Ch 4 Income Tax Withholding

Form 1099

A form used to report other income made from interest on bank accounts, interest from stocks and royalties

457(b) Plan

A plan for EE of state and local gov'ts and of tax-exempt organizations other than churches.

403(b) Plan

A plan for EE of tax exempt organizations.

Form 1096

Annual Summary and Transmittal of U.S. Information Returns ER use this to transmit information returns to report compensation paid to certain individuals who are not EE.

Form 4419

Application for Filing Information Returns Electronically (FIRE)

Form 1099-DIV

Dividends and Distributions

Pretax Salary Redcutions

EE can authorize an ER to deduct certain withholdings from his or her pay on a pretax basis. These are taken from the gross pay and therefore reduce the amt of pay that is subject to federal income tax.

contribution to cafeteria plans

EE can choose between cash (pay) or qualified (nontaxable) benefits

Form 944

Employer's Annual Federal Tax Return

Form W-4V

Gov't payments, such as social security benefits

Archer Medical Savings Account

Individual accounts that may be set up by self-employed individuals and those who work for small companies. Funds in the accounts are used to pay medical expenses. Have high-deductible insurance plans

Withholding for Pension or Annuity Payments

Must withhold on monthly pension and annuity payments exceeding $20,640/year, unless the payees elect otherwise. If recipients do not instruct the payers to do so, they are required to withhold income taxes as if the recipients were married and claiming 3 withholding allowances.

Nontaxable Fringe Benefits

Services provided at no additional cost excluded from EE income only if benefits are given to EE on a nondiscriminatory basis: -qualified EE discounts -working condition fringes -qualified transportation fringes -use of on-premises athletic facilities -reduced tuition for education -job-placement assistance

Form W-2

Wage and Tax statement prepared when income tax or SS taxes were withheld.

ER is not required to audit or verify the _______________ of the tip income reported.

accuracy

Additional/voluntary withholding agreements

by either reducing number of allowances or request specific additional amount be withheld

Reported tips plus regular wage

compute the withholding tax on the aggregate - treat tips as a supplemental wage payment

Form (W-4P) Pensions

in excess of $20,640 per year -withhold as if married with 3 allowances, unless complete a new one to change amount of tax withholding

Form 1099-INT

interest income

EE must file returns that report amount of __________wages

quarterly

EE must file information returns to report __________ liability for non-payroll items

tax such as backup withholding, withholding on gambling winnings, pensions, and annuitites Form 945

Form W-4S

third party payer of sick pay

wages

total compensation paid to employees for services

All income tax withholdings that are reported on Form 1099 or Form W-2G belong on Form

945

Simple Plans

A small company plan for a company with up to 100 EEs. The ER can offer this plan as part of a 401(k) plan. Allows EE to contribute a % of their pay toward retirement.

Form 945

Annual Return of Withheld Federal Income Tax reports nonpayroll items like withholding on IC, pensions, IRAs, etc...

Noncash fringe benefits

Any financial extras beyond the regular pay check that an employer must withhold FIT unless specifically excluded -tickets to athletic events -athletic club membership -personal use of corporate car -frequent flier miles -stock options

dependent allowance

EE can claim one allowance for each dependent (other than a spouse) who will be claimed on their federal tax return.

Other withholding Allowances

EE may be entitled to allowances based on estimated tax credits, such as: -child care -medical expenses -mortgage interest -charitable contributions EE take these credits when filing their fed tax income tax returns; # of withholdings is deter. on Form W-4.

Exemption from Income Tax Withholding

EE may claim this if they had no income tax liability last year and expect non in the current year. Valid for one year and must be claimed on a new Form W-4 filed by Feb 15 of each succeeding year. If no new certificate is filed, taxes are withheld at the single rate with zero withholding allowances.

Taxable tips

EE must report cash tips to ER by 10th of the month following the month they receive the tips. Tips less than $20 in a month and noncash tips need not be reported.

Form W-4

EE's withholding allowance certificate. Identifies: 1 allowance for self , if not claimed by other person 1 allowance for each dependent special allowances calculated on worksheet on back of form (itemized deductions, other comp, tax credits, etc.) less allowance = more taken out more allowances = less taken out

allocated tips

ER is not required to withhold - not taxed

cafeteria plans

ER offer EE a choice between pay or qualified (nontaxable) benefits. Salary reductions are used to pay for the benefit and are not included in wages for FIT & exempt from FICA & FUTA -accident and health insurance -self-insured medical reimbursement plan -group-term life insurance (first $50,000 of cov) -dependent care assistance (first $5,000) -health savings accounts

Form 943

Employer's Annual Federal Tax Return for Agricultural Employees

Form 941

Employer's Quarterly Federal Tax Return

Form 1099-MISC

Form issued to independent contractors to report various types of incomes. Rental property income

3 different methods of withholding SIT

Full taxation, leftover taxation and reciprocity -most states require ER to withhold tax from both nonresidents and residents, unless a reciprocal agreement is in place.

wage bracket method

IRS provides statutory wage tables for weekly, biweekly, semimonthly, monthly, daily or miscellaneous pay periods for married and single persons.

Health Savings Account (HSA)

If EE has high-deductible health insurance, can contribute annually to the account to meet out-of-pocket medical bills

Gross-Up Supplemental Wage

If ER wants to give EE the intended amount of a check, ER must increase this amount

Backup Withholding

If an independent contractor does not provide a TIN to their ER and the company anticipates paying the contractor $600 or more, the company must withhold federal income taxes of 28% of the payments made and will continue until the number is reported. Failure to withhold will result in the payer being held liable by the IRS for the 28% withholding.

severance pay, bonuses and commissions

-withhold on total as it were a single regular payment, if not designated separately -if amt is clear and separate from reg wages, then use flat rates 25% flat supplemental withholding 39.6% for amts in excess of $1,000,000

Before an individual withholds any tax under the tax law, the following conditions must exist:

1) ER-EE relationship 2) payments by EE must be defined as wages 3) Employment must not be exempted by the law

statutory nonemployees

Special groups of workers who may qualify as common law employees but are treated under the law as independent contractors (e.g., qualified real estate agents and direct sellers); their compensation is not subject to federal income tax withholding, social security, Medicare, or FUTA taxes. They are treated as self-employed for all federal tax purposes.

IC must submit ____________________on W-9 to hiring agent

TIN (taxpayer identification number) If not, hiring agent must withhold fed income tax of 28% of payments made

Allocated tips

Tips an employer assigns to an employee. They are in addition to the tips the employee reported to the employer. No taxes are withheld on these tips, only ones that are reported.

Form W-2c

To correct errors in previously filed Forms

Form W-3c

Transmittal of Corrected Income and Tax Statements, is used to accompany copies of Form W-2c sent to the SSA.

Form W-3

Transmittal of wage and Tax statements -must be filed with the SS Admin by ER and other payers as a transmittal of forms W-2 to compare totals

Form 1099-G

Used to report unemployment compensation as income, to be taxed accordingly. Certain Gov't payments

Withholding from Sick Pay

W-4S must be filed with the payer of sick pay if the EE wants federal income taxes to be withheld from the payments. This form is filed only if the payer is a 3rd party (insurance co.)

Withholding Gov't payments

W-4V can be used to request federal income tax withholding on gov't payments (social security benefits, unemployment compensation) Voluntary

percentage method and wage-bracket method

What two methods are used to compute the amount of federal income tax to be withheld?

Pretax Salary Reductions

Withholdings from gross pay that reduce the amount of pay subject to federal income tax

401(k) plan

a standard tax-deferred retirement plan. A set % of an EE's wages is contributed on a pretax basis. EE can add after-tax contributions to this total, and the ER can contribute to the EE's plan.

Tax-deferred Retirement Contributions

monies set aside from current paychecks that will be paid out to EE upon retirement.

1099-MISC with 1096 as transmittal

must issue to independent contractor (IC) if paying contractor at least $600 and he/she isn't incorporated

Independent Contractor Payments

payment made of at least $600 must be reported on Form 1099-Misc

State Income Tax (SIT)

payroll must: -file periodic withholding returns to report wages and withholding -prepare reconciliation returns to compare deposits to withholdings -file annual statements to report annual wages paid and applicable taxes withheld -issue info returns to report payments to individuals not subject to withholding

flat 25

percent of tax withholding on the value of the fringe benefits supplemental wage rate

Cannot claim exempt on a W-4 if___________

person is already a dependent on someone else's tax return and income exceeds $1050 (includ. more than $350 unearned income) or if unearned income <$350 but total income> $6350

Withholding on Nonresident Aliens

taxed similar to US citizens cannot claim standard deduction, are limited to one allowance on personal US income tax return withholding as single, regardless of actual status

(On reported Tips) If withholding tax exceeds the amt of wages paid to EE

the EE must pay the uncollected portion of the taxes directly to the IRS when filing the annual income tax return Form 1040.

vacation pay

treated differently than other supplemental wages -withhold as though it were regular payroll -if vacation pay is in lieu of taking vacation time, treat as regular supplemental wage payment and calculate tax on total as single payment

Roth IRA

used for nondeductible contributions limit of $5500/year; advantage since distributions made out of the fund retirement are tax-free

percentage method

used to calculate FIT withholding only used if one of the following apply: -highly compensated individual -compensated annually or semiannually

gross amount

wages before deductions

ER should submit W-4 to IRS only

when requested penalties imposed for willlfully and falsely filing form

EE penalties

willfully file false info on W-4s are subject to fines of up to $1000 or imprisonment for up to one year or both. If claiming excess deductions - subject to $500 civil penalty for ea offense.

Withholding State Income Tax

withhold based on where the services are performed unless there is a reciprocal agreement between the states.

Qualifications as a dependent:

-relationship -domicile -age -support -joint return -citizenship

ER required to send copies to federal & state/local gov'ts

-reports wages and withholding taxes -form W-2 -hard copy to EE on or before Jan 31 -form 4419 if issuing 250+ W-2s must file electronically

fringe benefits

-subject to federal income tax withholding -include ER provided items: cars, free/discounted flights, discounts on property or services, vacations, memberships in country clubs, tickets for entertainment and sporting events

Taxable under FIT withholding non-gross

-tips -cash awards -taxable fringe benefits (car, hotel stay)

Benefits not included in a cafeteria plan

-transportation fringe benefits -educational assistance -scholarships and fellowship grants -meals and lodging for the convenience of ER -dependent group-term life insurance -deferred compensation except for 401(k) contrib.

Withhold FIT on Fringe Benefits

-value and withhold like supplemental wages -flat 25% or - value and add to regular pay-treat as one paycheck and withhold accordingly

Taxable wages for FIT withholding purposes-gross amt

-wages/salaries -vacation pay -supplemental payments -bonuses/commissions

EE can change W-4

-when ER receives amended one, has 30 days to change -EE must change within 10 days for decrease in # of allowances -if there's an increase in # of allowances, can change or leave in effect

Individual Retirement Accounts (IRA)

-EE can contribute lesser of $5500 or 100% of earned income pretax to a retirement acct -different limits if self or spouse (or both) are active participants in qualified plan at work

FIT withholding on Tips

-EE must report tips to ER by 10th of each month (if $20+/month) -ER must withhold FIT and FICA based on this information

contribution to flexible-spending accounts

-EE puts up to $2550 pretax dollars into a trust acct to be used for out of pocket health care costs -do not have FIT or FICA withheld and are forfeited if not used!

Retirement plans: 401k, 403b, 457b or SIMPLE plans

-contributions are made pretax for FIT purposes -ER must still withhold and match FICA -add'l "make up amounts" allowed to be contributed if age 50 or older

Exempt from FIT

-ministers' wages/salaries -advances -educational assistance if maintains/improves job status $5250/year -qualified moving expense reimbursements -transportation in a commuter Hwy transit pass $255/month

Specifically excluded fringe benefits

-qualified employee discounts -reduced tuition, meals and lodging if for employer benefit -de minimiss (personal use of corporate cell phone)

Non-accountable plan

An employer's business expense reimbursement plan that does not meet the requirements regarding business and are considered wages therefore ER must withhold FIT

supplemental wages

Compensation received by employees other than their regular pay, such as bonuses, commissions, and severance pay.

Special withholding allowance

an additional withholding allowance under any one of these situtations: -single person who has only one job -married person who has only one job with nonworking spouse -person's wages from a second job or the spouse's wages (or both) equal $1500 or less *EE cannot claim this allowance on their income tax return!

personal allowance

an allowance that an EE can claim for themselves on his/her tax return

standard deduction

an amount of money used to reduce an individual's adjusted gross income in arriving at the taxable income.

Accountable plan

an approved plan that reimburses EE for business travel and is not subject to FIT withholding; 60 days time period and 120 days for EE to return excess of substantiated amts

De Minimis Fringe Benefit

any property or service the value of which is so small that accounting for it would be unreasonable or impractical. No dollar cap on this type of nontaxable benefit.

Statutory Employee

applies to agent drivers, full-time life insurance salespersons, homeworkers, and traveling or city salespersons; Pay FICA taxes through their employer, so do not pay self-employment taxes, but federal income taxes are not withheld. will have to report on their own income tax report.

If EE doesn't provide a completed W-4, ER must withhold _______________

as if single and zero allowances (highest rate)

ER must retain W-4 _____________

as long as it's in effect and for 4 years thereafter

unauthorized changes/additions__________________ W-4

invalidate