Archive for the ‘Payroll Taxes’ Category

ADDITIONAL MEDICARE TAX

Tuesday, December 10th, 2013

Authored By: Connie Ward, Bookkeeper at CMP

As 2013 comes to an end, employers, employees and self-employed individuals should make sure they are complying with the new 0.9 percent additional Medicare tax requirement.

While this new requirement was effective January 1, 2013, the effects may not be fully felt until wages earned during 2013 reach in excess of $200,000, which may not occur until the last quarter of the year.

The tax applies only to employees and self-employed individuals and is in addition to the 1.45 percent regular Medicare tax that all individuals pay.

Required withholding of the additional Medicare tax may result in over or under withholding of the actual tax you owe based on your individual filing status. Employers should be checking their payroll systems to make sure they have properly begun to withhold from their high earners. The employers will be required to withhold the additional Medicare tax on wages over $200,000. Employees should project their income to see if they need to increase their withholding to account for their spouses income, and self-employed individuals should be talking with their tax return preparers to insure proper estimated tax payments are being made.

The thresholds for the new Medicare Tax is as follows:

Filing Status / Threshold Amount

Married filing jointly - 250,000
Married filing separately - 125,000
Single – 200,000
Head of household (with qualifying person) – 200,000
Qualifying widow(er) with dependent child) – 200,000

An additional tax of 3.8% Medicare tax will apply to “net investment income.” Net investment is defined as follows:

• Interest and dividend income
• Royalties
• Annuities
• Net Rental Income
• Gross income from passive activities
• Net gain from the disposition of property; stocks bonds mutual funds, capital gain distributions from mutual funds, investment property, sale of second residence
• Gain from rental property subject to tax
• Gain on the sale of a principal resides subject to tax (any gain over $500,000)

If you have any addition questions regarding the additional Medicare tax on wages as well as net investment income please contact any of our professionals at either our Salt Lake or Logan Offices.

Small Businesses May be Subject to Increased Payroll Audits

Tuesday, October 15th, 2013

Authored By: Sheri Lewis, Staff Accountant, has worked at Cook Martin Poulson since November 2011. She recently received her Master of Accounting Degree and is in the process of taking the CPA exams.

A recent study conducted by the Treasury Inspector General for Tax Administration (Employers Do Not Always Follow Internal Revenue Service Worker Determination Rulings; June 14, 2013. Reference Number: 2013-30-058) called for the IRS to provide better follow-up to ensure small employers are complying with worker classification ruling. Better follow-up translates to more payroll audits. The study indicated that only 17% of employers appeared to comply with the “employee” worker classification rulings that resulted from the filing of Form SS-8 (Determination of Worker Status for Federal Employment Taxes and Income Tax Withholding). Filing a Form SS-8 requesting a “worker status” determination means the business or the worker is asking the IRS to establish if the services provided to the firm are those of an employee or an independent contractor. Receiving the determination from the IRS can be a relatively long process. The crackdown, in part, may be intended to increase tax revenue by assessing back payroll taxes and penalties.

Unfortunately, there is no clear cut way to determine whether or not a worker is an employee or an independent contractor. There are three general guidelines that outline the factors the IRS considers in making a worker classification. The guidelines are summarized as follows:

1. Degree of Control: To what extent does the employer have the ability to direct how, what, when and where the worker performs his duties?
2. Financial Opportunities: How is the worker paid? Are expenses reimbursed? Is the pay a set or regular amount? Does the worker provide his own tools and/or supplies?
3. Relationship Type: Is the position permanent or temporary? Is there a written contract? Can the worker pursue other means of obtaining income? What benefits does the employer provide?

The classification of an employee or independent contractor can had significant tax consequences for all involved. Employers must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. Employers do not have to withhold or pay any taxes on payments to independent contractors. Independent contractors must pay the full share of Social Security and Medicare taxes themselves. The study showed that an employer, on average, can save around $3,700 annually per worker with a salary of $43,000 if the worker is classified as an independent contractor. This savings potential can unduly influence some small business owners to misclassify workers as independent contractors. Additionally, employers are trying to contend with the new health care law requirement to provide health insurance if they have 50 or more employees. The Wall Street Journal reports that studies have shown that local businesses misclassify workers anywhere from 10% to more than 60% of workers as independent contractors (WSJ, Payroll Audits Put Small Employers on Edge, March 13, 2013 by Angus Loten). Ironically, due to the lack of a clear definition as to what constitutes an employee or independent contractor, many employers are unsure if they are complying with the worker classification rules until they have a payroll audit.

Work Opportunity Tax Credit (WOTC)

Thursday, July 18th, 2013

Authored By: Connie Ward, from the Logan Bookkeeping Department

What is WOTC?
The Work Opportunity Tax Credit (WOTC) is a Federal tax credit available to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment.

What does WOTC do?
WOTC helps targeted workers move from economic dependency into self-sufficiency as they earn a steady income and become contributing taxpayers, while participating employers are able to reduce their income tax liability.

How large is the tax credit?
The maximum tax credit ranges from $1,200 to $9,600, depending on the employee hired.

Eligible New Hires
A veteran who is:
• A member of a family that received SNAP benefits (food stamps) for at least a 3-month period during the 15-month period ending on the hiring date.
• Entitled to compensation for a service-connected disability:
o Hired within 1 year of discharge or release from active duty
o Unemployed at least 6 months in the year ending on the hiring date
o Unemployed:
o At least 4 weeks in the year ending on the hiring date
o At least 6 months in the year ending on the hiring date

Please note that to be considered a veteran eligible for WOTC, an individual must meet these two standards:
• Have served on active duty (not including training) in the U.S. Armed Forces for more than 180 days or have been discharged or released from active duty for a service-connected disability
• Not have a period of active duty (not including training) of more than 90 days that ended during the 60-day period ending on the hiring date

Long-term Temporary Assistance for Needy Families (TANF) Recipient:
A member of a family that meets one of the following circumstances:
• Received TANF benefits for at least 18 consecutive months ending on the hiring date.
• Received TANF benefits for at least 18 consecutive or non-consecutive months after August 5, 1997, and has a hiring date that is not more than 2 years after the end of the earliest 18-month period after August 5, 1997.
• Stopped being eligible for TANF payments during the past 2 years because a Federal or state law limited the maximum time those payments could be made.

Short-term TANF Recipient:
• A member of a family that received TANF benefits for any 9-month period during the 18-month period ending on the hiring date.

SNAP (food stamp) Recipient:
• An 18-39 year old member of a family that received Supplemental Nutrition Assistance Program (SNAP) benefits for the 6 months ending of the hiring date or received SNAP benefits for at least 3 of the 5 months ending on the hiring date.

Designated Community Resident:
• An 18-39 year old who lives within one of the federally designated Rural Renewal Counties or Empowerment Zones.

Vocational Rehabilitation Referral:
• An individual with a disability who completed or is completing rehabilitative services from a state-certified agency, an Employment Network under the Ticket to Work program, or the U.S.
Department of Veteran Affairs.

Ex-felon:
• An individual who has been convicted of a felony and has a hiring date that is not more than 1 year after the conviction or release from prison.

Supplemental Security Income (SSI) recipient:
• A recipient of SSI benefits for any month ending during the past 60-day period ending on the hire date.

Summer Youth Employee
• A 16 or 17 year-old youth who works for the employer between May 1 and September 15 and lives in an Empowerment Zone.

Employers use Form 8850 to pre-screen and to make a written request to a state workforce agency to certify an individual as a member of a targeted group.

Household Employers

Wednesday, June 19th, 2013

Authored By: Jessica Haddock, Salt Lake City Office

Recently I have had many who have wondered if they are a household employer so I thought this might be a good topic to address in a blog post. How do you know if you are considered a household employer and if the worker is considered your employee? An easy way to determine whether or not you are considered a household employer is if the employee is working in or around your home and under your control and if he/she follows your instructions by way of what work is done and how it is done, and you provide any tools or items needed to complete the job. Any worker who does the job in their own way and uses their own tools and also provides their services through their own separate business would not be your employee.

An example of types of jobs that could be considered household work would be:

• Babysitters and Nannies
• Caretakers, Health Aids and Private nurses
• House cleaning workers/Housekeepers/Maids/Yard Workers
• Domestic workers
• Drivers

Please be advised that if the person doing the work has their own company and offers their services to the public and brings their own tools would not be considered your employee. For example, if you hire a person to come in and clean your house and that person owns their own business and also gives those services to others and they bring their own supplies/tools they would not be considered your employee.

Another example would be if you have someone who performs child care for you out of their own home or child care service and they have their own supplies that would not be considered a household employee. If that person takes care of your child in your home under your instructions on the duties included in caring for this child and you provide the items needed to provide these services this person would be considered your household employee.

If you determined that you have a household employee you will need to collect the required forms from the employee to keep on file. First you and the employee will need to complete the U.S. Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. You will need to keep the complete form in your records as this provides proof of your employee’s work eligibility status in the United States as it is illegal to hire and employ anyone who cannot legally work in the United States.

You will then need to determine whether or not you will need to pay employment taxes on your employee. If you pay wages of $1,800 or more in 2013 to any one household employee or pay wages of $1,000 or more in any calendar quarter for 2012 or 2013 to the household employee you will be required to pay employment taxes. You do not have to count wages you pay to your spouse, your child under the age of 21, any employee under the age of 18 at any time in 2013 (unless this is considered their principal occupation) and you also do not count wages paid to your parents. There is an exception also to the wages paid to parents where you will need to count the wages paid to your parent if both of the following conditions apply:

• Your parent cares for your child who is either of the following:

o Under the age of 18, or
o Has a physical or mental condition that requires the personal care of an adult for at least 4 continuous weeks in each calendar quarter services were performed.

• Your marital status is one of the following:

o You are divorced and have not remarried,
o You are a widow or widower, or
o You are living with a spouse whose physical or mental condition prevents him or her from caring for your child for at least 4 continuous weeks in each calendar quarter services were performed.

The taxes that are required to be paid on household employees are Social Security, Medicare, Federal Unemployment Tax (FUTA) and you may also owe State Unemployment Tax (SUTA). You will need to collect a W-4 from your employee and determine if the employee would like to withhold any federal withholding. You are not required to withhold any federal or State withholding if they employee does not want to. The Social Security Tax is 6.2% each for both the employee and employer and the Medicare tax is 1.45% (subject to certain income limitations) each for both the employee and employer totaling 15.3% for both employee and employer portions of FICA (Social Security and Medicare). You will also owe a small amount towards your Federal Unemployment Tax and State Unemployment tax. You can either chose to withhold the employee’s portion of the taxes from their pay or you can chose to pay those for the employee with the employers portion that you are required to pay for your employee, either way the taxes will be your responsibility to report and pay. Any tax you pay for your employer without withholding it from the employee’s wages must be included in the employee’s wages for federal income tax purposes and also must be included in the Social Security, Medicare and Federal Unemployment wages as well.

Unlike regular payroll taxes the federal portion of the taxes are not reported on the same forms and are not reported quarterly. As a household employer you will pay and report the taxes on Schedule H included with your Form 1040. Your state withholding, if you have any, and your State Unemployment Tax could be either on a quarterly or annual filing period and also get reported on their own separate forms not on your Schedule H.

You will want to keep records of all your payroll items for your household employee as you will be required to pay and record all such items on your Schedule H at the end of the year and also provide your employee with a W-2. Since you will be providing your employee with a W-2 and having to file the required employment tax forms you will also want to receive an Employer Identification Number (EIN) as the household employer instead of using your own social security number.

More details about household employers can be found in IRS Publication 926. Please feel free to call any of our payroll specialists at either our Salt Lake City or Logan offices.

Are You Ready to Hire Employees?

Tuesday, April 30th, 2013

Authored By: Inken Christensen, Bookkeeper Logan office

When a business finds it necessary to hire employees it is important to make sure all the required information about those employees is gathered and the appropriate forms are completed. The employer should make sure they have the complete forms before it is time to issue the new employee’s first paycheck. Many businesses have the new employee fill out the employment forms as a part of their orientation and training on the first day of employment. In Utah, there are three forms that an employee needs to complete and submit to the employer. Those forms are the W-4, the Utah new hire form, and the I-9.

Form W-4 – Employee’s Withholding Allowance Certificate:

The purpose of this form is to notify the employer of the employees exemption allowances so that the employer can withhold the correct amount of federal and state income tax from the employees paycheck. The new employee reports their full name and address, their marital status, and most importantly, their social security number. The individual answers a series of questions in a worksheet format to arrive at the number of allowances they should claim. The employer either enters the allowances in their accounting system or uses the number of allowances and the withholding tables to calculate the amount of federal income tax to be withheld from the paycheck. This form is kept on file by the employer and is NOT submitted to the Internal Revenue Service. It is suggested that this form also be completed at the beginning of each calendar year, particularly if the employee has had any personal or financial changes. This form is available at www.irs.gov

Utah New Hire Registry Reporting Form:

The new hire form is required by federal law. The main purpose of this form is to aid states in identifying individuals who owe child support. The employer can complete this form using the information gathered on the Form W-4 (above). The employer information is reported at the top of the form including the business name, address and employer identification number (EIN). The new employee’s information is reported next, also including name, address and Social Security Number (SSN) and date of hire. This form must be submitted to the state either by mail, fax or online within 20 days of the employee’s first day of work or the employer is subject to a $25 penalty for each missing new hire form. Should an employee take a leave of absence, the employer should submit a new form within 20 days of the date the employee begins to work again. The form is available at https://jobs.utah.gov/UI/Employer/Public/TaxForms.aspx

Form I-9, Employment Eligibility Verification:

The Form I-9 is required by federal law and is used to verify an employee’s identity and to verify that they are authorized to work in the United States. Both the employer and the employee complete this form. The employee must also present various documents to the employer to support their identity and establish their employment authorization. According to the USCIS website, “the employer must examine the employment eligibility and identity document(s) an employee presents to determine whether the document(s) reasonably appear to be genuine and to relate to the employee and record the document information on the Form I-9.” The documentation provided by the employee must be original and unexpired. The list of allowable documentation is included with the Form I-9. Many employers photo copy and attach the items of documentation presented by the employee. The I-9 Form is NOT submitted but retained by the employer “for either 3 years after the date of hire or 1 year after the date employment ended, whichever is later”. Google “Form I-9” to find a copy of the form.

It is imperative that the employer gather these forms within the first few days of hiring a new employee. Doing so will ensure that the employer is in compliance with employment laws and also that the employer has the information they will need to file subsequent payroll reports, including federal employment returns, state withholding returns, unemployment reports and the year-end W-2s.

If you need help finding the forms or have any questions, please contact us at one of our locations.

 

quoteCook Martin saved us over a hundred thousand dollars in taxes.quote

Paul Merrill
Fat Boy Ice Cream

Utah Accountant and CPA

Your Financial Well-Being? You Can Hold Us Accountable!

For over 30 years, the Salt Lake City accounting firm of Cook Martin Poulson, PC, has been saving money for people like you. Our team of absolutely awesome accountants has the skills, experience and expertise to make a real difference in the financial lives of each and every one of our clients.

We all know that paying taxes is important, but it’s equally important to only pay what you legally have to. We believe in helping you keep the money you’ve worked so hard for, and pride ourselves on our reputation for caring, friendly and professional financial and business expertise and advice.

Cook Martin Poulson, PC, is one of the top Salt Lake City accounting firms – and for good reason. We are passionate about staying true to our core values of developing and growing lasting relationships, keeping commitments and being proactive in our thinking, planning and implementation.

A Full Service Business Development Company

We offer a full range of accounting services including bookkeeping, tax, Utah CFO services and more, so if you’re looking for a Salt Lake City CPA, come and talk to us. We have a wonderful team of Certified Public Accountants, staff accountants, paraprofessionals and interns. We also have our own tax attorney, so you know that whatever your financial requirements, we have the people and the passion to more than meet your needs.

We are proud to offer the people of Salt Lake City UT the following services:

  • Bookkeeping and Payroll services

  • Financial Statements Audits and reviews

  • Business Consulting

  • ObamaCare Tax consulting

  • Business Valuations

  • Proactive income tax services

  • CFO Outsourced solutions

  • Retirement plan design and administration

  • Cost segregation

  • R&D Tax credit services

  • Estate and Succession Planning

Review Our Business at favecentral.com