What are the 1998 rates for social security tax and Medicare
withholding?
For 1998 the social security tax rate is 6.2 %, which applies to the first $68,400 of
the employee's wages. The Medicare tax rate is 1.45 %, which applies to all of the
employee's wages. For additional information, refer to Tax Topic 751,
Social Security and Medicare Withholding Rates.
I started a new business. I need information on how to file
Forms W-2.
First of all, Forms W-2 should be furnished to your employees by January 31. It is also
your responsibility as an employer to file Forms W-2 with the Social Security
Administration (SSA) for your employees, showing wages paid and taxes withheld for the
year. You must send Copy A to the SSA with Form W-3 by February 28. Form W-3 shows the
total of all W-2's being sent. The address is listed in the W-2 instructions. Refer to Tax Topic 752, Form W-2 - Where, When and How to File, or Publication 15, Circular E, Employer's Tax Guide, and Publication 393, Federal Employment Tax Forms.
One of my employees gave me a W-4 form claiming exemption from
withholding. Do I have to send the W-4 to the IRS?
If you receive a Form W-4 on which an employee claims exemption from withholding and
his or her wages would normally be expected to exceed $200 or more a week, you must send a
copy of that W-4 to the IRS service center with your next Form 941 return or with a cover
letter. The IRS will send you further instructions if it is determined that you should not
honor the Form W-4. For additional information on Form W-4, refer to Tax
Topic 753 and/or Publication 15, Circular E, Employer's Tax
Guide.
How do I figure the amount of advance earned income credit to
include in an employee's pay?
To figure the credit amount, use either the Tables for Percentage Method or Tables for
Wage Bracket Method of Advance EIC Payments which are located in Publication
15, Circular E, Employer's Tax Guide. Add the advance earned income credit
payments to the employee's net pay for the pay period. Since the EIC isn't wages, you do
not withhold any income, social security, or Medicare taxes from the payment. For
additional information, refer to Tax Topic 754, Form W-5 -
Advance Earned Income Credit and/or Publication 15, Circular
E, Employer's Tax Guide.
How do I apply for an employer identification number (EIN)?
To obtain an EIN, you must complete Form SS-4. After you have
completed the Form SS-4, you can get the EIN by mail, FAX, or by phone. The instructions
for Form SS-4 provide both an IRS service center address and a phone number for Tele-TIN.
For more information, refer to Tax Topic 755, Employer
Identification Number (EIN) - How to Apply, or Publication 1635, Understanding Your
EIN.
I hired a baby-sitter to care for my children in my home. Do I
need to withhold taxes on her wages?
Household employees include housekeepers, maids, baby- sitters, gardeners, and others
who work in or around your private residence as your employees. If you pay a household
employee cash wages of $1,000 or more in a calendar year, you generally must withhold
social security and Medicare taxes from all cash wages you pay to that employee. For
specific information refer to Tax Topic 756, Employment Taxes
for Household Employees, or Publication 926, Household
Employer's Tax Guide.
What are the deposit requirements for Form 941, Employer's
Quarterly Federal Tax Return?
The tax liability on a Form 941 return includes your employees' withheld federal income
tax, social security tax, and Medicare tax, and your share of social security and Medicare
tax. If you accumulate a liability for these taxes of $500 or more per quarter, you must
deposit this amount by making payment to an authorized financial institution or the
Federal Reserve bank for your area. A Form 8109, Federal Tax Deposit Coupon, or FTD
Coupon, must accompany your payment. You must deposit the Form 941 taxes based on either a
monthly or semi-weekly deposit schedule. For specific information, refer to Tax Topic 757, Form 941 - Deposit Requirements or Publication 15, Circular E, Employer's Tax Guide.
What are the filing requirements for Form 941, Employer's
Quarterly Federal Tax Return?
If you are a business employer who is not a farmer, you will file Form 941 to report
wages you have paid, tips your employees have received, federal income tax withheld,
social security and Medicare taxes withheld, your share of social security and Medicare
taxes, and advance earned income credit (AEIC) payments. You must file for each calendar
quarter, using a separate Form 941. Form 941 is due by the last day of the month following
the end of the quarter. If your total taxes (line 13 of Form 941) are $500 or more for the
quarter, you must deposit your tax liabilities at an authorized financial institution with
Form 8109, Federal Tax Deposit Coupon, or by using the Electronic Federal Tax Payment
System (EFTPS). If your total deposits of social security,
Medicare, and withheld income taxes were more than $50,000 in 1995, you must make
electronic deposits using EFTPS for all depository tax liabilities that occur after June
30, 1997. The due dates of your deposits are based on either a monthly or semiweekly
deposit schedule. The deposit schedule you must use is determined by the amount of Form
941 taxes reported in a four-quarter look back period. For specific information, refer to Tax Topic 758, Form 941 - Employer's Quarterly Federal Tax Return,
Publication 15, Circular E, Employer's Tax Guide. See Topic 757 for more on EFTPS.
How do I figure the amount of deposit required for Form
940/940EZ, Employer's Annual Federal Unemployment Tax Return?
First figure the amount of wages you paid during the quarter that are subject to
federal unemployment tax. Only the first $7,000 paid to each employee during each calendar
year is subject to the tax. Next, multiply the taxable wages you have just figured by
eight tenths of one percent (.8%). If $100 or less, you do not have to make a deposit. Add
this amount to the tax you figure for wages subject to unemployment tax at the end of the
next quarter. If more than $100, a deposit is due. For more specific information, refer to
Tax Topic 759, Form 940/940EZ - Deposit Requirements.
Note: The FUTA tax rate isn't always .8%. The FUTA tax rate is 6.2% (see next
FAQ) Generally, an employer can take a credit against FUTA tax for amounts paid into state
unemployment funds. This credit cannot be more than 5.4% (resulting in a net .8% rate).
Most employers who make timely unemployment tax payments to the state are entitled to the
.8%.
What is the federal unemployment tax rate for 1996?
The gross federal unemployment tax rate for 1996 is 6.2% and is figured on the first
$7,000 of wages you paid each employee in 1996. However, if you have timely paid state
unemployment contributions on the same wages, you can be eligible for a credit. For
specific information, refer to Tax Topic 760, Form 940/940EZ -
Employer's Annual Federal Unemployment Tax Returns.
If my part-time employees receive less than $20 a month in tips,
are they required to report them to me?
Employees who receive less than $20 per month in tips are not required to report the
tips to the employer, but they must include them in gross income on their tax return. For
additional information on tip withholding and reporting requirements, refer to Tax Topic 762 and/or Publication 15, Circular
E, Employer's Tax Guide.
How can I determine whether the person working for me is an
employee or an independent contractor?
To determine whether an individual is an employee or an independent contractor under
the common law, the relationship of the worker and the business must be examined. All
evidence of control and independence must be considered. Facts that provide evidence of
the degree of control and independence fall into three categories: behavioral control,
financial control, and the type of relationship of the parties as shown below. These
relationships are discussed in more detail in Publication 15-A, Employer's
Supplemental Tax Guide (Supplement to Circular E, Employer's Tax Guide, Publication 15).
Behavioral control — Facts that show whether the business has a right to
direct and control how the worker does the task for which the worker is hired include the
type and degree of -
- Instructions the business gives the worker.
- Training the business gives the worker.
Financial control - Facts that show whether the business has a right to control
the business aspects of the worker's job include:
- The extent to which the worker has unreimbursed business expenses.
- The extent of the worker's investment.
- The extent to which the worker makes services available to the relevant market.
- How the business pays the worker.
- The extent to which the worker can realize a profit or incur a loss.
Type of relationship - Facts that show the parties' type of relationship
include:
- Written contracts describing the relationship the parties intended to create.
- Whether the business provides the worker with employee-type benefits, such as insurance,
a pension plan, vacation pay, or sick pay.
- The permanency of the relationship.
- The extent to which services performed by the worker are a key aspect of the regular
business of the company.
IRS help - If you want the IRS to determine whether a worker is and employee,
file Form SS-8, Determination of Employee Work Status for
Purposes of Federal Employment Taxes and Income Tax Withholding, with your District
Director.
For more employer information, see Tax Topic 750, Employer
Tax Information.
What are the magnetic tape requirements for sending W-2's to the
IRS on magnetic media?
Since Forms W-2 are sent to the Social Security Administration (SSA), questions
regarding magnetic media filing should be directed there. Detailed information about
filing can be found at http://www.ssa.gov/
SSA's toll-free number for wage reporting questions is 1-800-772-6270, available on
weekdays from 7 a.m. to 7 p.m. Eastern time. At present, the service answers questions
about the following topics:
- Magnetic media filing,
- Medicare reporting error notices, and
- Social Security/Internal Revenue reconciliation of W-2 data.
The service will be expanded later to answer other types of employer questions. In the
meantime, SSA is working closely with employers to measure the new service and look for
additional ways it can be enhanced.
Also, see Tele-Tax Topic 750, Employer Tax Information.
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