9 – Request for Taxpayer Identification
      Number and Certification)



                                                           30
         Federal Withholding
      Earned Income Credit 6-43

EIC is a tax credit that reduces the taxes owed
by the employee.
ER’s must notify EE’s earning less than $49,078
in 2011 that they may be eligible to claim EIC.
Required Notice to EE’s on: 1) Copy B of Form
W-2; 2) Notice 797; 3) Written statement with
exact wording as Notice 797.



                                                   31
           Federal Withholding
          Earned Income Credit 6-43
 Prior to 2011 – Eligible employees could
  obtain advance payments of a portion of the
  credit during the year through decreasing the
  federal withholding owed
 Advanced Earned Income Credit was
  repealed with the Education Jobs Act of 2010
  as of January 1,2011
 Form W-5 – Advanced EIC Certificate
  eliminated



                                                  32
     Social Security and Medicare
                Taxes         6-43
 FICA (Federal Insurance Contribution Act) -
  Social Security & Medicare

   Social Security
     OASI (Old Age and Survivors Insurance)
     DI (Disability Insurance)
   Medicare
     HI (Health Insurance)



                                                33
  Social Security and Medicare
            Taxes          6-45
 Employee share withheld from employee
  wages

 Matching amount paid by employer

 Fixed rate – Same 1990 to 2010
   6.2% of wages to Social Security wage limit
   1.45% of wages - No Medicare wage limit

 Note: No rounding on SS or Medicare

                                                  34
 Social Security and Medicare
            Taxes         6-45
 2011 – Change in SS Tax Rate: Tax Relief
  Unemployment Insurance Reauthorization and
  Job Creation Act of 2010 – TRA 2010
   Employee’s rate: 4.2%
   Employer’s rate: 6.2%

 TRA 2010:    Enacted on 12/17/10 was difficult for
  employer’s to update Payroll Systems in time for
  January 1 rate change. Act directed ER’s to update SS
  rate asap and adjust employee’s taxes and pay by
  3/31/2010

                                                     35
 Social Security and Medicare
            Taxes         6-45
 Hire Act – No longer in effect in 2011 – Provided
  exemption of Employer’s SS tax on certain new hires
  from 3/19/10 to 12/31/10.

 Medicare Tax Increase on High Earners –
  Effective 2013. Medicare rate will increase from 1.45%
  to 2.35% on wages over $200K for single employees
  and wages over $250K for married employees. Over
  and under withholding will be reconciled on personal
  tax return (1040)



                                                        36
 Social Security and Medicare
            Taxes         6-46
 SS Wage Base – SS tax is applied only up to a
  certain wage base. For 2011 that is $106,800
   EE Rate – 4.2% X 106,800 = $4,485.20
   ER Rate – 6.2% X 106,800 = $6,621.60


 The Wage Base for Medicare taxes was eliminated
  beginning January 1, 1994 with the Omnibus Budget
  Reconciliation Act of 1993. Prior to that SS and
  Medicare had a wage base and a maximum annual tax



                                                    37
 Social Security and Medicare
            Taxes         6-49
 Employees Working for more than one Employer
   Credit for tax withheld from employee from previous employer in
     current year >> NO!

 Wages by Common Law ER’s Can’t be Combined

 Predecessor / Successor employers
   Acquisition of all or substantially all property
   Employed by predecessor and successor

 Wages paid in next year
   Subject to tax rate in effect when actually paid


                                                                      38
 Social Security and Medicare
            Taxes         6-49
 Subject to tax when deferred: (not when paid)
   Elective deferrals to §401(k) & other deferred
    compensation plans
   Non-qualified deferred compensation that is not
    subject to substantial risk of forfeiture

 Dependent Care Assistance benefits are
  treated as received in year when benefit costs
  are incurred, not when paid, for determining
  how much of benefits are taxable for SS and
  Medicare

                                                      39
 Social Security and Medicare
             Taxes       6-50
 Common Paymaster for SS & Medicare (Not WH)
   Related corporations-must meet one of:
       Controlled group - 50% stock owned by one Corporation
       Board of directors - 50% voting power on the other Board
       Concurrent officers - 50% on other Board
       Concurrent employees - 30% by both Corporations
   Concurrent employment for two or more related
    corporations
   Then Payroll responsibility - payment, tax
    withholding, depositing and reporting may be treated
    as one employer

                                                                   40
    Self –Employment Tax                 6-50
 SE Individuals Pay both Employer and
  Employee shares of Social Security and
  Medicare – Rate is 10.4% for SS Tax up to
  Base. For Medicare 2.9% on total wages (to
  total of 13.3%).


 Tax Determined and Paid with Personal Income
  Tax Return (Form 1040)


                                               41
       Social Security and Medicare
              Exempt Wages 6-51
 All compensation is taxable unless specifically
  exempted under IRC:
     Workers compensation payments
     Sick / disability payments - after 6 mo.
     §125 flexible benefit plan contributions
     Qualified moving expense reimbursements
     Cash tips <$20 per month
     Wages paid after year of death
     See List of Additional Exempt Wages on page 6-51 &
      6-52


                                                      42
    Social Security and Medicare
     Exempt Employment 6-52
 Employment exempt from SS and Medicare:
  Temporary foreign agricultural work
  Work by child <18 for parents
  Student work for school where enrolled and
   attending classes

  Work by student nurses
  Non-resident aliens with F, J, M, Q visas
  Domestic service performed if <18 years
                                                43
    Social Security and Medicare 6-53
 State and Local Government Employees
 Prior to 1986 - §218 agreement to cover
  under federal system
 4/1/86 hired or rehired - Became covered by
  Medicare
 7/2/91 - Became covered by Social Security
  and Medicare
   If not members of public employee retirement system
    or not subject to §218 agreement


                                                     44
 Failure to Withhold Penalties 6-54
 No tax withheld by employer:
  If employer can prove that employee later
   paid tax - employer not liable for amount not
   withheld

  Penalties for
    Late deposits or returns
    Responsible person
    10 year time limit to collect taxes

                                                   45
 State and Local Withholding 6-55
 All but 9 States have Personal Income
 Taxes and require Employers to Withhold
 Many Localities also have Income Taxes
 and require Withholding
 Directory of State Agencies – Table 6.3



                                            46
Thank You and Good Luck !!!!

  Kathy Miz,
      CPP, GBA
  March 10, 2012
      E-Mail:
  kathmiz@msn.com
Phone: 708-363-5986


                               47

								
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