ACNT 1329_Chapter 4 - ACCT 1329 PAYROLL ACCOUNTING CHAPTER...

This preview shows page 1 - 11 out of 30 pages.

The preview shows page 9 - 11 out of 30 pages.
ACCT 1329PAYROLL ACCOUNTINGCHAPTER 4Income Tax Withholding1
Learning Objective #1Explain coverage under theFederal Income Tax WithholdingLaw by determining:
2
Coverage Under FITWithholding LawsFollowing conditions must existtowithhold tax:1.Employee-employer relationshipmust existExcludes statutory non-employees2.Payments are legally defined aswagesTaxable wages and fringe benefits3.Employer is not exempt by the law3
Taxable WagesGross amount of following items aretaxable:Wages/SalariesVacation paySupplemental paymentsBonuses/CommissionsTaxable fringe benefits (see nextslide)TipsCash awardsOther types as shown inFigure 4.14
Fringe BenefitsTaxablefringe benefits includes:Tickets to athletic eventsAthletic club membershipPersonal use of corporate carFrequent flier milesStock options (when option exercised)Specificallyexcludedfringe benefitsinclude:Qualified employee discountsReduced tuition, meals & lodging if for ERbenefitDe minimis fringe benefits (like personaluse of corporate cell phone)5
How to Withhold FIT onFringe BenefitsValue and withhold as supplementalwages – flat tax rate of 25%ORValue and add to regular pay – treat asone paycheck and withholdaccordinglyFlexible reporting– option of treatingbenefits as being paid on multipledates in the same year, even if benefitreceived at one time6
FIT Withholding on TipsEmployer must withholdFIT and FICAbased on reported tips(not allocatedtips)If taxes withheld > hourly wages to bepaid receive no paycheckEmployee pays the uncollected portionwhen file annual tax returnExample: Waiter reports tips of $2,000for one week. FIT/FICA withholding willexceed gross payEmployer must allocate tips ifreported tips are less than 8% of total7
Traveling ExpensesTravel reimbursements paid under an“accountable plan”are not subject toFIT withholding:Business connectedAdequate accounting within reasonabletime periodEmployee returns advanced cash in excessof substantiated expensesIf made under a“non-accountableplan”are considered wages and subjectto FIT withholding8
Exempt from FITWithholdingLawexcludescertain paymentsincluding:Ministers’ wages/salariesAdvancesEducational assistanceQualified moving expensereimbursementsTransportation in a commuterhighway vehicle/transit pass up to$130/month valueSeeFigure 4.2for comprehensive listof exempt payments9
Pretax Salary Reductions areExempt from FITContribution to the following are exemptfrom FIT:Cafeteria plansEmployee chooses between cash orqualified benefitsFlexible-Spending AccountsEmployee can use for health care, certaininsurance premiums and dependent care(forfeit $ if not used)Health Savings Accounts (HSA)Employee can contribute if have a high-deductible health insurance to pay out ofpocket medical bills10

Upload your study docs or become a

Course Hero member to access this document

Upload your study docs or become a

Course Hero member to access this document

End of preview. Want to read all 30 pages?

Upload your study docs or become a

Course Hero member to access this document

Term
Summer
Professor
NoProfessor
Tags
Payroll Accounting, Taxation in the United States, fit withholding

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture