Ch3_2012

Ch3_2012 - PayrollAccounting2012...

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CHAPTER 3  CHAPTER 3  SOCIAL SECURITY TAXES SOCIAL SECURITY TAXES Payroll Accounting 2012  Payroll Accounting 2012  Bernard J. Bieg and Judith A. Toland Bernard J. Bieg and Judith A. Toland
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Learning Objectives Identify which persons are covered under social security law Identify types of compensation that are defined as wages Apply current tax rates and wage base for FICA/SECA purposes Describe different requirements/procedures for depositing FICA/FIT taxes Complete Form 941
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Coverage under FICA FICA (1935) Federal Insurance Contributions Act Tax paid both by employees and employers 6.2% OASDI plus 1.45% HI SECA (1951) Self-Employment Contributions Act Tax upon net earnings of self-employed (6.2% + 6.2%) = 12.4% OASDI plus (1.45% + 1.45%) = 2.9% HI 3 issues Are you an employee or an independent contractor? Is service rendered considered employment? Is compensation considered taxable wages? http://www.ssa.gov/employer LO-1
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Independent Contractor (SECA)  vs. Employee (FICA) Employer “employs one or more individuals for performance of services in U.S.” IRS uses common-law test to determine status See Figure 3-2 on p. 3-5 to determine status Certain occupations specifically covered Agent- and commission-drivers of food/beverages or dry cleaning Full-time life insurance salespersons Full-time traveling salespersons Individual working at home on products that employer supplies and are returned to furnished specifications If employer misclassifies employees, there is a penalty (generally equal to employer’s share of FICA plus income taxes/FICA that were not withheld from employees’ earnings) LO-1
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More Specific Situations Government employees – certain exemptions from OASDI/HI depending upon date of hire In-patriates - may be exempt from FICA (20 countries) Family employees – in certain situations, children may be exempt from FICA Household employees If they make cash wages of $1,700 or more per year Must pay if domestic employee, like a nanny, is under your control Additional exemptions - inmates, medical interns, student nurses and workers serving temporarily in case of emergency LO-1
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Independent Contractor Persons may be classified as independent contractors if they conduct an independent trade or business See Figure 3-2 (page 3-5) for characteristics of independent contractors Hiring agent does not pay/withhold FICA on worker classified as independent Independent contractor liable for his/her own social security taxes on net earnings LO-1
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What are Taxable Wages? Cash
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This note was uploaded on 01/19/2012 for the course ACCT 101 taught by Professor Shah during the Spring '10 term at HCCS.

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Ch3_2012 - PayrollAccounting2012...

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