Form W-2, FICA, Medicare, Tips, Employee Benefits
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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 761 , Tips - withholding and reporting and/or Publication 15 (PDF), Circular E, Employer's Tax Guide.
References: - Publication 15 (PDF), Circular E, Employer's Tax Guide
- Publication 1872 (PDF), Tips on Tips - A Guide to Tip Income Reporting for Employees in the Food and Beverage Industry
- Tax Topic 761, Tips - withholding and reporting
As an employer, do I have any liability if my employees receive tips but don't report the income?
Employees who customarily receive tips are required to report their cash tips to their employers at least monthly, if they receive $20 or more in the month. Cash tips are tips received directly in cash or by check, and charged tips. You have a liability to withhold and pay Social Security and Medicare tax on your employees' reported tips, to the extent that wages or other employee funds are available. If the service determines that your employees are underreporting tips, the service may estimate the unreported tips and hold you liable for the employer's share of the Social Security and Medicare taxes on the underreported tips. If are a large food or beverage establishment (more than 10 employees on a typical day and food or beverages consumed on the premises), you are required to allocate tips if the total tips reported to you are less than 8% of gross sales.
References: If the reported tips from employees are more than 8% of sales, must an employer still allocate tips to the employees?
No. Tip allocation is required when the amount of tips reported by employees of a large food or beverage establishment is less than 8% (or an approved lower rate) of the gross receipts, other than nonallocable receipts, for the given period. If the employees are reporting more than the 8%, there would be no allocated tip amount. However, the employer must still file Form 8027 (PDF), Employer's Annual Information Return of Tip Income and Allocated Tips.
References: Can the 8% - normally used for allocated tips - be a matter agreed upon as reported tips between the employer and employees, so that the employees do not have to report the exact amount of their tips?
No. The law requires that the employee who receives tips must report the actual tip amount to his or her employer if the amount is $20 or more for that calendar month. The 8% figure is not a simplified reporting method.
The employee should keep a tip record of his or her daily tips. A daily tip record can relieve the employee from having to include allocated tips in income by documenting that the amount of tips the employee reported were the actual amount received.
References: - Instructions for Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips
- Publication 3148 (PDF), Tips on Tips, A Guide to Tip Income Reporting (Employees)
- Publication 3144 (PDF), Tips on Tips, A Guide to Tip Income Reporting (Employers)
- Publication 1244 (PDF), Employee's Daily Record of Tips and Report to Employer
- Publication 1872 (PDF), Tips on Tips - A Guide to Tip Income Reporting for Employees in the Food and Beverage Industry
Can an employer add the reported tips to just one payroll a month, even a special payment separate from the regular wage payment, and pay only the wage amount on the other payroll dates?
An employer can report an employee's tip income and withhold taxes once a month or more often than once a month. The two items of practical consideration, besides the sophistication of your payroll system, are the employees' tip reports and the charged tips.
The employees are required by law to report their cash tips only once a month, by the 10th day of the month following the month for which they are reporting. The employer may require the employees to report their tips more often. This would facilitate withholding on tips and the reporting of the tips as income on the employees' pay stubs.
When an employer makes the charged tips available to the employee would depend on the employer's policy, and when and how often the credit card company pays the employer for charged sales and tips. The employee monthly tip report is supposed to include information about charged tips that the employer has paid to the employee during the reporting period, as well as tips paid directly to the employee.
It would be most practical for withholding purposes for the employer to report the tip income for each employee when all the tip information is available and the payments for charged items are available. If, when the employee is paid, there is not enough money available to withhold all taxes owed on wages and tips, the employer can withhold the remaining amount from the next paycheck or the employee can give money to the employer to cover the withholding.
For more information, refer to Publication 15 (PDF), Circular E, Employer's Tax Guide and Publication 1872 (PDF), Tips on Tips - A Guide to Tip Income Reporting for Employees in the Food and Beverage Industry.
References: - Publication 15 (PDF), Circular E, Employer's Tax Guide
- Publication 1872 (PDF), Tips on Tips - A Guide to Tip Income Reporting for Employees in the Food and Beverage Industry
Does a household employer have to pay social security and Medicare for all household employees if only one employee makes more than $1,300 in the year?
No. The employer only has to pay social security and Medicare tax for the employee(s) who receive $1,300 or more in wages for the year. If the amount paid to any employee in a calendar year is less than $1,300, no social security or Medicare tax is owed for that employee. If social security and Medicare tax must be paid, the employee's portion of the social security and Medicare tax should be withheld also, unless the employer chooses to pay both the employer's share and the employee's share.
References: - Publication 926 (PDF), Household Employer's Tax Guide; Do You Need to Pay Employment Taxes?
- Tax Topic 756, Employment Taxes for Household Employees
I started a new business. I need information on how to file Forms W-2?
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: I sold my business and the new owners kept the employees. What is my requirement as the former owner for filing Forms W-2 for the employees?
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: Is it possible to get an extension for sending out W-2 forms? I was told the deadline is February 28th.
There are two deadlines for sending our Form W-2. You must furnish Form W-2 to your employees by January 31. To get an extension of the time to furnish your employees with Form W-2 you must send a letter on or before January 31st requesting the extension. Refer to the Instructions for Form W-2 and W-3 for the information that must be in the letter and mailing instructions.
The deadline for sending Forms W-2 with a Form W-3 to the Social Security Administration is the last day of February. If you terminate your business the date may be different. To get an extension of time to mail the Forms W-2 to the Social Security Administration file Form 8809 (PDF), Request for Extension of Time to File Information Returns, before the due date of the Forms W-2. If approved, you will have an additional 30 days to file.
References: What publications are available that would explain the taxation policy for Flexible Spending Arrangements (FSAs)?
There is limited information about cafeteria plans in Publication 535 (PDF), Business Expenses.
References: When an employer provides day care assistance, should the employer's contribution be reported in box 10 of Form W-2?
Yes. An employer reports dependent care assistance payments in box 10 on Form W-2.
References: Is an employer required to provide the IRS with a signed receipt from a dependent care provider in order to release funds that are withheld from an employee's pretax salary and deposited to a dependent care flexible spending account?
The Internal Revenue Service does not specify a method for the documentation of reimbursable expenditures. Good accounting and business practices should dictate the type and sufficiency of documentation provided by employees who claim reimbursable expenses. Please review the plan document to determine if it specifies the type(s) of documentation acceptable.
References: Can an employer pay for health care costs of an employee as a fringe benefit?
Yes, an employer may pay for health care costs of an employee as a nontaxable fringe benefit. Refer to Publication 535 (PDF), Business Expenses, for a complete discussion of employee benefit programs.
References: If our company pays for the employee's health care costs directly to the medical facility, as opposed to a reimbursement, is the employee benefit reported on Form W-2 and subject to social security withholding?
Health care costs paid directly to the medical facility is a nontaxable employee benefit provided that it is paid as part of an accident and health plan. Refer to Publication 535 (PDF), Business Expenses, for more information on employee benefit programs.
References: If an employer pays health insurance benefits for the employee and dependents, are both the employee's and the dependent's benefits income to the employee?
If an employer provides health insurance for the employees, the benefit provided is not taxable to the employee. An employer can generally deduct the cost of a group health plan on the "employee benefit programs" line of their business income tax return.
Group health plan defined: This (including a self-insured plan) is a plan that provides medical care to your employees, former employees, and their spouses and dependents. The plan can provide care directly or through insurance, reimbursement, or otherwise. The employer can exclude the cost of providing group health insurance to an employee from his or her wages.
References: If we give an employee a monthly car allowance, must it be included in the employee's taxable wages on their Form W-2?
Generally yes, unless paid under an accountable plan.
To be an accountable plan, your reimbursement or expense allowance arrangement must meet the qualifying requirements, explained later. A reimbursement or expense allowance arrangement is a system by which you substantiate and pay the advances, reimbursements, and charges for your employees' business expenses. If you make a single payment to your employees and it includes both wages and an expense reimbursement, you must specify the amount of the reimbursement.
Qualifying requirements. To qualify as an accountable plan, your reimbursement or expense allowance arrangement must require your employees to meet all of the following rules: - They must have paid or incurred deductible expenses while performing services as your employees,
- They must adequately account to you for these expenses within a reasonable period of time, and
- They must return any excess reimbursement or allowance within a reasonable period of time.
Please refer to Publication 535 (PDF), Business Expenses, for additional information about accountable and nonaccountable plans.
References: If our business pays for an employee's airfare on a business trip, but the employee does not submit an expense form relating to the travel, do we need to issue a Form 1099-MISC?
No, you should report the amounts as wages on Form W-2. Generally, Form 1099-MISC is not issued to employees. Payments to your employee for travel and other necessary expenses of your business under a nonaccountable plan are wages and subject to income tax withholding and payment of social security, Medicare, and FUTA taxes. Your payments are treated as paid under a nonaccountable plan if: - Your employee is not required to or does not substantiate timely those expenses to you with receipts or other documentation, or
- You advance an amount to your employee for business expenses and your employee is not required to or does not return timely any amount he or she does not use for business expenses.
The amount of the airfare should be included on the employee's Form W-2.
References: How should a tuition reimbursement program for employees be reported as income to an employee? Should the employee be taxed at the 27% rate for supplemental payments on the next pay check after successful completion of the course or is this something that we just include on the W-2?
For employment tax and withholding purposes, you can treat fringe benefits as paid on a pay period, a quarter, a semiannual, annual, or other basis as long as the benefits are treated as paid no less frequently than annually. You do not have to choose the same period for all employees.
You can change the period as often as you like as long as you treat all the benefits provided in a calendar year as paid no later than December 31. You can also treat the value of a single fringe benefit as paid on one or more dates in the same calendar year, even if the employee receives the entire benefit at one time.
You can add the value of fringe benefits to regular wages for a payroll period and figure income tax withholding on the total, or you can withhold Federal income tax on the value of fringe benefits at the flat 27% rate applicable to supplemental wages. You must withhold the applicable income, social security, and Medicare taxes on the date or dates you chose to treat the benefits as paid. Deposit the amounts withheld as discussed in section 11 of Publication 15 (PDF), Circular E, Employer's Tax Guide.
References: How do I figure the amount of advance earned income credit to include in an employee's pay?
To figure the advance amount, use either the Tables for Percentage Method or Tables for Wage Bracket Method of Advance EIC Payments which are located in Publication 15 (PDF), Circular E, Employer's Tax Guide. Add the advance earned income credit payments to the employee's net pay for the pay period. Since this amount 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, and Form W-5 (PDF), Advance Earned Income Credit, and/or Publication 15 (PDF), Circular E, Employer's Tax Guide.
References:
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