When the amount in box 1 is less than the amount in boxes 3 and 5, you have received some employee compensation that is not subject to Federal income tax but is subject to Social Security and Medicare taxes. The most common example of this is deferred compensation, e.g. contributions to a 401(k) plan. Another example is an employee benefit plan that provides for the contribution of pretax dollars (e.g. cafeteria plan, flexible spending arrangement, dependent care plan, etc.).

When the amount in box 1 is more than the amount in boxes 3 and 5, you have received some employee compensation that is not defined as wages for the purpose of social security and Medicare taxes. An example of this would be when a child works for his or her parent in the parent's trade or business and is under age 18.

References:

• Instructions for Form W-2 and W-3
• Publication 15 (PDF), Employer's Tax Guide

That depends on whether you were reimbursed under an accountable plan or under a nonaccountable plan. Generally, an employer will have an accountable plan if it pays business expenses that would otherwise be deductible by the employee, requires the employee to substantiate the expense, and does not permit the employee to keep any reimbursements that exceed expenses. If the employer does not use an accountable plan, mileage reimbursement would be included in your wages on Form W-2. For more information on reimbursements and accountable plans, refer to Chapter 6 of Publication 463 (PDF), Travel, Entertainment, Gift, and Car Expenses.

If your mileage reimbursement is included in box 1 on Form W-2, you need to enter that amount on the "wages, salaries, and tips" line of your tax return. If you itemize your deductions on Form 1040, Schedule A (PDF), Itemized Deductions, you may deduct the business transportation expense as an employee business expense, subject to the 2% limitation of adjusted gross income. You may usually deduct either your actual business automobile expenses or use the standard mileage rate. For more information on when you may use the standard mileage rate, refer to Chapter 4 of Publication 463 (PDF), Travel, Entertainment, Gift, and Car Expenses.

References:

• Publication 463 (PDF), Travel, Entertainment, Gift, and Car Expenses
• Publication 529 (PDF), Miscellaneous Deductions
• Tax Topic 501, Should I itemize?
• Tax Topic 510, Business use of car
• Tax Topic 514, Employee business expenses

There is no wage amount too low that you would not include in gross income on your tax return. If your total income were below your filing requirement, however, you would not have to file a tax return. However, you may wish to file to claim a refund of withheld taxes. For information on filing requirements, please refer to the instructions for your income tax form.

References:

• Instructions for Form 1040EZ
• Instructions for Form 1040A

A minister's housing allowance, sometimes called a parsonage allowance or a rental allowance, is excludable from gross income for income tax purposes, but not for self-employment tax purposes.

If you are a minister and receive as part of your pay for your services as a minister an amount officially designated as a rental allowance, you can exclude the allowance from income if the amount is used to provide or rent a home. However, the exclusion is limited to the lesser of the fair market rental value (including furnishing, utilities, garage, etc.) the amount officially designated (in advance of payment) as a rental or housing allowance, or the actual amount used to provide a home, and cannot exceed what is reasonable pay for your services.

If housing is furnished to you by your congregation as pay for your services as a minister, the exclusion cannot be more than what is reasonable pay for your services, and is limited to the fair market rental value (including furnishings, utilities, garage, etc.) of the home.

If you own your home and you receive a housing allowance as part of your pay, for your services as a minister, the exclusion cannot be more than the smaller of the following:

• the amount actually used to provide a home,
• the amount officially designated (in advance of payment) as a rental or housing allowance, or
• the fair market rental value of the home, including furnishings, utilities, garage, etc.

References:

• Publication 517 (PDF), Social Security and Other Information for the Members of the Clergy and Religious Workers
• Tax Topic 417, Earnings for clergy

Partners are considered to be self-employed. If you are a member of a partnership that carries on a trade or business, your distributive share of its income or loss from that trade or business is net earnings from self-employment. Limited partners are subject to self-employment tax only on guaranteed payments, such as salary and professional fees for services rendered.

References:

• Instructions for Form 1065, U.S. Partnership Return of Income
• Publication 533 (PDF), Self-Employment Tax
• Revenue Ruling 69-184

If your income was reported to you on a Form 1099-MISC, in box 7, the company has treated you as an independent contractor and your income is treated as self-employment income. You will need to report that income, and any related expenses, on Form 1040, Schedule C (PDF), Profit or Loss from Business, or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net Profit from Business. You will also need to use Form 1040, Schedule SE (PDF), Self-Employment Tax to compute and report your social security and Medicare tax. You may also need to make quarterly estimated tax payments. You would use Form 1040ES (PDF), Estimated Tax for Individuals, for this.

References:

• Form 1040, Schedule C (PDF), Profit or Loss from Business
• Form 1040, Schedule C-EZ (PDF), Net Profit from Business
• Instructions for Form 1040, Schedule C
• Form 1040, Schedule SE (PDF), Self-Employment Tax
• Form 1040ES (PDF), Estimated Tax for Individuals
• Publication 334 (PDF), Tax Guide for Small Business
• Tax Topic 355, Estimated Tax

First of all, Form W-2 (PDF) 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 (PDF) by February 28. If you file electronically (not by magnetic media) the due date is March 31. Form W-3 shows the total of all W-2s being sent. The address is listed in the Instructions for Form W-2 and W-3. Refer to Tax Topic 752, Form W-2 - Where, When and How to File, or Publication 15 (PDF), Circular E, Employer's Tax Guide.

References:

• Publication 15 (PDF), Circular E, Employer's Tax Guide
• Form W-2 (PDF), Wage and Tax Statement
• Instructions for Form W-2 and W-3
• Form W-3 (PDF), Transmittal of Wage and Tax Statements
• Tax Topic 752, Form W-2 - where, when. and how to file

If the new owner acquired substantially all of your business property and retained your employees, you will need to file a final Form 941 (PDF), Employers Quarterly Federal Tax Return. The final Form 941 generally must be filed on or before the last day of the first calendar month following the quarter for which the return is made. You will need to furnish Forms W-2 to your employees by the time you are required to file the final Form 941. You will also need to file Forms W-2 and W-3 on or before the last day of the second calendar month following the period for which the final Form 941 is filed.

If you and the new owner agree, you can be relieved of furnishing Forms W-2 to the employees and filing Forms W-2 and W-3 with the Social Security Administration. Such an agreement would be allowed if the employees will be paid wages by the new owner in the same calendar year and the Forms W-2 furnished to these employees will contain the required information , i.e. wages paid and taxes withheld, from both employers. The new employer will furnish Forms W-2 to the employees and will also file the required Forms W-2 and W-3 with the Social Security Administration. These actions will follow the normal end-of-year time lines. You will remain responsible for the Form W-2 and W-3 reporting obligations for the employees who are not employed by the new owner.

Please refer to Revenue Procedure 96-60 for a full discussion of this situation.

References:

• Form 941 (PDF), Employers Quarterly Federal Tax Return
• Instructions for Form W-2 and W-3
• Publication 15 (PDF), Circular E, Employer's Tax Guide
• IRS Revenue Procedure 96-60, 1996-2 C.B. 399, 1`996 -53, I.R.B. 24
• Tax Topic 752, Form W-2 - Where, When, and How to File

The Form 941 is the same for all 4 quarters. Only on the January-March calendar quarter Form 941 should you enter the number of employees on your payroll during the pay period that includes March 12. You do not need to answer this question on the Forms 941 for the other 3 quarters.

References:

• Instructions for Form 941, Employer's Quarterly Federal Tax Return

You will need to secure a completed Form W-4 (PDF), Employee's Withholding Allowance Certificate, from each employee. You will need Publication 15 (PDF), Circular E, Employer's Tax Guide, and Publication 15-A (PDF), Employer's Supplemental Tax Guide, to determine the amount of withholding and for directions on depositing the withholding amounts and other employment taxes.

Generally, employers will quarterly file Form 941 (PDF), Employer's Quarterly Federal Tax Return, and annually file Form 940 (PDF), Employer's Annual Federal Unemployment Tax Return (FUTA), and Form W-2 (PDF), Wage and Tax Statement, with Form W-3 (PDF), Transmittal of Income and Tax Statements.

References:

• Publication 15 (PDF), Circular E, Employer's Tax Guide
• Publication 15-A (PDF), Employer's Supplemental Tax Guide
• Form 940 (PDF), Employer's Annual Federal Unemployment Tax Return
• Form 941 (PDF), Employer's Quarterly Federal Tax Return
• Form W-2 (PDF), Wage and Tax Statement
• Form W-3 (PDF), Transmittal of Income and Tax Statements
• Form W-4 (PDF), Employee's Withholding Allowance Certificate

Yes, the social security wages base limit is applied to each separate employer. The individual employee is subject to social security taxes up to the maximum amount from each employer. As a result of an employee working for two or more employers in the same year, social security tax in excess of the maximum wage base may be withheld from his or her pay. An employee can claim the excess of social security tax withheld from pay resulting from working for two or more employers as a credit against the employee's income tax when filing Form 1040 (PDF), U.S. Individual Income Tax Return. However, there is no provision for an employer to get a credit for the employer portion of social security tax paid in this situation.

References:

• Publication 15 (PDF), Circular E, Employer's Tax Guide

The employer is subject to the same social security tax rate and wage base limits as the employee. When the employee reaches their limitation, the employer also reaches the limitation and no longer has to pay social security taxes for that employee.

References:

• Publication 15 (PDF), Circular E, Employer's Tax Guide
• Publication 15-A (PDF), Employer's Supplemental Tax Guide

Yes, the employer is required to follow the withholding requirements for social security and medicare taxes even if an employee is collecting social security benefits. Per Chapter 9 of Publication 15 (PDF), Circular E, Employer's Tax Guide, employee wages are subject to social security and Medicare taxes regardless of the employee's age or whether he or she is receiving social security benefits.

References:

• Publication 15 (PDF), Circular E, Employer's Tax Guide

The maximum wages subject to social security is $84,900 for 2002 resulting in a maximum for the employee portion of social security tax of $5,263.80 (of course, there is no limit on wages subject to medicare tax). Additional information can be found at the Social Security Administration web site.

References:

• Social Security Administration
• Publication 15 (PDF), Circular E, Employer's Tax Guide

Your self-employment income is reported on Form 1040, Schedule C (PDF), Profit or Loss from Business, or on Form 1040, Schedule C-EZ (PDF), Net Profit from Business.

Your Medicare and social security taxes are reported on Form 1040, Schedule SE (PDF), Self-Employment Tax.

As a self-employed person, you pay your Medicare and social security taxes the same way you pay your income taxes. If you expect to owe less than $1,000 in total taxes, you can pay them when you file your income tax return. If you expect to owe $1,000 or more in total taxes, you will need to make estimated tax payments. These payments are made quarterly using Form 1040ES (PDF), Estimated Tax for Individuals. You will need to figure these taxes at the beginning of the year. To learn about figuring and making estimated tax payments, please refer to Publication 505 (PDF), Tax Withholding and Estimated Tax.

References:

• Form 1040, Schedule C (PDF), Profit or Loss from Business
• Form 1040, Schedule C-EZ (PDF), Net Profit from Business
• Form 1040, Schedule SE (PDF), Self-Employment Tax
• Tax Topic 554, Self-Employment Tax
• Publication 505 (PDF), Tax Withholding and Estimated Tax
• Form 1040ES (PDF), Estimated Tax for Individuals

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