Unit 9 Federal Payroll and Tax Returns McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved

Unit 9Unit 9

Federal Payroll and Tax ReturnsFederal Payroll and Tax Returns

McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Employer’s Payroll Taxes

• Employer’s Social Security and Medicare Tax:– Employer’s Social Security Tax :

• 6.2% of taxable base up to $89,700 (2005) for each employee per year.

– Employer’s Medicare Tax :• 1.45% of taxable base with no limit on the taxable wage base

– The employee share of each of these taxes is deducted from employee earnings by the employer at the end of each payroll period during the calendar year.

9-3Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.


• Example: – Helen Johnson had taxable earnings of $5,205.18

for the month of March. Compute the employer’s and employer’s matching contribution for Social Security and Medicare Tax.

• Employee’s SS tax - $5,205.18 x .062 = $322.72• Employer’s SS tax - $322.72• Employee Medicare Tax : $5,205.18 x .0145 = $75.48• Employer’s Medicare Tax : $75.48• Total employee’s and employer’s contributions: $796.40



• Social Security and Medicare Taxes on tips:– employer owes social security and

Medicare taxes on their salaries plus any part of their tips that was credited toward the minimum wage.

– employer is not liable for social security and Medicare taxes on tips not used in computing the minimum wage.

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Payroll Taxes Deposits

• Depositing Social Security and Medicare Taxes:– Is sent periodically to IRS (monthly, biweekly)– deposits are made in an authorized bank or other

financial institution.• Bank will mail or deliver a check or money order to an

authorized financial institution or Federal Reserve bank. – Some employer's are required to deposit by

electronic funds transfer (EFT).



• When to deposit? – Deposit Period:

• period during which tax liabilities are accumulated for each required deposit .

• deposit schedules ( based on lookout period):

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• When to deposit? • Lookback Period:

– begins on July 1 and ends on June 30 or the four previous quarters.

• Lookback payments::• are determined by the total federal income tax

withheld and social security and Medicare taxes reported on Form 941 in the previous four-quarter period.



• When to deposit? deposit schedules (based on lookout period):

• Monthly Depositor: – business reported $50,000 or less of taxes during the

lookback period, » Must pay the taxes by the 15th of the following

month



• When to deposit? deposit schedules (based on lookout period):

• Quarterly depositors: tax liability for a quarterly tax return less than $1,000.

– are only required to deposit on a quarterly basis – Quarterly depositors make the deposit payment with

the 941 quarterly tax form.





• Example: – Very Fine Videos, Inc. has been notified by the IRS that it is a

monthly depositor. Its employees are paid on the 15 and 30 of each month. The total payroll taxes withheld for each pay period during July are shown in the chart below.

– Federal Income Social Security Medicare– Tax Withheld Tax Withheld Tax Withheld

July 15 $750.00 $310.00 $72.50July30 $750.00 $310.00 $72.50Total Withholdings

$1,500.00 $ 620.00 $145.00



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• Example ( Cont) : Employer Matching TaxesSocial Sec. $ 620.00 Medicare : $145.00July Payroll Tax Liability Federal income Tax $1,500.00 Social Security:

$1,240.00Medicare $ 290.00Very Fine Videos’ total tax liability for the July payroll is

$3,030.00 ($1,500.00+$1,240.00+$290.00). Very Fine Videos is monthly depositor, and the last payroll was

paid on July 30, the deposit is due by August 15.



• Penalties on Deposits: – Penalties for failure

to make deposits of federal taxes on time are severe.

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• Deposits and Electronics Funds Transfer (EFT): – After 1997, firms that are semiweekly depositors of

federal income tax withheld and social security and Medicare taxes must make their deposits by means of the Electronic Federal Tax Payment System (EFTPS)

– Monthly depositors not required to use the EFTPS.

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• Small Business Deposits:– businesses with less than $1,000 of quarterly tax

liability for a quarterly tax

– will not be required to make monthly deposits

– Quarterly depositors made with the 941 quarterly tax form.


Reporting Taxes

• Federal Payroll Tax returns and/or filing: – Quarterly filing:

• Form 941• Schedule B

– Annual Filing: • Forms W-2 (Wage and Tax Statement) • Form W-3 (Transmittal of Wages and Tax Statements) • Form 940EZ and 940 (Federal Unemployment)


Reporting Taxes

• Schedule B of Form 941 (Employer’s Record of Federal Tax Liability)– Required for businesses that are semiweekly

depositors– schedule must be attached to Form 941 at filing time


Reporting Taxes

• Schedule B of Form 941 (Employer’s Record of Federal Tax Liability)


Reporting Taxes - 941

• Form 941- Employer’s Quarterly Federal Tax Return – Must be filed at the end of each quarter– businesses are required to file the Form 941– 941 Due dates:

• This form should be sent to the i on or be fore the following due dates:



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• Form 941- Due Dates Calendar

Quarter Quarter

Ending941 Filing Due Date

Q1 March 31 April 30Q2 June 30 July 31Q3 Sept 30 Oct 31Q4 Dec 31 Jan 31



• Steps to complete the 941 Tax form: – The top portion of the form:

• firm’s name and address, • employer’s federal identification number• the ending date for the quarter.

– Line 1: shows the number of employees that the firm had in the payroll period that includes March 12.– Line 2: shows the total wages, tips, and other compensation paid to the employees during the quarter that were subject to the withholding of federal income tax.



• Steps to complete the 941 Tax form (cont.): – Line 3 shows the total federal income tax withheld from wages, tips, and sick pay during the quarter.– Line 4 is used to record any adjustment in the federal income tax with held for previous quarters of the year. – Line 5 shows the adjusted total of federal Income tax withheld during the quarter.



• Steps to complete the 941 Tax form: – Line 6a: shows the total wages paid during the quarter that were subject to social security tax. – Line 6b: Line 6a is multiplied by 12.4 percent (.124), which is the total of the employee and employer shares of social security tax. – Line 6c is used to record the amount of tips received by employees during the quarter that were subject to social security tax. – Line 6d is the line 6c is multiplied d by 12.4 percent (.124), and the result appears on Line 6d.



• Steps to complete the 941 Tax form: – Line 7a: shows the total of the wages and tips paid during the quarter that were subject to Medicare tax.

– Line 7b: line 7a is multiplied by 2.9 percent (.029), which is the total of the employee and employer shares of Medicare tax.

– Line 8 shows the total of the social security and Medicare taxes owed for the quarter. This amount is found by adding the figures on Lines 6b, 6d, and 7b.



• Steps to complete the 941 Tax form: – Line 9 is used to record any adjustment of social security and Medicare taxes.

– Line 10 shows the adjusted total of social security and Medicare taxes for the quarter.

– Line 11 shows the total of the federal income tax withheld and the Social Security and Medicare taxes owed for the quarter. This amount is found by adding the figures on Lines 5 and 10.



• Steps to complete the 941 Tax form: – Line 12 is used to show any earned income credit (EIC) payments made to employees.

– Line 13 shows the net taxes owed for the quarter. This amount is found by subtracting the figure on Line 12 from the figure on Line 11.

– Line 14 shows the total deposits made during the quarter.



• Steps to complete the 941 Tax form: – Line 15 shows any balance due on the taxes owed for the quarter. This amount is calculated by subtracting the figure on Line 14 from the figure on Line 13.

– Line 16 is used to show any overpayment of taxes for the quarter. In this case, there was no overpayment. (An overpayment occurs when the deposits listed on Line 14 are greater than the net taxes owed, as shown on Line 13.)



• Steps to complete the 941 Tax form: – Line 16:

• semiweekly schedule depositors are instructed to complete Schedule B, which they must attach to Form 941. – Line 17: Monthly schedule depositors must complete Line 17.

• Each type of depositor must place a check mark in the box that shows which schedule it uses.– Following Line 17 is a section titled Third Party Designee.

• business may choose to allow another person, usually the accountant who prepared the Form 941, to discuss this return directly with the IRS without having to submit a power of attorney to the IRS.



• Form 941-V: – businesses that owe less than $2,000 in federal employment taxes during a quarter need not deposit the taxes. – These taxes are paid when they file Form 941 after the end of the quarter. – the check should be submitted with the Form 941-V.

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Payroll Taxes

• Form 8109 (Federal Deposit Coupon) : – Firm issues a check for the deposit amount – submits the check and Form 8109 to its bank.

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• Form 8109 : Federal Deposit Coupon: – is preprinted with the employer’s name, address, and

identification number.– When submitting a deposit, the employer enters the amount

in the space provided– darken the areas that show the type of tax being deposited

and the tax period to which the deposit applies. – After a deposit is made, Form 8109 is forwarded by the bank

to an IRS service center and the amount is recorded in the employer’s account.



• Deposits Exceptions: – There is an exception to the IRS deposit rules that

we discussed previously.– Businesses that accumulate $100,000 or more of

federal income tax withheld and social security and Medicare taxes owed during any deposit period must make a deposit on the next banking day after reaching the $100,000 level.


Reporting Taxes – W-2

• Form W-2, Wage and Tax Statement: – Employers must report annual amounts of:

• wages earned

• federal income tax withheld

• social security tax withheld

• and Medicare tax withheld

• state and local income taxes withheld



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• Form W-2 (cont.): – There are at least six copies of Form W-2:

• Copy A, For the Social Security Administration• Copy 1, For the state, city; or local tax agency• Copy B, For the employee, to be filed with his or her federal income tax return• Copy C, For the employee’s records• Copy 2, For the employee, to be filed with his or her state, city; or local income tax return• Copy D, For the employer’s records



• Form W-2 (cont.): – Box A: control number that identifies the Form W-2 issued to each employee. – Box b shows the employer’s federal identification number. This number must be on all IRS documents that the employer files.– Box c shows the employer’s name, address, and ZIP code.– Box d shows the employee’s social security number.– Box e shows the employee’s name (first name, middle initial, and last name).– Box f shows the employee’s address and ZIP code.



• Form W-2 (cont.): – Box 1: wages, tips, and other compensation paid to the employer during the calendar year.

– Box 2: the federal income tax withheld from the employee’s earnings during the year.

– Box 3 lists the wages paid to the employee during the year that were subject to social security tax.



• Form W-2 (cont.): – Box 4: lists the social security tax withheld during the year.

– Box 5: lists the wages and tips paid during the year that were subject to Medicare tax.

– Box 6: lists the Medicare tax withheld during the year



• Form W-2 (cont.): – Box 4: lists the social security tax withheld for the year.

– Box 5: lists the wages and tips paid during the year that were subject to Medicare tax.

– Box 6: lists the Medicare tax withheld during the year

– Box 12 is used to report pretax items related to the payroll, such as 401K contributions, SIMPLE IRA contributions and 125 Cafeteria Plan contributions.



• Form W-3 (cont.): – is used to report the total wages paid to during the last calendar year and the total federal income tax, social security tax, and Medicare tax withheld from the wages of employees during the year.

– also reports the number of Forms W-2 being sent.

– totals must be consistent with the individual figures listed on the Forms W-2.



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Reporting Taxes – FUTA

• FUTA (Federal Unemployment Insurance Act):

– helps workers who are temporarily jobless by giving them weekly unemployment compensation benefits that replace part of their lost wages. – requires employers to pay a tax to support the federal unemployment insurance program.



• Form 940-EZ , Employer’s Annual Federal Unemployment (FUTA) Tax Return:– Top portion:

• shows the firm’s name• address • employer’s federal identification number• calendar year.

– Item A: amount of contributions that the firm paid its state unemployment fund during the calendar year.– Item B-I: name of the state where contributions were paid.– Item B-2 asks for the firm’s state reporting number.



Form 940-EZ, • Part I

– Line I: total payments made to the employees for their services during the calendar year.– Line 2 asks for the amount of payments made during the year that



• Form 940-EZ– Line 3: the amount of payments of more than $7,000 made to the employees for their services during the year. – Line 4: exempt payments .This amount is found by adding the figures on Lines 2 and 3.– Line 5 asks for the total of the taxable wages. This amount is determined by subtracting the figure on Line 4 from the figure on Line I.– Line 6 asks for the amount of FUTA tax owed for the year.

• Amount is calculated by multiplying the total taxable wages shown on Line 5 by the FUTA rate of 0.8 percent (.008).



• Form 940-EZ– Line 3: the amount of payments of more than $7,000 made to the employees for their services during the year. – Line 4: exempt payments .This amount is found by adding the figures on Lines 2 and 3.– Line 5 asks for the total of the taxable wages. This amount is determined by subtracting the figure on Line 4 from the figure on Line I.– Line 6 asks for the amount of FUTA tax owed for the year.

• Amount is calculated by multiplying the total taxable wages shown on Line 5 by the FUTA rate of 0.8 percent (.008).



• From 940-EZ – Line 7: total FUTA tax that the firm deposited during the year.

– Line 8 asks for the balance of FUTA tax that is due.

– Line 9 asks for the amount of any overpayment. • (An overpayment occurs when the deposits Listed on Line 7 are greater than the FUTA tax)



• From 940-EZ – This part shows the firm’s quarter by-quarter liability for FUTA tax during the year.

– 940-EZ is signed by an officer, owner, or manager; and the date of completion is entered.



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Unit Summary

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Questions?

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Documents

Unit 9 Federal Payroll and Tax Returns McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved