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What do you need to consider when selecting a pay schedule?
#1. The frequency of pay dates This refers to how often your employees get paid. Common pay frequencies include weekly, biweekly (every other week), semimonthly (twice a month), and monthly. We'll discuss the pros and cons of each in a minute. #2. The delay between the pay period and the pay date A pay schedule is a combination of two things: a pay period and a pay date. The pay period refers to the recurring length of time between one payroll run and the next. The pay date refers to the day your employees get paid. If you have salaried employees, you probably won't have a delay between the end of the pay period and the pay date because you already know how much you're going to pay them. Their salary is split evenly between pay periods, so the amount you pay them never changes. But if you have hourly employees, you may need a delay between the end of their pay period and the pay date. This time allows you to gather their hours and process your payroll accurately. This practice is very common for hourly employees and is called getting paid "in arrears." #4. Your employees' preference Your employees may want to be paid more frequently. For example, hourly workers with low wages may not have a lot of savings, and waiting two weeks (or longer) to get paid can be a real problem. Take good care of your people by setting up a pay period that suits their financial circumstances. Technically, you can create different pay schedules for different employees (as long as you follow the minimum pay period the law allows). But for simplicity's sake, the overwhelming majority of businesses choose one schedule for everyone. #5. Cash-flow and accounting logistics Do you usually have enough cash on hand for payroll? Are some parts of the month busier than others? You want payroll to fit into your work schedule—not pop up as a fire drill that causes you to stay up late or shuffle cash around. Schedule payroll for days when you're most able to deal with it. #6. The law There's no federal law stating how often you should pay your employees. But each state has its own laws around what makes a compliant pay schedule. These laws typically govern how long the delay between the pay period and the pay date can be, as well as how frequently you must pay certain types of employees. For example, the Department of Labor reports that employees must be paid on a semimonthly basis in Arizona, with no more than 16 days between paychecks. In Michigan and California, pay frequency varies by industry. So before you settle on a plan, make sure your state hasn't already settled on one for you. Check the laws in your state and stay compliant when you pay your team.
w2
- W2 form is the annual form that records an employees wages and taxes.
W4
- W4 form is what tells the employer how much federal tax to withhold from the employee's paycheck. It tells your employers how much they need to deduct out of your pay for federal income tax, determined by the number of withholding allowances you claim. These allowances are not set in stone, however. You can and should change them at any time according to any major life changes, such as getting a second job, marrying or divorcing, or having a child.
semi-monthly
A semimonthly payroll means two paychecks per month: one in the middle and another at the end. Your accounting staff will prefer this to the biweekly schedule because it slots neatly into their reporting. But watch out: Payroll administrators have to keep an eye out for this schedule. Unlike biweekly pay, where payday is always on the same day every two weeks, a semimonthly schedule could hit on a non-business day. This will require some occasional last-minute adjustments. When payday naturally falls on a weekend, most employers opt to pay their employees early. Cost and time: Less expensive than weekly and biweekly Employee preferences: Neutral Payroll and accounting logistics: Generally straightforward
What is a withholding allowance and how do they affect the taxes withheld on an employee paycheck? As an employee, the specific factors that influence how much tax your employer withholds from your regular pay are:
A withholding allowance is the tax exemption that determines how much income tax an employer deducts from an employee's paycheck. The more allowances an employee claims, the less income tax is withheld from the employee's paycheck (and vice versa). ----- -Filing status (single, married) -Number of withholding allowances you claim
State requirements for Workers' Compensation insurance
AP intego (find in cheat sheets)
Employee vs. Independent Contractor
An employer may hire employees, or independent contractors. The differences in these types of workers determine how taxes are handled, and the forms that are filed. Hiring 1099 workers—or independent contractors as they are more commonly known—can help you cut back on costs and legal responsibilities. There are major differences between these two types of workers, and classifying them properly with the IRS is important. Otherwise, you could face penalties from the IRS, or even a lawsuit against your business. For this reason, we recommend getting the assistance of an employment attorney when classifying workers. Let's start by taking a look at the differences between a 1099 vs. W2 employee. Both are named after their respective tax forms: Companies provide a Form 1099-MISC to independent contractors that they work with, and employers file Form W2 on behalf of their employees. Understanding these differences is vital—if an employee is misclassified as an independent contractor, you could be subject to costly fines and legal fees. And W2 workers who are misclassified as independent contractors can sue your business for benefits they were denied, such as health insurance, overtime pay, and the minimum wage. A 1099 worker—or independent contractor—generally provides specific services, as defined by a written contract. Some 1099 workers only work on one project at a time, but many serve multiple clients, providing a service within their expertise. Independent contractors, such as freelancers and consultants, are self-employed, so they're business owners themselves. Most of the time, businesses hire W2 employees with the intention of working with them for an undetermined length of time. A W2 employee is what we normally think of as a typical, salaried employee. Unlike independent contractors, W2 workers are not their own business owners. They work for your company, participate in employee benefit programs, and work according to your business's needs and schedule. Unless there's a compelling reason to classify a worker as an independent contractor, the default classification is W2 employee. Admittedly, the line between 1099 and W2 workers can become blurry—but the IRS provides some guidance about how to correctly classify your workers. The IRS considers three major categories in determining whether workers are employees or independent contractors: Behavioral - Can your business control what, where, how, and when the worker carries out their job? Financial - Who controls the economic aspects of the worker's job? What's the method of payment (e.g. a regular salary or a flat fee)? Type of relationship - Do you provide this worker with employee benefits? What are the length and terms of this relationship, as outlined in a contract, employment agreement, other documentation?
Making your pay period choice
As the BLS data makes clear, there is no single pay period that works for everyone. How frequently you run payroll ultimately comes down to balancing the needs of your employees, the requirements of your state, and your business goals. It's definitely worth taking a little time to think it through to make sure payday is one day that makes everyone happy.
Important things to consider on w4
Before you start, decide whether you will be filing a joint tax return with a spouse who also works for the current tax year. If so, Kiplinger offers a handy tip: Start by filling out only the first portion of the W-4 together: the personal allowances worksheet. This will determine how many personal allowances you can claim as a couple; you will not turn that worksheet in to your employer. Divide that number of allowances between the two of you, and when you each fill out a separate W-4 for your employers, enter only your portion of the allowances when prompted. Line D: If you have dependents other than your spouse — such as children — you'll enter how many you have in line D. The IRS has a great set of questions to help you determine the dependents you can claim. Line G: If you're single and will earn under $65,000, or if you're married and will earn under $95,000, enter 2 in line G for each eligible child you have. If you have three to six eligible children, subtract one from the original number you calculated. For seven children or more, subtract two. You can find a complete explanation of the Child Tax Credit and who counts as an eligible child on the IRS website. Fill out steps 1-4 according to your current address and marital status. If you've just recently married and changed your name, but haven't gotten a new social security card, check the box in step 4 and call the number listed for a new card. For step 5, enter the total number of allowances from part H (if you're filing jointly with a spouse, this is where you enter only your portion of allowances). Step 6 is a way for you to have additional money withheld from your paycheck if not enough is being withheld. When not enough money is taken out of your paycheck, by the time April rolls around, you'll owe money on your federal tax return. Step 6 can help you avoid this. 3. Claim an exemption if it applies. An exemption from withholding prevents your employer from withholding any federal income tax from your paycheck. Chances are, if you're exempt from withholding, you'll know because you will have received a complete refund for the amount withheld on your taxes last year. If none of the criteria listed under line H from the personal allowances worksheet apply to you, all you have to do to complete the form is is sign and date it. 4. Fill out itemized deductions, if you're using them. Note that you should only fill out this section of the form if directed here by the criteria under line H on page 1. Deductions are amounts taken out of your taxes to reduce your taxable income. The exact amount of standard deductions — blanket sums for people without particularly complicated tax situations — differ from year to year and depend on your filing status. The amounts for 2014 are listed in step 2 of the deductions and adjustments worksheet of the W-4. The IRS presents some cases in which you aren't allowed to take the standard deduction, and instead must itemize, or list out your individual deductions line by line. Some people prefer to itemize their deductions, if doing so means they'll end up with less taxable income. Calculating your specific itemized deductions doesn't happen on your W-4 — you do it on your primary tax filing document, form 1040. Figuring this out takes some legwork, and you'll need actual proof of your expenses in case the IRS asks for it. If you plan to itemize, you might be particularly well-served by working with an accountant
Bi weekly pros and cons
Biweekly and semimonthly might sound like the same thing, but in payroll terms, they are very different. Here's an easy way to remember if you ever get them confused: "Bi" means two, so it's every two weeks. "Semi" means half, so it's every half month. On the biweekly pay schedule, employees get paid every two weeks on a specified day. If employees on a biweekly pay period are paid, say, on the first of March, the rest of the payroll schedule would look something like this: Friday, March 1 Friday, March 15 Friday, March 29 Friday, April 12 Friday, April 26 Friday, May 10 And so on As you can see, having 26 pay periods per year generally results in two paychecks per month—with two months resulting in three paychecks. Employees tend to love these bonus months. Your accountants? Not so much. Since reporting happens monthly, accountants have to accrue expenses so costs are recognized in the appropriate month. Benefits premiums are deducted monthly, so a biweekly pay period will require some coordination on the HR side as well. Biweekly pay gets even more complicated during leap years. Because our 365-day year doesn't divide nicely into 7-day weeks, every few years you will have a year with 27 pay periods in it, instead of the expected 26. You'll want to plan in advance how to pay your employees in these special cases. Cost and time: Less expensive than weekly Employee preferences: Preferred (most employees in the US get paid this way) Payroll and accounting logistics: Can be complicated and requires extra coordination
Advantages of 1099 Independent Contractors
Bring specialized expertise - Offer greater flexibility Less legal risk to your business - Lowers business costs -
advantages of employees
Committed to your company Offer more continuity Free up the business owner's time Need to train them just once
About Form 941, Employer's Quarterly Federal Tax Return
Employers use Form 941 to: Report income taxes, social security tax, or Medicare tax withheld from employee's paychecks. Pay the employer's portion of social security or Medicare tax.
Exempt vs. Non-exempt:
Exempt means that the employee is "exempt from FLSA rules on overtime hours". Exempt employees (who receive a high salary, or high hourly wage) don't qualify for overtime pay when they work more than 40 hours in a week. These are typically salaried employees. Where this gets confusing: The word exempt is used in multiple ways by the IRS. Generally (and most importantly) the word exempt means free from an obligation. So if you are "exempt", you are free from an obligation that others have to fulfill. Exempt basically means "xyz doesn't apply to you". If you tell your employer you are exempt from federal income tax withholding, then you're saying that you are free from the obligation of paying federal income tax. Federal income tax doesn't apply to you. If you are classified as exempt employee it means that you are free from complying with FLSA laws. FLSA overtime rules don't apply to you. (more in cheat sheets}
What are examples of payroll taxes?
FICA (Medicare + Social Security aka OASDI- Stands for Old Age, Survivors, & Disability Insurance tax: this is supposed to help the retired, unemployed and disabled people)
FICA
Federal Insurance Contribution Act, includes the SS (OASDI) and Medicare tax. *Both employees (EE) and employers (ER) are responsible for paying in equal parts* The federal government collects OASDI tax from employees at a tax rate of 6.2%. Employers are responsible for withholding the 6.2% from their employees' pay and then sending it on to the government. Employers must also match the 6.2% with an additional 6.2% from their own funds. 12.4% of their gross salary (social security) 2.9% of their gross salary (medicare) 15.3 total fifa tax (employee + employer) For self-employed individuals: the effective OASDI tax is 12.4%, because those who are self-employed have to pay both the employee and employer portions of the OASDI tax themselves. An income tax deduction for the employer portion of the self-employment OASDI tax is allowed in order to put self-employed individuals in the same tax position that employers enjoy. The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance) What's the maximum OASDI tax? The OASDI tax only applies to wages or salary income up to a certain amount that changes from year to year. Note, however, that you sometimes will have to work to get any overpaid OASDI tax back. For instance, if you work two different jobs whose total salaries add up to more than the $127,200 limit, then the employers might well withhold too much in OASDI tax. There's a space on your income tax return that you can use to claim excess paid OASDI tax, giving you a refund of the overpaid amount.
number of hours in pay periods + number of times paid depending on pay period
For each pay period, identify how many regular paychecks there will be, and the number of hours they will account for: Weekly: 40 Biweekly: 80 Semi-monthly: 86.67 Monthly:173.33 Quarterly: 520 Semi-annually:1040 Annually: 2,080 Weekly 40 hrs - paid 52 times per yr Bi-weekly 80 hrs - paid 26 times per yr Semi-monthly 86.67 hrs - paid 24 times per yr Monthly 173.33 hrs - paid 12 times per yr Quarterly 520 hrs - paid 4 times per yr Semi- annually 1040 hrs - paid twice per yr Annually 2080 hrs - paid once per year
About Form 944, Employer's Annual Federal Tax Return
Form 944 is designed so the smallest employers (those whose annual liability for social security, Medicare, and withheld federal income taxes is $1,000 or less) will file and pay these taxes only once a year instead of every quarter.
gross up - pay
Gross pay = net pay / (1 - tax rate) The employer must gross-up the salary paid to the employee to $125,000 in order to account for the required 20% paid on income—because $125,000 x (1 - 0.20) = $100,000. 1. Add up all state and federal tax rates, and local taxes if applicable. 2. Subtract the above total from the number one (1 - tax = net percentage). 3. Divide the net payment by the net percentage (net payment / net percentage = gross payment). 4. Calculate gross payment to net payment to check your answer. Start by determining the federal tax percentage, according to your employee's income tax bracket. IRS Circular E is used to determine this percentage.
Hourly employees
Hourly workers are paid a set rate for every hour they work, recording their time in a timesheet that's submitted each pay period.
Pay as you earn
Pay As You Earn system in which money is deducted from paychecks by the employer and remitted to the government. Any sum taken in excess of the amount of tax due it repaid to the taxpayer
All taxes possible - statutory deductions - legally you need to pay to gov
SUI medicare social security FUTA federal income tax state income tax state/local taxes
salaried employees
Salaried employees: Salaried employees are paid a set amount of money each year, and typically don't earn any overtime.
Taxable Wage Base explained
Social Security tax is not applied on wages, salaries, and bonuses in excess of the stipulated maximum amount of wages that is subject to Social Security taxes. As of 2018, the Social Security tax rate is 12.4%. Half of the tax is paid by the employer, and the employee is responsible for paying the other half, that is 6.2%. The maximum amount of income that taxpayers must pay Social Security tax on is $128,400. In other words, the taxable wage base is $128,400. Consider an employee, Rob, who earns $85,000 in gross income for the tax year 2018 and has a 6.2% Social Security tax withheld from his pay. The federal government, in effect, will collect 6.2% x $85,000 = $5,270 from Rob to help fund retirement and disability benefits for retirees. In some instances, an employee will earn wages that can be classified as excess wage. The excess wage can be subtracted from gross income so that the taxable wage base is lower than gross income. For example, assume another employee, Sue, earns $175,000 gross income. The Social Security tax rate will only be applied up to the taxable wage base of $128,400, which is less than her gross income. Therefore, Sue will pay 6.2% x $128,400 = $7,960.80 as her contribution to the country's Social Security account for retirees and the disabled. Taxable wage base is most often used in reference to Social Security taxes, though it can apply to any income-based tax. For example, some state unemployment agencies use a taxable wage base to calculate unemployment taxes. In California, the taxable wage base (as of 2018) is $7,000, Ohio - $9,500, Pennsylvania - $10,000, New York - $11,100, Connecticut - $15,000, Oklahoma - $17,600, Wyoming - $24,700, Nevada - $30,500, Hawaii - $45,900, etc. Refer to the American Payroll Association website for the unemployment insurance taxable wage base for all states. The taxable wage base for Social Security and Unemployment taxes increases every year or every few years. Note that although Social Security tax is applied up to the taxable wage base, Medicare tax is applied on 100% of income.
Supplemental Wages
Supplemental wages is compensation paid to an employee that is outside of regular wages. Supplemental wages are subject to social security, Medicare and Federal Unemployment taxes. Types of supplemental wages include: Bonuses Commissions Overtime Pay Awards Prizes If you've ever been given a gift card at work, those are considered supplemental wages, and are subject to taxes. If you win the lottery- those are supplemental wages. Why it's important: It is important to understand the difference between supplemental and regular wages because the two types are subject to different federal wage laws and different withholding practices. If you get paid weekly, your tax liability is spread over 52 pay periods. If you get four bonus checks a year, then the supplemental tax rate can be spread over 4 checks. Have you ever gotten a bonus check, only to see the net amount is much less than you were expecting? That's because it's been taxed at the supplemental wage fixed rate (usually around 22%) in addition, you're still paying for Social Security, Medicare and state and local taxes on that income- which can push that percentage much higher.
2. What is the FLSA?
The Fair Labor Standards Act of 1938 is a United States labor law that creates the right to a minimum wage, OT, and child labor
3. What is the Social Security Act? What does it do? How is it funded?
The SSA created the Social Security program as well as insurance against unemployment. It gave unemployment insurance, aid to the disabled, aid to poor families with children, and retirement benefits. It is funded by payroll taxes.
FUTA
The federal unemployment tax act (FUTA) tax provides payments of unemployment compensation to workers who have lost their jobs. It is an employer-only paid tax. The FUTA tax rate is 6%, which taxes wages up to the first $7,000 earned by the employee. This totals to $420 in annual FUTA tax amount for each employee. However employers generally receive a credit of 5.4% for paying timely state unemployment taxes. This results in a reduced FUTA tax rate of 0.6%, which totals to $42 in annual FUTA tax amount for each employee. Gusto accurately calculates and withholds the FUTA tax amount throughout your payrolls. FUTA payment schedule If your FUTA liability exceeds $500 in any given quarter payment must be remitted by the last day of the month following quarter end. Gusto handles all FUTA payments and filings for our payroll customers. FUTA Credit Reduction States Every year, some states are classified as credit reduction states. These states took a loan from the federal government to help pay their state unemployment insurance benefits. If the states are not on time in paying back that loan, the federal government reduces the FUTA credit given to employers. Employers in these states will owe a higher amount of tax that will be paid with the annual Federal Unemployment Form 940 in January. The Department of Labor finalizes the list of credit reduction states every year in November. In 2017, California is a credit reduction state. You can read more about this credit reduction on the IRS website. SUI exemptions When a business or employee is exempt from state unemployment, the business is no longer able to apply the 5.4% FUTA credit for those SUI exempt employees. The FUTA rate for these employees increases to 6%. We will collect the remaining 5.4% they haven't yet paid. Check out this IRS reference for more info (see pages 3 and 4 of the "Instructions for the 940").
What Does Taxable Wage Base Mean?
The taxable wage base is the maximum amount of earned income that employees must pay Social Security taxes on. Generally, the employee's gross wages will be equal to the taxable wage base. Typically, an employer will handle this calculation and withhold the correct amount of taxes from each of the employee's paychecks; however, the employee is still responsible for reporting the tax. The taxable wage base is also known as the Social Security wage base.
Why do we have taxes?
To pay for services provided to the people of America by the government. Examples - defense, education, roads, police force, firefighters
What are FIT withholding rates based on?
Wage bracket method Percentage method
Regular wages: Wages and pay periods:
Wages are a fixed regular payment, typically paid on a daily or weekly basis, made by an employer to an employee for an agreed amount. Some wages are subject to taxes, others are not. ----------- It's time to run payroll- but how frequently should you do it? Deciding on a pay period changes the number of times you run payroll throughout the year. The pay period (days worked) and the check date are an employer's pay schedule. There are several pay periods that employers choose from (although each state can regulate what pay period an employer is forced to use). The most common pay periods are: weekly, bi-weekly (every other week), semi-monthly (twice per month) and monthly.
weekly pay schedule pros and cons
Weekly According to the BLS, a weekly pay period is favored by 70 percent of construction firms and 50 percent of manufacturing companies. This cadence is also the top choice for hourly employees because there's not much lag time between doing the work and getting paid. Here's how it breaks down against some of the criteria we mentioned above: Cost and time: Most expensive Employee preferences: Preferred, especially by hourly employees Payroll and accounting logistics: Most difficult
monthly pros and cons
Why not take a load off and run payroll just 12 times a year? It's much less expensive for those who get charged for each payroll run. It takes less time if you do it yourself. Logistically speaking, it's the easiest to administer. But there are (more than) a few considerations. The first is that most employees don't like to wait for a whole month to get paid. For some workers, particularly low-income hourly workers, this delay can cause serious cash-flow problems. The second is that some states mandate a shorter pay period. If your company has employees in different states, it can be more hassle than it's worth to pay some of them monthly and adjust the other pay periods depending on their state laws. Cost and time: Least expensive Employee preferences: Least favored by employees Payroll and accounting logistics: The easiest way to go
gross subject wages vs gross wages
gross subject wages - what is taxable after benefits such as health issurance . (1000-100 each pay period) , wages subject to taxes everything above the wage base limit is called excess wages and wages below the wage base limit are called subject wages amount in direct deposit - is your net pay
how do allowances affect income
if you have 1 allowance, you decrease your net pay (40k) minus standard deduction of 6200 minus 3950 gets us to 29,850 of taxable income? from khan academy with 2 allowances, 6200 minus (3950 times 2 = 7900) = 25,900 When the number of allowances increases, the amount of tax money withheld from a person pay check decreases. If a single individual only claims one allowance, the max amount will be withheld from every pay check. They will most likely be getting some money back after they file for taxes. The more allowances the employee selects, the less tax will be taken out of their paycheck. The less allowances, the more tax will be withheld. The employer uses their W-4 as a guide for estimating how much to withhold from their paycheck for taxes. However, at the end of the year, the employee may either end up owing the Government money or they may receive a refund depending on the final amount of taxes they owe and how much they paid throughout the year. the more allowances per year lessens the overall withholding for federal and state taxes. if you haven't accounted for this accurately, you may end up owing at the end of the year, which could be problematic if you aren't equipped or prepared to pay the difference. In general, the fewer dependents that you claim (if any) and other statuses such as marriage can impact withholding. The more dependents that you claim the fewer taxes are withheld throughout the year. A single person with no children would have more taxes withheld as compared to a married father of 2.
voluntary deductions
insurance charity 401k healthcare/child care plan allow you to save and pay for things on a pre-tax basis
What is "withholding"?
is the portion of an employee's wages that is not included in his or her paycheck but is instead remitted directly to the federal, state, or local tax authorities. Withholding reduces the amount of tax employees must pay when they submit their annual tax returns.
Define Employee Payroll Taxes: FIT: FICA: State Income Tax:
is withheld from employee earnings each payroll, determined by: the amount earned, employees marital status, employee federal withholding allowance amount, and any other additional withholding amounts specified by the employee. ---------- The federal insurance contributions act (FICA) consists of Social Security and Medicare taxes. It was created to help provide for retired workers and the disabled. The tax is calculated using flat percentages of taxable wages and are paid by both the employee and employer. ------------ determined by amount earned, marital status, withholding allowance, and rates differ for each state.
W2 form
one goes to you and one goes to the IRS employer needs to get you that w2 form by January 31st so you can pay your taxes by April 15th if you have multiple employers, need a W2 for each job The IRS requires employers to report wage and salary information for employees. In particular, it reports the amount of federal, state, and other taxes are withheld from your paycheck. Why do employees need a W2? It is a critical part of the tax preparation process - It reports wages paid and taxes withheld by an employer over the course of a year. It is reported to the IRS and the Social Security Administration. What is the dollar amount an employee must earn in order to get a W2? You must earn at least 600 dollars On what date must an employer make the W2 available to employees? Jan 31st
BREAKING DOWN Withholding Allowance: The amount of withholding is based on your filing status
single, married, or "married, but withhold at the higher Single rate" - and the number of withholding allowances you claim on your W-4. To avoid trouble when you file your taxes (or to keep from giving the government an interest-free loan), you need to take time to figure out how many allowances you should claim. Calculating Your Withholding Allowance-- The IRS provides a rough formula for how many allowances taxpayers should claim in order to have the correct amount withheld from each paycheck. The Personal Allowances Worksheet on page 3 of Form W-4, will help you figure how to choose that number, based on tax-relevant aspects of your life. Fortunately, you can check your withholding choice using the IRS Withholding Calculator. This will enable you to see whether you've claimed the right number of withholding allowances. Yes, You Can Be Exempt from Withholding But it's not easy to receive that status. You can claim the withholding exemption only if you had a right to a refund of all federal income tax withheld in the prior year because you didn't have any tax liability and you expect the same for the current year. You simply write "Exempt" on Form W-4. Important: You must do this annually; the exemption doesn't automatically carry over. The exemption from withholding for 2018 will expire on February 15, 2019, unless you claim an exemption on the 2019 Form W-4 and file it with your employer by this date. When to Recalculate Allowances File a new Form W-4 with your employer whenever your personal or financial situation changes (e.g., you get married, you have a baby, your spouse enters or leaves the workplace). The new withholding allowances go into effect no later than the first payroll period ending on or after the 30th day you give the revised form to your employer. Your employer may implement it sooner but isn't required to do so. You can also request that a specific dollar amount be withheld, regardless of your withholding allowances. This may be helpful if you receive a year-end bonus or simply want to boost withholding near the end of the year (perhaps to cover taxes on investment income, such as capital gain distributions made at the end of the year). Requesting an additional amount be withheld is also done on Form W-4; there's a special line for it. What If You Claim Too Many Allowances? If you claim more allowances than you are entitled to, you are likely to owe money at tax time. If claiming too many allowances results in your significantly underpaying your taxes during the course of the year, you may have to pay a penalty when you file your annual tax return. If, after claiming zero allowances, you find that you do not have enough withheld from your paycheck, you can request that your employer withhold an additional dollar sum (see previous section). If, on the other hand, you have more income withheld than you should, you will receive a refund after you file your annual income tax return. Receiving a refund isn't necessarily a good thing: It represents money you could have been using throughout the year to pay your bills or invest for the future.
Indirect taxes
tax that is passed onto the consumer as part of purchasing a good or service they are buying from the organization Examples - Sales (pay when you buy alcohol) , custom (tax or tariff on good transported from a foreign country to the US) and excise tax(manufacturer has to pay it on say alcohol)
Direct Taxes
taxpayer pays directly to the government and the responsibility of paying the tax cannot be passed onto someone else Examples - income tax, SS, Medicare
Gross Wages: Gross Subject Wages: Subject Wages: Excess Wages: Net Pay: "Gross Up":
total amount you pay an employee before you withhold taxes and other deductions ----- full amount of wages that are taxable -------- compensation amount an employer uses to calculate the amount of benefits an employee should receive ======= wages that could have been taxed but they exceed the federal wage limit for the payroll year ===== the amount of pay left for an employee after deductions to their gross pay. ===== an additional amount of money added to a payment to cover the income taxes the recipient will owe on the payment.
Payroll timeline from employee perspective
you get offered the job - you are feeling super psyched and then you fill out your w4 (witholding allowance certificate) allows the employer to withold the right amount of income tax on your paychecks you get paid (best day ever) and on the pay stub it shows you the gross pay based on hours worked - shows the taxes witheld and any deductions you have for ex 401k , contributions, and reimburshments then its the new year and some fun payroll taxes come -- social security, medicare, and income tax to be paid. payroll wouldn't be complete with out employers filling out w2s (wage and tax statement) wage & taxes witheld April 15th have to pay yer taxes to IRS