Monday, April 20, 2009 by admin.

The rules for making your 940 tax payments can be confusing.  They seem to imply that you do not need to make a payment until your balance due reaches $500.

I discussed this with an IRS agent recently.

Answer:  If your total due for the year exceeds $500, then you must make quarterly payments.

Question: What if you don’t realize until December that your total due for the year will exceed $500? Supposed you hired a couple of new employees unexpectedly in November that put your total due over $500 for the year?  It is too late then to go back and make your March 31, June 30 and September 30 payments.

Answer (paraphrased): Too  bad, so sad, you did not make the payments on a timely basis and so there could be a penalty.

So the moral to this tale is that if there is any chance at all that your Futa total due for 2009 could exceed $500, make quarterly payments.

Posted in Payroll Taxes | No Comments »

Monday, April 20, 2009 by admin.

Over the last year (maybe longer), the Alaska Department of Labor has been auditing employers looking for employees who are incorrectly being treated as subcontractors.  Be sure to review your subcontractors and determine if they really qualify as subcontractors.

Check the Contract Labor or Employees Questions section of the Fathom Graphics website for references to help you decide how to classify those who work for you. http://fathomgraphics.com/bookkeeperlinks.html

Posted in Labor Audits, Subcontractors | No Comments »

Saturday, March 14, 2009 by admin.

New federal tax tables are in effect.  To give your employees the benefit of the new, lower tax rates, QuickBooks users should download the new tax tables now.

The new table includes new Federal withholding tables and Advance Earned Income Credit (AEIC) payment tables that were developed by the Internal Revenue Service (IRS) to implement new tax provisions of the American Recovery and Reinvestment Act of 2009 (ARRA).

Advice and tips provided on the Fathom Graphics web site or blog are not a substitute for advice from your CPA, tax preparer or attorney. We are not CPAs or attorneys and do not provide legal or tax advice.

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Sunday, February 22, 2009 by admin.

From SSA/IRS Reporter, Winter 2008

Businesses should make sure they understand their information reporting and backup withholding responsibilities. The IRS conducts activities to ensure voluntary compliance regarding the accuracy and timeliness of a business’s information reporting and backup withholding activities.

Businesses often make payments to both employees and non-employees (independent contractors). When making payments to non-employees, called reportable payments, the Internal Revenue Code (IRC) generally requires the businesses to report these payments to the Internal Revenue Service (IRS) if the payments equal $600 or more during the calendar year.

Backup Withholding: For 2008, payers of reportable payments must withhold 28% for federal income tax (called backup withholding) from such payments if the payee fails to provide the payer with a Taxpayer Identification Number (TIN), or provides a TIN that is obviously incorrect (e.g., wrong number of digits or includes an alpha character).

Backup withholding is also required if the payer is notified by the IRS that the TIN provided by the payee is incorrect. Payers must report the withheld federal income tax (backup withholding) on Form 945, Annual Return of Withheld Federal Income Tax. To determine the deposit requirements of the backup withholding taxes, see the Form 945 Instructions.

Businesses that make payments to non-employees in the course of their business must report those payments to the non-employee and to the IRS in box 7, Non-employee Compensation, of Form 1099-MISC, Statement for Recipients of Miscellaneous Income. Amounts withheld from non-employee compensation (backup withholding) must be reported in box 4, Federal Income Tax Withheld, of Form 1099-MISC. A copy of the Form 1099-MISC must be sent to the non-employee by January 31 with a copy to IRS by February 28 (March 1 if filing electronically), of the year following the year of payment.

Penalties are assessed against businesses that file information returns with the IRS after the due date or with incorrect or incomplete information. The payer may request a waiver of the penalty if they meet the standards of IRC §6724. Additional penalties may also be asserted per IRC §6672, that addresses penalties commonly referred to as “trust fund penalties” if the withheld taxes are not remitted to the IRS by the payer.

Learn more online by typing in the words “backup withholding” in the search box of irs.gov.

Advice and tips provided on the Fathom Graphics web site or blog are not a substitute for advice from your CPA, tax preparer or attorney. We are not CPAs or attorneys and do not provide legal or tax advice.

Posted in Subcontractors | Comments Off

Sunday, February 22, 2009 by admin.

Federal Rules from SSA/IRS Reporter, Fall 2008

Situation: The Yellow Willow Company traditionally rewarded its employees with gifts for the year-end holidays (typically a turkey and a monetary award). These gifts were not based on employee performance or company profits but were instead due to Willow’s genuine interest in promoting goodwill with the workers.

Question: How will Yellow Willow’s gifts affect its employment tax responsibilities?

Answer: In general, any amount an employer transfers to employees,(directly or indirectly)-is taxable for social security, Medicare, income tax withholding, and federal unemployment taxes. Exceptions to this rule include de minimis (i.e. minimal) fringe benefits. A de minimis fringe benefit is any property or service (other than cash or cash-equivalents), the value of which (after taking into account the frequency with which similar fringes are provided), is so small as to make accounting for it unreasonable or administratively impracticable. De Minimis Fringe Benefits: Traditional holiday gifts (such as a turkey) with nominal value are excludable from wages as “de minimis” fringe benefits. As such, no federal employment taxes or wage reporting is due from Willow for this item.

Other de minimis fringe benefits include: the occasional typing of personal letters; coffee and soft drinks; and occasional meal money or local transportation fare paid to enable an employee’s overtime work. Further examples and information on de minimis fringes and other fringe benefit wage exclusions (such as transit passes and certain achievement awards for safety/ length of service) are provided in section 2 of Publication 15-B, Employer’s Tax Guide to Fringe Benefits www.irs.gov/publirs-pdf/p15b.pdf).
Cash or Cash-Equivalents Not Excluded: Cash (whether currency, check, direct deposit, etc.) and cash-equivalents (e.g. gift cards) are taxable compensation. Willow, accordingly, must report the monetary gifts it made as (supplemental) wages, egardless of the amount, and pay the employment taxes owing. Both the employee and the matching employer shares of social security and Medicare taxes are owed by Willow, even if it remits them without deducting the employee portion from the award. (Section 7 of Publication 15-A, Employer’s Supplemental Tax Guide, www.irs.gov/pub/irs-pdf/p15a.pdf, provides examples on how to figure the tax liability and the corresponding wage amounts in this situation). Similar computations can apply if an employer remits income tax withholding without deducting it from wages.

The State of Alaska does not provide for de minimis payments to employees in its statute.

AS 23.20.530. Wages Defined. a) In this chapter, “wages” means all remuneration for service from whatever source, including, but not limited to, insured work, noninsured work, or self-employment; commissions, bonuses, back pay, and the cash value of all remuneration in a medium other than cash shall be treated as wages; gratuities customarily received by an individual in the course of service from persons other than the individual’s employing unit may be treated as wages received from the employing unit only to the extent the individual reports the gratuities to the employing unit. The reasonable cash value of remuneration in a medium other than cash, and the reasonable amount of gratuities, shall be estimated and determined in accordance with regulations adopted by the department; notwithstanding AS 23.20.350 (a), back pay awards shall be allocated to the weeks or quarters with respect to which the pay was earned. If the remuneration of an individual is not based upon a fixed period of time or if the individual’s wages are paid in irregular intervals or in a manner that does not extend regularly over the period of employment, the wages shall be allocated to weeks or quarters in accordance with regulations adopted by the department. The regulations must, so far as possible, produce results reasonably similar to those that would prevail if the individual’s wages were paid at regular intervals. When an employer has filed for bankruptcy, unpaid wages earned for services performed for the employer are considered wages for the quarter in which they were earned.

Advice and tips provided on the Fathom Graphics web site or blog are not a substitute for advice from your CPA, tax preparer or attorney. We are not CPAs or attorneys and do not provide legal or tax advice.

Posted in Payroll Taxes | Comments Off

Sunday, February 22, 2009 by admin.

Form 941c, Supporting Statement to Correct Information, has been replaced by a new set of dual-purpose forms for adjustments and refunds. The new forms will reduce burden for correcting errors on employment taxes starting in January 2009. A total of five forms matching the original employment tax returns, Forms 941-X, 943-X, 944-X, 945-X and CT-1 X, are available. Each stand-alone form will correspond to, and relate line-by-line with, the employment tax return it is correcting.

Under the new procedures, when an employer discovers an underpayment or overpayment error on a previously filed Form 941, they should use the new Form 941-X to make a correction. For corrections to Form 943 a Form 943-X will be filed and so on. These forms should be used for errors discovered on or after January 1, 2009. To avoid interest and penalties, payment should be sent with the form or paid on or before the date the form is mailed.

The Form 941-X and Instructions are available online from the Forms and Publications page of IRS.gov January 5, 2009. The remaining forms, which correspond to annual returns, are scheduled for release in February of 2009.

The new form can be found at http://www.irs.gov/pub/irs-pdf/f941x.pdf and in the instructions are here http://www.irs.gov/pub/irs-pdf/i941x.pdf.

From the Winter 2008 SSA/IRS Reporter.

Advice and tips provided on the Fathom Graphics web site or blog are not a substitute for advice from your CPA, tax preparer or attorney. We are not CPAs or attorneys and do not provide legal or tax advice.

Posted in Payroll Taxes | Comments Off

Saturday, February 21, 2009 by admin.

Did you get a notice from the IRS that you owe more Futa tax for 2005, 2006 or 2007? Some businesses are getting these notices.  Seems like the problem comes from the reports the State of Alaska sends to the IRS.  Some of the reports for those years were garbled when received by the IRS and so the IRS recorded that no Alaska Employment Security taxes were paid for that year.  This triggers a letter from the IRS stating that you owe more Futa tax because your percentage due is higher when no taxes were paid to the state.

Here’ s how to get this corrected.  Phone the Alaska Field Tax office at 907-269-4850. Ask them to fax you an IRS Recertification for the problem year. Mail this Recertification to the IRS along with the notice you received. Note on the form that you did make the required payments to the State of Alaska and state that you are attaching the Recertification from the state.

It will take a few weeks to a few months but you should get a notice from the IRS that the problem is corrected and that no additional tax is due.

Advice and tips provided on the Fathom Graphics web site or blog are not a substitute for advice from your CPA, tax preparer or attorney. We are not CPAs or attorneys and do not provide legal or tax advice.

Posted in Payroll Taxes | Comments Off