2010_CCH_Essentials_Chapter_13

2010_CCH_Essentials_Chapter_13 - CCH Essentials of Federal...

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Unformatted text preview: CCH Essentials of Federal Income Taxation Chapter 13 Chapter Withholding, Payroll, and Withholding, Estimated Taxes Estimated ©2009 CCH. All Rights Reserved. 4025 West Peterson Ave. Chicago, IL 60646-6085 www.CCHGroup.com Electronic Deposit of Payroll and Other Taxes The Treasury has developed an Electronic Funds Transfer Payment System (EFTPS) system for depositing the following: • • • • Payroll taxes Various excise taxes Withheld income taxes Corporate income and estimated taxes CCH Essentials of Federal Income Taxation 2 of 20 Chapter 13 Identification Numbers Individuals • Taxpayer identification numbers (TINs) Taxpayer provide the key to unlock related data. Usually, taxpayers use their social security number as their TIN. number Businesses • Employers use an employer identification Employers number (EIN) on payroll tax reporting forms, tax returns, and other government reports. reports. Chapter 13 CCH Essentials of Federal Income Taxation 3 of 20 Withholding Allowance Certificate Form W-4 has four sections: • Personal allowances worksheet • Employee’s withholding allowance certificate • Deductions and adjustments worksheet • Two-Earners/Multiple Jobs worksheet Two-Earners/Multiple (including Tables 1 and 2) (including Chapter 13 CCH Essentials of Federal Income Taxation 4 of 20 Exemption from Withholding To claim exemption from federal income tax withholding, an employee must have had no federal income tax liability in the previous year. Also, the employee must not expect to owe any federal income taxes for the current year. year. Chapter 13 CCH Essentials of Federal Income Taxation 5 of 20 Federal Insurance Contributions Act Federal (FICA) Taxes (FICA) Old age, survivors, and disability insurance Old (OASDI) tax = Social security tax (OASDI) Health insurance (HI) tax = Medicare tax Chapter 13 CCH Essentials of Federal Income Taxation 6 of 20 Social Security Tax Employers apply the OASDI tax rate to each employee’s wages up to a certain amount. This includes employees who have reached the maximum wage base with another employer. Thus, an employee who works for two or more employers may qualify to get a refund. employers Chapter 13 CCH Essentials of Federal Income Taxation 7 of 20 Medicare Tax The Medicare tax rate applies to an employee’s total wages. This includes employees who work for more than one employer. employer. Chapter 13 CCH Essentials of Federal Income Taxation 8 of 20 Special FICA Situations • • • Family employees Household employees Employee fringe benefits Chapter 13 CCH Essentials of Federal Income Taxation 9 of 20 Penalty for Failure to Collect or Penalty Deposit Taxes Deposit The IRS can assess a 100% penalty against employers who fail to collect or deposit FICA taxes. The IRS can assess the penalty against: • Employers who willfully try to avoid withholding Employers income and payroll taxes by classifying employees as independent contractors as • Employees responsible for an employer’s tax Employees withholdings withholdings Chapter 13 CCH Essentials of Federal Income Taxation 10 of 20 Form W-2 Wage and Tax Statement Employers prepare six copies of Form W-2 for each employee. • • • • One copy is sent to the Social Security Administration One copy is filed with the proper state or local One government agency, if applicable government Three copies are sent to the employee One copy is kept by the employer Chapter 13 CCH Essentials of Federal Income Taxation 11 of 20 Form W-3 Transmittal of Wage and Tax Statements Employers send Form W-3 (along with Copy A of Form W-2 for each employee) to the Social Security Administration. The amounts shown on Form W-3 represent the totals from all the amounts on all Copies A of Forms W-2 attached. Forms Chapter 13 CCH Essentials of Federal Income Taxation 12 of 20 FUTA Taxes The Federal Unemployment Tax Act The (FUTA) furnishes payments to workers who have lost their jobs. Funds for this unemployment compensation come solely from employers. from Chapter 13 CCH Essentials of Federal Income Taxation 13 of 20 Rate and Base For computing FUTA taxes, employees do not include the following: • • • • • Children under age 21 who work for their parents Spouses working for the other spouse Parents working for their children Statutory employees who work at home Domestic workers who earn less than $1,000 in Domestic any quarter in both the current and preceding calendar year calendar CCH Essentials of Federal Income Taxation 14 of 20 Chapter 13 Withholding on Pensions, Annuities, Withholding and Deferred Income and Withholding of income taxes also applies to the taxable part of pensions, profit-sharing plans, stock bonuses, individual retirement accounts, annuities, and deferred compensation plans. compensation Chapter 13 CCH Essentials of Federal Income Taxation 15 of 20 Employer’s Quarterly Report Most employers who withhold income taxes, Most or who owe FICA, file a quarterly Form 941, Employer’s Quarterly Federal Tax Return. Employer’s Chapter 13 CCH Essentials of Federal Income Taxation 16 of 20 Federal Tax Deposit System Employers use the federal tax deposit system to transfer payroll taxes to the government. They usually deposit these taxes with a specific depository or the Federal Reserve bank servicing the employer’s area. Under certain conditions, employers send some tax payments directly to the IRS. some Chapter 13 CCH Essentials of Federal Income Taxation 17 of 20 Employment Taxes: What’s Included? • • • • Income and FICA taxes withheld from Income employees employees Employer’s share of FICA taxes Taxes withheld from pensions, annuities, Taxes and some deferred income and Taxes withheld under the backup Taxes withholding rules withholding CCH Essentials of Federal Income Taxation 18 of 20 Chapter 13 Estimated Tax Taxpayers who usually make quarterly tax payments: • Self-employed persons with business or Self-employed professional income professional • Persons with large dividend, interest, rent, royalty, Persons pension, and capital gain income pension, • Wage earners whose income is not subject to Wage withholding withholding • Wage earners whose tax credits and withholdings Wage fall short of their tax liability fall Chapter 13 CCH Essentials of Federal Income Taxation 19 of 20 Avoiding the Penalty for Avoiding Underpayment of Estimated Tax Underpayment • Individual taxpayers can avoid the penalty for Individual underpaying estimated tax by making (even) quarterly payments that when added to the taxpayer’s federal income tax withheld for the year equal or exceed: equal – – 90% of the taxpayer’s current year tax liability, or 90% 100% of the taxpayer’s prior year tax liability • (110% if last year’s AGI > $150,000) An annualized method of making estimated An payments also exists payments CCH Essentials of Federal Income Taxation 20 of 20 Chapter 13 ...
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This note was uploaded on 12/02/2010 for the course ECAC 330 taught by Professor Richardcole during the Spring '10 term at UMBC.

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