Presentation on theme: "Payroll Tax Accounting"— Presentation transcript:
1 Payroll Tax Accounting
WELCOME ACC170 Payroll Tax Accounting
2 ACC 170 – Payroll Tax Accounting
Syllabus (see Syllabus Word document)
3 Bob Bruebach – Resume ADP Paychex ADP Corp. Office In-House Payroll
4 UNDERSTANDING PAY PERIODS
= 52 Pay Periods per Year Weekly Example: Annual Salary of $52,000 – what is the weekly amount? $1, per Week ($52,000 / 52) = 26 Pay Periods per Year Bi-Weekly Example: Annual Salary of $52,000 – what is the bi-weekly amount? $2,000 every 2 Weeks ($52,000 / 26) = 24 Pay Periods per Year Semi-Monthly Example: Annual Salary of $52,000 – what is the semi-monthly amount? $2, paid on the 15th and last day of month ($52,000 / 24)
5 UNDERSTANDING PERCENTAGES
0.062 6.2% = Example: What is 6.2% of $100.00? Answer: $ * 6.2% = $ * = $6.20 = 0.6% = Example: What is 0.6% of $500.00? Answer: $ * 0.6% = $ * = $3.00
6 FICA SOCIAL SECURITY TAXES
7 FICA FICA Two Programs OASDI – Social Security
(Federal Insurance Contributions Act) Two Programs OASDI – Social Security “Old Age, Survivors and Disability Insurance” HI – Medicare “Health Insurance” (see Soc. Sec. Benefit Stmt. pdf document) (Ratio of Taxpayers to Beneficiaries)
8 Calculation of Taxes - Employee
FICA Calculation of Taxes - Employee Program: OASDI – Social Security Tax: % (0.062) of Wages up to $118,500. Wage amount has increased every year since 1972… except for 2010 and 2011. FYI… There was a 4.2% rate for 2012 and The rate reverted back to 6.2% for 2013. FYI… $118,500 $117,000 $113,700 $110,100 $106,800 $106,800 $106,800 $102,000 $97,500 $94,200 <SS Wage history> If EE changes ER during year, new ER required to start at $0. (EE can get refund of overpaid OASDI on Form 1040.)
9 FICA Calculation of Taxes – Employee (OASDI – Excess Deducted from Employee) Example Employer #1 Employee works From January 1st to June 30th and earns $125,000: FICA-OASDI deducted from Paychecks during that Time: $118,500 (maximum) * = $7,347.00 Employer #2 Employee works from July 1st to December 31st and earns another $125,000: FICA-OASDI deducted from Paychecks during that Time: $118,500 (maximum) * = $7,347.00
10 FICA Calculation of Taxes – Employee (OASDI – Excess Deducted from Employee) Example Below is the portion of the Form 1040 where excess FICA-OASDI is recorded as “additional withholding” toward federal income tax:
11 Calculation of Taxes - Employee
FICA Calculation of Taxes - Employee Program: OASDI – Social Security Tax: % (0.062) of Wages up to $118,500. Wage amount has increased every year since 1972… except for 2010 and 2011. If EE changes ER during year, new ER required to start at $0. (EE can get refund of overpaid OASDI on Form 1040.) FYI… Social Security site Program: HI – Medicare Tax: % (0.0145) of Wages – no Maximum. Plus, 0.9% for Wages over $200,000.
12 FICA Taxes - EE Examples
If John has cumulative wages of $50,000 and his next paycheck was $5,000, calculate: a) the SS (OASDI) part of FICA: ____________________ b) the Medicare (HI) part of FICA: ___________________ $5,000 * = $310.00 $5,000 * = $72.50
13 FICA Taxes - EE Examples (cont.)
If Mary has $111,100 of cumulative earnings and her next paycheck was $8,000, calculate: a) the SS (OASDI) part of FICA: ________________________ b) the Medicare (HI) part of FICA: _______________________ First Check to see if maximum reached: $111,100 + $8,000 = $119,100, which exceeds $118,500 maximum. Second Calculate the amount wages subject to the tax: $118,500 - $111,100 = $7,400 So, only $7,400 of the $8,000 paid is subject to the tax. $7,400 * = $458.80 $8,000 * = $116.00
14 FICA Taxes - EE Examples
The Johnson Company pays their employees on a monthly basis. Sam is paid $20,000 per month. What are the amounts for FICA-SS and FICA-HI that are withheld for Sam’s June 30th paycheck: First, what will be Sam’s cumulative earnings including the June 30th paycheck: 6 * $20,000 = $120,000 So, need to calculate cumulative earnings PRIOR TO June 30th paycheck: 5 * $20,000 = $100,000 Since the maximum wages for FICA-SS are $118,500, then only $18,500 of the $20,000 of the June 30th paycheck are subject to FICA-SS tax: FICA-SS: $______________________ FICA-HI: ______________________ exceeds $118,500 $18,500 * = $1,147.00 $20,000 * = $290.00
15 Calculation of Taxes – Employer Portion
FICA Calculation of Taxes – Employer Portion Program: OASDI – Social Security Tax: % (0.062) of Total “OASDI” Wages. Use wages only subject to OASDI Tax. Program: HI – Medicare Tax: % (0.0145) of Total “HI” Wages. (Employer does not pay 0.9% additional tax for Wages over $200,000.)
16 FICA Taxes - ER Examples
Calculate Employees’ and Employer’s Share of FICA taxes: FICAFICA Bi-WeeklyOASDIHI Employee Wages Tax Tax Joe $2,000 Sue $3,000 Doug $2,000 Totals $7,000 $ $29.00 $ $43.50 $ $101.50 $7,000 * $7,000 * 0.062 Employer OASDI: $434.00 Employer HI: $101.50
17 FICA Taxes - ER Examples (cont.)
Calculate Employees’ and Employer’s Share of FICA taxes: OASDIFICAHIFICA CumulativeWeekly TaxableOASDITaxableHI Employee EarningsWages Wages Tax__ Wages_ Tax_ Tom$62,000$1,000 Diane$116,100$4,000 Jenny$50,000$3,000 Totals:$8,000 $1, $1,000 $1,000 $ $1, $14.50 $2,400 $ $4, $58.00 $3,000 $ $3, $43.50 $6,400 $ $8, $116.00 $1,000 $ $1, $14.50 $4,000 $2,400 $ $4, $58.00 $2,400 $6,400 * 0.062 $8,000 * Employer OASDI: $396.80 Employer HI: $116.00
18 FICA History Review History… <SS Wage history>
<SS Rate history> <SS Total history>
19 Tax Deposit Requirements
941 Taxes Tax Deposit Requirements Total of FICA taxes and withheld FIT (Federal Income Taxes) New Employers Monthly Depositor until lookback is established. (If $100,000 or more, then pay next business day and become a semi-weekly depositor.) (lookback period = 4 calendar quarters beginning July 1st of 2nd preceding year and ending June 30th of the previous year.)
20 Tax Deposit Requirements (cont.)
941 Taxes Tax Deposit Requirements (cont.) Deposit Status Qualification Deposit Due QUARTERLY Less than $2,500 at the end of the calendar quarter. End of the following month (as a deposit or when filing Form 941). MONTHLY $50,000 or LESS in the “lookback” period. By the 15th of the following month. SEMI-WEEKLY More than $50,000 in the “lookback” period. If Payday: W,R,F following W Sa,Su,M,T following F NEXT BUSINESS DAY $100,000 (accumulated) or more on any day. By close of Next Business Day.
21 FYI… Tax Deposit Requirements (cont.)
941 Taxes FYI… Tax Deposit Requirements (cont.) Deposit Status Qualification QUARTERLY Less than $2,500 at the end of the calendar quarter. MONTHLY $50,000 or LESS in the “lookback” period. SEMI-WEEKLY More than $50,000 in the “lookback” period. NEXT BUSINESS DAY $100,000 (accumulated) or more on any day.
22 FYI… Tax Deposit Requirements (cont.)
941 Taxes FYI… Tax Deposit Requirements (cont.) Deposit Status Qualification Firm Size Firm Salaries, assuming total ER & EE FICA taxes (15.3%) and FIT rate of 15% QUARTERLY Less than $2,500 at the end of the calendar quarter. MONTHLY $50,000 or LESS in the “lookback” period. SEMI-WEEKLY More than $50,000 in the “lookback” period. NEXT BUSINESS DAY $100,000 (accumulated) or more on any day. FYI… The 15.3% is based on: FICA-SS-EE: % FICA-SS-ER: % FICA-HI-EE: % FICA-HI-ER: % 15.30%
23 FYI… Tax Deposit Requirements (cont.)
941 Taxes FYI… Tax Deposit Requirements (cont.) Deposit Status Qualification Firm Size Firm Salaries, assuming total ER & EE FICA taxes (15.3%) and FIT rate of 15% QUARTERLY Less than $2,500 at the end of the calendar quarter. $8,250 per Quarter or $33,000 per Year MONTHLY $50,000 or LESS in the “lookback” period. SEMI-WEEKLY More than $50,000 in the “lookback” period. NEXT BUSINESS DAY $100,000 (accumulated) or more on any day.
24 FYI… Tax Deposit Requirements (cont.)
941 Taxes FYI… Tax Deposit Requirements (cont.) Deposit Status Qualification Firm Size Firm Salaries, assuming total ER & EE FICA taxes (15.3%) and FIT rate of 15% QUARTERLY Less than $2,500 at the end of the calendar quarter. $8,250 per Quarter or $33,000 per Year MONTHLY $50,000 or LESS in the “lookback” period. $165,000 per Year SEMI-WEEKLY More than $50,000 in the “lookback” period. NEXT BUSINESS DAY $100,000 (accumulated) or more on any day.
25 FYI… Tax Deposit Requirements (cont.)
941 Taxes FYI… Tax Deposit Requirements (cont.) Deposit Status Qualification Firm Size Firm Salaries, assuming total ER & EE FICA taxes (15.3%) and FIT rate of 15% QUARTERLY Less than $2,500 at the end of the calendar quarter. $8,250 per Quarter or $33,000 per Year MONTHLY $50,000 or LESS in the “lookback” period. $165,000 per Year SEMI-WEEKLY More than $50,000 in the “lookback” period. $330,000 per Payroll NEXT BUSINESS DAY $100,000 (accumulated) or more on any day.
26 Tax Deposit Requirements (cont.)
941 Taxes Tax Deposit Requirements (cont.) If $200,000 or more in a calendar year – must FILE (deposit) ELECTRONICALLY. The amount includes all taxes, not just P/R taxes. You will be notified when you are required to file electronically. Penalty of 10% if not followed. Once EFT is required, then EFT every year. Beginning in 2011 – Payroll Taxes (as well as ALL federal tax deposits) must be deposited electronically.
27 (see Form 8109 pdf document)
941 Taxes Form 8109 Coupon (see Form 8109 pdf document) Beginning in 2011, Form 8109 cannot be used since all taxes are now deposited electronically!
28 (see Form 941 pdf document)
941 Taxes Form 941 Quarterly report of Total FICA Taxes and Withheld FIT (aka “941” Taxes). Due date is the last day of following month - (10 additional days allowed if timely deposits have been made). (see Form 941 pdf document)
29 May include CRIMINAL CHARGES, as well.
941 Taxes fyi… Penalties Failure to Pay ½% for each month, to a maximum of 25%. Failure to File 5% for each month, to a maximum of 25%. Failure to Make Timely Deposits 2-15% of undeposited taxes, based on days late, or amount of days after IRS notice. May include CRIMINAL CHARGES, as well.
30 FICA Coverage FICA cover most employees.
Examples of workers who are not covered include: Medical Interns & Student Nurses Household Employees who receive less than $1,900 from one employer in one year. Partners in a Partnership Federal & State EE’s covered by a retirement system – HI only. Ministers – may elect not to be covered. Independent Contractors
31 Determination of Independent Contractor (SECA) vs. Employee (FICA)
IRS historically used 20-point test to determine “common law relationship” - examples from list include: How many companies does person work for Control work/schedule/where performed Who provides tools Can person incur profit or loss 3 Categories of evidence Behavioral Control Financial Control Type of Relationship Can file SS-8 with IRS if uncertain what to do!! Access
32 Specifically Covered (in addition to common law)
Full time life insurance salespeople Full time traveling salespeople Agent- and commission-drivers of food/beverages
33 FICA What are Taxable Wages?
Wages, Salaries, Vacation Pay, Bonuses, Commissions. Moving Expense Reimbursem*nt (non-qualified) Cash Tips over $20 in a Calendar Month Non-Cash Compensation (“fringe benefits”): Personal Use of a Company Car Employer paid premiums for Group Term Life Insurance in excess of $50,000 Non-Cash Awards & Prizes
34 Self Employed Contributions Act (SECA)
FICA Self Employed Contributions Act (SECA) FICA taxes are due on Self-Employed Income (from Schedule C) Same wage base for OASDI $118,500 FICA-OASDI: % FICA-HI: 2.9% …plus, 0.9% for Wages over $200,000. Use Schedule SE to calculate/report FICA taxes The tax ultimately gets “located” on 1040 form (line 56). Deduction for 50% of the Self-Employment Tax (SECA) is on the 1040 form (line 27).
35 HISTORY INCOME TAX ACT 1913 – 16th Amendment
In 1913, the 16th Amendment to the Constitution made the income tax a permanent fixture in the U.S. tax system. The amendment gave Congress legal authority to tax income and resulted in a revenue law that taxed incomes of both individuals and corporations. 1943 – Withholding Tax Act On the eve of WWII, few Americans paid income taxes. Those that owed taxes paid them in one lump sum on March 15 (later changed to April 15). To pay for the war, the Revenue Act of 1942 lowered exemptions and raised income tax rates. The Current Tax Payment Act of 1943 required employers to collect the tax by deducting it from the employee's paycheck—just like the Social Security tax that began in Although the withholding tax was sold as a wartime emergency, like most expansions of government instituted during wartime, it has been a way of life for most Americans ever since.
36 FEDERAL INSURANCE CONTRIBUTION ACT (FICA)
HISTORY FEDERAL INSURANCE CONTRIBUTION ACT (FICA) 1935 OASDI FDR – Franklin Delano Roosevelt Elected President in 1932 …in 1965 HI – Medicare added
37 SELF-EMPLOYED CONTRIBUTION ACT (SECA)
HISTORY SELF-EMPLOYED CONTRIBUTION ACT (SECA) 1951 Tax upon the earnings of the Self- Employed
38 HISTORY UNEMPLOYMENT TAX ACTS 1935
39 UNEMPLOYMENT TAX ACTS (cont.)
HISTORY UNEMPLOYMENT TAX ACTS (cont.) 1935 FUTA – Federal Unemployment Tax Act SUTA – State Unemployment Tax Act
40 FAIR LABOR STANDARDS ACT (FLSA)
HISTORY FAIR LABOR STANDARDS ACT (FLSA) 1938 The Fair Labor Standards Act was passed by Congress on 25th June, The main objective of the act was to eliminate "labor conditions detrimental to the maintenance of the minimum standards of living necessary for health, efficiency and well-being of workers". The act established maximum working hours of 44 a week for the first year, 42 for the second, and 40 thereafter. Minimum wages of 25 cents an hour were established for the first year, 30 cents for the second, and 40 cents over a period of the next six years. The Fair Labor Standards Act also prohibited child labor in all industries engaged in producing goods in inter-state commerce.
41 FAIR LABOR STANDARDS ACT (cont.) (FLSA)
HISTORY FAIR LABOR STANDARDS ACT (cont.) (FLSA) 1938 Minimum Wages, Equal Pay, Overtime, Recordkeeping Enterprise Coverage / Employee Coverage Enterprise: (includes all employees if…) $500K+ in sales Interstate commerce Many family establishments are exempted Individual/Employee Employee whose company may not meet enterprise coverage, but is involved in interstate commerce Example: a driver for fleet that transports goods, but enterprise annual revenues are $225,000
42 What the FLSA Does Not Cover
HISTORY What the FLSA Does Not Cover No requirement for employers to: Pay extra for weekend/holiday work Pay for holidays, vacation or sick time Grant vacation time
43 HISTORY FAIR EMPLOYMENT LAWS Civil Rights Act (1964)
EEO (Equal Employment Opportunity) Cannot discriminate – color, race, religion, gender, national origin. Exemptions exist – ex., private membership clubs. (In 1974 the Western Open found an annual home at the Butler National Golf Club in Oak Brook, Illinois. It stayed this way until shortly after the 1990 tournament, when the PGA Tour adopted a policy of holding events only at clubs which allowed minorities and women to be members. This resulted in Butler National being replaced by the Cog Hill Golf & Country Club in Lemont, Illinois. The Dubsdread Course at Cog Hill played host to the Western Open from 1991 to 2006.)
44 HISTORY FAIR EMPLOYMENT LAWS Civil Rights Act (1964)
Executive Order 11246 Major anti-discrimination regulation for government contractors with contracts > $10,000 For those exemptions under Civil Rights Act, prevents discrimination in organizations that contract with the Federal Government. Requires written plan that shows how under-represented groups are recruited and hired.
45 HISTORY FAIR EMPLOYMENT LAWS Civil Rights Act (1964)
Executive Order 11246 Age Discrimination in Employment Act (ADEA) (1967) Added age protection for all workers over 40. Applies to employers with 20+ employees.
46 HISTORY FAIR EMPLOYMENT LAWS Civil Rights Act (1964)
Executive Order 11246 Age Discrimination in Employment Act (ADEA) (1967) Americans with Disabilities Act (ADA) (1990) Applies to employers with 15+ employees Reasonable accommodations must be provided (vague) Many companies needed to rewrite job descriptions to specify physical requirements for jobs
47 IMMIGRATION REFORM & CONTROL ACT (IRCA)
HISTORY IMMIGRATION REFORM & CONTROL ACT (IRCA) 1986 Proof of Citizenship Requires employer to verify citizenship I-9 Form needs to be completed within 3 days of employment Penalties for noncompliance
48 Family Medical Leave Act (FMLA)
HISTORY Family Medical Leave Act (FMLA) 1993 Covers companies with 50+ employees within 75 mile radius EE guaranteed 12 weeks unpaid leave for: Birth, adoption, critical care Can use for child, spouse or parent Leave may be used all at once or at separate times – but must be within 12 months of qualifying event ER continues health care coverage Right to return to same/comparable job and continue health coverage in absence
49 Employee Retirement Income Security Act (ERISA)
HISTORY Employee Retirement Income Security Act (ERISA) Trustees must monitor pension plans Vested 100% in 3-6 years Example of a vesting plan: Years of % Vested in ServicePension Plan 250% 475% 5100% Provides for PBGC Pension Benefit Guaranty Corporation - a federal agency which guarantees benefits to employees Stringent recordkeeping requirements
50 Fiduciary Responsibility
Amounts Withheld from Employees’ Wages for Income Taxes and Social Security to be Paid to the Government You cannot use these funds for any other purpose (see Fiduciary Liability from Scarinci & Hollenbeck “pdf” document) (see IRS Cases “pdf” document) (see more recent IRS Cases “docx” document)
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