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Chapter 4-Various Business Payroll Taxes
Tax Deposit Requirements
Federal Unemployment Taxes
Other Tax Requirements
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Regardless of the form of business in which you operate, if you are going to have employees then you will have to contend with payroll taxes. The brief summary which follows will give you some guidance in the rules and regulations of the various taxing authorities.
Circular E, Publication 15, Employer's Tax Guide, covers the payroll tax reporting and deposit requirements and can be obtained through the local office of the Internal Revenue Service.
Federal withheld income and FICA taxes (employer and employee portion).
To determine your quarterly liability for FUTA, multiply by .008 that part of the first $7,000 of each employee's annual wages that you paid during the quarter. If the resultant liability for the quarter is $100 or less, there is no requirement to deposit it currently, you merely add it to your liability for the following quarter.
If your liability for any calendar quarter (plus any undeposited taxes for an earlier quarter) is more than $100, you are required to deposit the taxes with a federal tax deposit coupon, at an authorized financial institution or federal reserve bank by the end of the following month.
If the tax reported on your Federal Unemployment Tax Return, Form 940, less deposits for the year:
If supplemental wages--such as bonuses, commissions, overtime pay--are included in the same payment with regular wages, tax to be withheld is determined as if the total of the supplemental and regular wages were a single payment for the regular payroll period.
If supplemental wages are not paid on the same payment as the regular wages the employer may:
As of 1985, gross income does not include any fringe benefits that qualifies as one of the four categories listed below. Fringe benefits that qualify for the exclusion are exempt from income tax and Social Security tax withholding (FICA and payment of Federal Unemployment Tax (FUTA)). Conversely, benefits which do not qualify are subject to these taxes. An example of a common non- qualifying benefit subject to tax is the automobile allowance.
No additional cost service. This is a service provided to an employee that is excludable if the service is offered for sale to the public in the ordinary course of the line of business of the employer in which the employee is working and the employer does not incur substantial additional cost. For example, if employers furnish airline travel or hotel rooms to employees working in these lines of business in such a way that the nonemployee customers are not displaced, they incur no substantial additional cost in providing those services to the employees.
Qualified employee discount. Any employee discount is an excludable qualified employee discount if: (1) in the case of property, it does not exceed the gross-profit percentage of the price at which the property is being offered to customers; (2) in the case of service, it does not exceed 20% of the price at which the service is being offered.
Working condition fringe. Any employer-provided property or services are excludable benefits to the extent that they are deductible as ordinary and necessary business expense had the employee paid for them. Under certain conditions, the fair market value of a qualified automobile demonstration used by a full time auto salesperson is an excludable working condition fringe.
De minimis fringe. Property or services not otherwise tax-free are excludable if their value is so small as to make accounting unreasonable or administratively impractical. An operation of any eating facility for employees is an excludable de minimis fringe if it is located on or near the employer's business premises and the revenue derived normally equals or exceeds the direct operating costs of the facility.
Whenever a wage payment is made, the employer must provide the employee with a statement of the gross wages and specific deductions (if any). Use the W-4 Form submitted by the employee and the tax tables provided in the employer's tax guides to determine the correct income tax to withhold. If the employee fails to submit a W-4 Form, the employer must withhold at the rate applicable to a single person who has no withholding exemptions. A continuing requirement exists for employers to submit, with their quarterly payroll tax returns, a copy of any W-4 Form on which an employee is claiming an equivalent of 10 or more withholding exemptions.
When making a reimbursement or payment of moving expenses to or for an employee, the employer must complete and furnish the employee with a Form 4782 for each move.
The employer must also furnish a Form W-2 to each employee showing remuneration and withheld taxes for each calendar year. Flat rate expense account allowance, disability insurance paid by the employer, and moving expense reimbursements are among the items to be included as other compensation on a W-2 Form. Upon request, a W-2 Form must be furnished to a terminated employee within 30 days after the request or the final wage payment whichever is later. All other W-2 Forms should be given to the employees by January 31, of the following year.
The payroll tax requirements and the work related to compliance are quite cumbersome and complicated. Once a business employs more than a few people, we recommend that a qualified payroll service be used because it has generally been our experience that the cost of the service is far outweighed by the personnel and management time required to operate the payroll system in house.
The following charts contain tax rates and the taxable wage basis for employers and employees. The limits and maximum contributions given are per employee.
Social Security Tax (FICA) - 2008
Pennsylvania Unemployment Taxes:
To determine your quarterly liability for SUTA, multiply by your assigned rate that part of the first $8,000 of each employee's annual wages that you paid during the quarter. There is also employee withholding.
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