IRS Clarifies Section 45B Credit Computation NOTE: This headliner is current through the publication date. Since changes may have occurred after the publication date that would affect the accuracy of this document, no guarantees are made concerning the technical accuracy after the publication date. Headliner Volume 170 June 16, 2006 The IRS has received several questions regarding the proper computation of the Section 45B credit. The Section 45B credit is an income tax credit for social security and Medicare taxes paid by food or beverage employers on certain employees' tips, and is part of the general business credit. Because some states have a different minimum wage than the federal rate, employers have sought clarification as to whether they should use the federal or the state minimum wage when computing the Section 45B credit. Employers should use the federal minimum wage when computing the Section 45B tax credit on Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips (PDF). Generally, the 45B credit equals the total social security and Medicare taxes the employer pays on tips received by the employees, less tips used to meet the minimum wage. For example, if an employer paid an employee $3.75 per hour and applied tips of $1.40 per hour to reach the $5.15 minimum wage, then the employer may not use the $1.40 per hour in tips toward the credit. If, however, the employer paid each employee an amount equal to or more than the minimum wage without including tips, then the employer can compute the credit on all reported tips If an employer used the state minimum wage for the computation of the credit, and the state minimum wage varies from the federal minimum wage, the employer can file an amended return to claim the correct credit. Additional information about the employer’s credit is on the 45B pages of IRS.gov and in the Instructions to Form 8846 (PDF). Truck Purchases May be Subject to Excise Tax Headliner Volume 164 (updated 5/26/06) May 15, 2006 Individuals and companies importing tractors, truck chassis, bodies or trailers into the United States may be liable for federal excise tax. Internal Revenue Code section 4051 imposes a 12% federal excise tax on the first retail sale of the following articles: automobile truck bodies and chassis having a gross vehicle weight of over 33,000 pounds; truck trailer and semi trailer bodies and chassis having a gross vehicle weight of over 26,000 pounds; and tractors of the kind chiefly used for highway transportation in combination with a trailer or semi trailer having a gross vehicle weight of over 19,500 pounds and a gross combined weight of over 33,000 pounds. First retail sale means the first sale, for a purpose other than resale or leasing in a long-term lease, after manufacture, production, or importation. The term first retail sale may also include sales or uses of used imported articles. The tax is 12% of the price for which the article is sold. The sale price is not reduced by any trade in allowance. The person making the first retail sale is liable for the tax. If however, any person uses an article taxable under IRC section 4051 before a first retail sale, tax is imposed on the article as if the article had been sold at retail by that person; Tax attaches at the time the taxable use begins. Where a lease or a use is considered to be the first retail sale of an article, the lessor or user of the article is the person liable for tax. Example: A U.S. company made a retail purchase of a truck abroad and imports this truck into the U.S. for use in its business. The purchase price of the truck was $75,000.00. The truck had a gross vehicle weight of more than 33,000 pounds. The U.S. company is liable for $9,000.00 ($75,000.00 x 12%) in federal excise tax when it uses the truck in its business because the use of a taxable article is a taxable event. Form 720, Quarterly Federal Excise Tax Return is the proper return to report the tax. The return is generally due at the end of the quarter in which the sale or first use took place, usually on April 30, July 31, October 31, or January 31. The address for the return is Internal Revenue Service Center, Cincinnati, OH 45999-0009. Generally, semimonthly deposits of excise taxes are due when required. A semimonthly period is the first 15 days of a month (the first semimonthly period) or the 16th through the last day of a month (the second semimonthly period). The deposit of tax for a semimonthly period is due by the 14th day following that period. Generally, this is the 29th day of a month for the first semimonthly period and the 14th day of the following month for the second semimonthly period Example: On November 1, 2005 U.S. Company A imports into the United States a truck valued at $75,000 that has a GVW over 33,000 pounds for use in its own business. It first uses the vehicle on November 10, 2005. Since the use of an article after importation is considered a taxable event, the tax is based on $75,000. The federal excise tax is $75,000 x 12% = $9,000 U.S. Company A is liable for the tax The deposit of tax is due by November 29, 2005 Form 720 to is due by January 31, 2006 The law provides penalties for filing a return late; depositing taxes late; paying taxes late; willfully failing to collect and pay tax or file a return; negligence and fraud. These penalties are in addition to the interest charged on late payments. The United States Customs and Border Protection shares import data with the Internal Revenue Service regarding articles subject to the 12% federal excise tax. The Internal Revenue Service compares this import data to excise tax returns to determine the level of compliance. Examinations are conducted to increase compliance for imported articles subject to the 12% excise tax. Additional information about the excise tax and Form 720 is available in: Internal Revenue Code sections 4051, 4052 and 4053 and the applicable regulations Publication 510, Excise Taxes, contains definitions and examples that will help you prepare Form 720 (PDF) Publication 509, Tax Calendars, has deposit and payment due dates for all federal excise taxes (PDF) Instructions to Form 720 IRS forms, instructions, and publications are available at IRS.gov or by calling 1-800-829-3676.