Post by admin1 on Feb 8, 2006 19:04:29 GMT -5
Payroll Taxes
The taxes discussed here usually are referred to as payroll taxes because employers are responsible for deducting an employee's share of tax from his or her earnings before the employee is paid.
FICA Taxes
Taxes under the Federal Insurance Contributions Act (FICA) help pay for Social Security and Medicare benefits. Businesses without employees do not pay FICA tax. Most sole proprietors and partners in partnerships without employees pay a self-employment tax, which is discussed later in this chapter. Businesses that have employees contribute half of the total FICA tax, and are responsible for collecting the other half from employees through payroll deductions. For 1995, the tax rate for the Social Security portion of FICA tax was 6.2 percent each for employers and employees (a total of 12.4 percent). The maximum wage subject to the tax changes annually. The 1995 tax rate for the Medicare portion of FICA tax was 1.45 percent each for employers and employees (2.9 percent total). Special rules apply to employees who receive tips, to persons who receive both wages and self-employment income, and to employees receiving non-wage payments for items such as meals, lodging, clothing, and some services. The employer's share of FICA taxes is deductible as a business expense.
Income Tax Withholding
Along with the employee's share of FICA tax, employers generally must withhold federal and state income tax from the employee's pay. The amount to withhold is determined by the amount of the employee's pay and by the number of withholding allowances that the employee claims on federal Form W-4, Withholding Allowance Certificate. Employees are required to complete Form W-4 when hired, and generally the employer retains the form. However, the form must be filed with the IRS if the employee claims more than ten withholding allowances, or if the employee claims exemption from withholding and his or her wages normally exceed $200 per week.
Employers must furnish a statement of wages and taxes (federal Form W-2) to employees by January 31st of each year or, if requested by the employee, within 30 days of termination. The federal copy of Form W-2 must be submitted to the IRS, accompanied by federal Form M-3, Transmittal of Income and Tax Statements. Because Texas does not have an income tax, there is no comparable withholding for state tax purposes.
Payroll Tax Return
Generally, employers report FICA taxes and withheld federal income tax together on federal Form 941, Employer's Quarterly Federal Tax Return, which is filed at the end of each calendar quarter. There are different forms to be used for agricultural and household workers and for employees who are not subject to FICA taxes. Most employers are required to make deposits for payroll taxes before returns are actually due. How often deposits must be made is determined in part by how much tax liability a business has accrued in the past. For example, a business that owed $50,000 or less in payroll taxes during a specific previous 12-month period may be designated a monthly depositor; a business that owed $50,000 to $100,000 during the specific period may be designated a semi-weekly depositor. The depositor designation is reevaluated annually. A business' actual tax liability at the end of each deposit period determines whether it actually must make a deposit. If the amount of accumulated undeposited liability reaches $100,000 in any period, taxes must be deposited the day after that volume is reached, and if the business' deposit status was monthly, it is immediately changed to semi-weekly.
Self-Employment Tax
Self-employment tax is a Social Security and Medicare tax for individuals who work for themselves. This includes sole proprietors and most partners in partnerships without employees. Net earnings of $400 or more are subject to self-employment tax, and in some tax years there are ceilings on the amount of earnings subject to the tax. In 1995, there was a ceiling of $61,200 for the Social Security portion of the tax, but no ceiling for the Medicare portion. The Social Security portion was assessed at 12.4 percent of earnings, and Medicare was assessed at 2.9 percent, for a total self-employment tax of 15.3 percent. Federal Schedule SE is used to calculate self-employment tax, which then is added to one's total tax liability on Form 1040. One-half of the self-employment tax is deductible as an adjustment to gross income on Form 1040.
Unemployment Tax
Federal and state governments have programs to help support able workers who lose their jobs. Tax under the Federal Unemployment Tax Act (FUTA) is reported by eligible employers once per year on federal Form 940 or 940-EZ. The form usually is due one month after the end of the calendar year. However, deposits toward the annual payment are required at the end of any quarter in which the employer accrues $100 or more in FUTA tax liability. Penalties may be imposed for late filing and late deposits. Most employers, even those with part-time employees, are responsible for paying FUTA tax. The general rule is that a business is subject to FUTA tax if the business pays wages of $1500 or more in any calendar quarter, or the business had a least one part-time employee in each of 20 different (not necessarily consecutive) calendar weeks. In addition, FUTA tax is due on cash wages of $1000 or more paid in any calendar quarter to domestic workers who work in a private home, local college club, or local fraternity or sorority house.
A business that employs farm workers is subject to FUTA tax on their wages if the wages total $20,000 or more in any calendar quarter, or if there was at least one day in each of 20 different calendar weeks when the business had 10 or more at least part-time farm workers. The tax is figured at a rate of 6.2 percent of the wages paid to the employee up to $7000. Tip income reported by an employee to an employer for FICA tax purposes is considered wages for calculating FUTA tax. However, the tax does not apply to some payments, such as workers' compensation payments, nor does it apply to certain types of employment, such as earnings paid to cooperative education students. A business is credited for up to 5.4 percent of the amount it pays for state unemployment tax, which can reduce the actual tax liability to 0.8 percent. The IRS administers the FUTA tax.
The state has its own unemployment program and corresponding taxes. Almost all employers in Texas are required to pay contributions to the Texas Unemployment Compensation Fund. New employers pay unemployment tax at any entry level rate of 2.7 percent for approximately 18 months. Thereafter, the employer's tax rate is computed based on a formula that measures the amount of unemployment benefits charged by the employer in a ratio to the amount charged statewide. This experience tax rate or general rate ranges between zero percent and six percent. All experience rated employers are also subject to a replenishment tax based on ineffectively charged benefits, and the Texas Employment Commission has authority to levy an addition interest tax of up to 0.2 percent.
Texas requires that businesses pay unemployment taxes and file wage reports quarterly. The employer's quarterly report must show the total amount of wages paid during the quarter and the total amount of taxable wages paid. The first $9000 paid to each employee by an employer during a calendar year constitutes taxable wages. There are penalties and fines that can be imposed on businesses that fail to file on time, do not pay the necessary unemployment taxes, or fail to keep accurate employment records.
Acquired Businesses
The taxes discussed here usually are referred to as payroll taxes because employers are responsible for deducting an employee's share of tax from his or her earnings before the employee is paid.
FICA Taxes
Taxes under the Federal Insurance Contributions Act (FICA) help pay for Social Security and Medicare benefits. Businesses without employees do not pay FICA tax. Most sole proprietors and partners in partnerships without employees pay a self-employment tax, which is discussed later in this chapter. Businesses that have employees contribute half of the total FICA tax, and are responsible for collecting the other half from employees through payroll deductions. For 1995, the tax rate for the Social Security portion of FICA tax was 6.2 percent each for employers and employees (a total of 12.4 percent). The maximum wage subject to the tax changes annually. The 1995 tax rate for the Medicare portion of FICA tax was 1.45 percent each for employers and employees (2.9 percent total). Special rules apply to employees who receive tips, to persons who receive both wages and self-employment income, and to employees receiving non-wage payments for items such as meals, lodging, clothing, and some services. The employer's share of FICA taxes is deductible as a business expense.
Income Tax Withholding
Along with the employee's share of FICA tax, employers generally must withhold federal and state income tax from the employee's pay. The amount to withhold is determined by the amount of the employee's pay and by the number of withholding allowances that the employee claims on federal Form W-4, Withholding Allowance Certificate. Employees are required to complete Form W-4 when hired, and generally the employer retains the form. However, the form must be filed with the IRS if the employee claims more than ten withholding allowances, or if the employee claims exemption from withholding and his or her wages normally exceed $200 per week.
Employers must furnish a statement of wages and taxes (federal Form W-2) to employees by January 31st of each year or, if requested by the employee, within 30 days of termination. The federal copy of Form W-2 must be submitted to the IRS, accompanied by federal Form M-3, Transmittal of Income and Tax Statements. Because Texas does not have an income tax, there is no comparable withholding for state tax purposes.
Payroll Tax Return
Generally, employers report FICA taxes and withheld federal income tax together on federal Form 941, Employer's Quarterly Federal Tax Return, which is filed at the end of each calendar quarter. There are different forms to be used for agricultural and household workers and for employees who are not subject to FICA taxes. Most employers are required to make deposits for payroll taxes before returns are actually due. How often deposits must be made is determined in part by how much tax liability a business has accrued in the past. For example, a business that owed $50,000 or less in payroll taxes during a specific previous 12-month period may be designated a monthly depositor; a business that owed $50,000 to $100,000 during the specific period may be designated a semi-weekly depositor. The depositor designation is reevaluated annually. A business' actual tax liability at the end of each deposit period determines whether it actually must make a deposit. If the amount of accumulated undeposited liability reaches $100,000 in any period, taxes must be deposited the day after that volume is reached, and if the business' deposit status was monthly, it is immediately changed to semi-weekly.
Self-Employment Tax
Self-employment tax is a Social Security and Medicare tax for individuals who work for themselves. This includes sole proprietors and most partners in partnerships without employees. Net earnings of $400 or more are subject to self-employment tax, and in some tax years there are ceilings on the amount of earnings subject to the tax. In 1995, there was a ceiling of $61,200 for the Social Security portion of the tax, but no ceiling for the Medicare portion. The Social Security portion was assessed at 12.4 percent of earnings, and Medicare was assessed at 2.9 percent, for a total self-employment tax of 15.3 percent. Federal Schedule SE is used to calculate self-employment tax, which then is added to one's total tax liability on Form 1040. One-half of the self-employment tax is deductible as an adjustment to gross income on Form 1040.
Unemployment Tax
Federal and state governments have programs to help support able workers who lose their jobs. Tax under the Federal Unemployment Tax Act (FUTA) is reported by eligible employers once per year on federal Form 940 or 940-EZ. The form usually is due one month after the end of the calendar year. However, deposits toward the annual payment are required at the end of any quarter in which the employer accrues $100 or more in FUTA tax liability. Penalties may be imposed for late filing and late deposits. Most employers, even those with part-time employees, are responsible for paying FUTA tax. The general rule is that a business is subject to FUTA tax if the business pays wages of $1500 or more in any calendar quarter, or the business had a least one part-time employee in each of 20 different (not necessarily consecutive) calendar weeks. In addition, FUTA tax is due on cash wages of $1000 or more paid in any calendar quarter to domestic workers who work in a private home, local college club, or local fraternity or sorority house.
A business that employs farm workers is subject to FUTA tax on their wages if the wages total $20,000 or more in any calendar quarter, or if there was at least one day in each of 20 different calendar weeks when the business had 10 or more at least part-time farm workers. The tax is figured at a rate of 6.2 percent of the wages paid to the employee up to $7000. Tip income reported by an employee to an employer for FICA tax purposes is considered wages for calculating FUTA tax. However, the tax does not apply to some payments, such as workers' compensation payments, nor does it apply to certain types of employment, such as earnings paid to cooperative education students. A business is credited for up to 5.4 percent of the amount it pays for state unemployment tax, which can reduce the actual tax liability to 0.8 percent. The IRS administers the FUTA tax.
The state has its own unemployment program and corresponding taxes. Almost all employers in Texas are required to pay contributions to the Texas Unemployment Compensation Fund. New employers pay unemployment tax at any entry level rate of 2.7 percent for approximately 18 months. Thereafter, the employer's tax rate is computed based on a formula that measures the amount of unemployment benefits charged by the employer in a ratio to the amount charged statewide. This experience tax rate or general rate ranges between zero percent and six percent. All experience rated employers are also subject to a replenishment tax based on ineffectively charged benefits, and the Texas Employment Commission has authority to levy an addition interest tax of up to 0.2 percent.
Texas requires that businesses pay unemployment taxes and file wage reports quarterly. The employer's quarterly report must show the total amount of wages paid during the quarter and the total amount of taxable wages paid. The first $9000 paid to each employee by an employer during a calendar year constitutes taxable wages. There are penalties and fines that can be imposed on businesses that fail to file on time, do not pay the necessary unemployment taxes, or fail to keep accurate employment records.
Acquired Businesses