Payroll Tax December 2010

This memo discusses Nanny filing requirements, payroll filing and informational (W-2/1099) filing for 2010 with action required by 1/31. See the discussion below for more detailed guidance.

Payroll Tax Information

Household Employees (Nanny) I wanted to check in and see if you will need my help in preparing your Nanny payroll for 2010. If you have your Nanny spreadsheet completed you can send it to me and I will prepare the appropriate documents and return them to you for signing and mailing. I can provide a Nanny spreadsheet and my Nanny memo if you have questions. The Forms are generally due to the Nanny by 1/31 and to the Government by 2/28.

Form 941 This form is filed quarterly. The deposit schedule for this tax, however, varies depending on the amount of the tax liability payment for each pay period. It is the combination of Federal Withholding Tax, Employee's share of FICA and Medicare, and the Employer Match of FICA and Medicare.

Form 940 This tax, also knows as FUTA, is the Federal Unemployment Tax. It is filed annually, due the end of January for the preceding year. We pay both Federal Unemployment Tax (FUTA) and State Unemployment Tax (SUTA) in the state of Washington (see below). There is nothing withheld from the employee's check for FUTA – it is all paid by the employer. Even though this form is only filed annually, for depositing purposes, figure the tax quarterly although you may not have to pay on a quarterly basis depending on annual limits. The Circular E also has more information about this tax.

Employment Security This tax, also known as SUTA, is the state unemployment tax. It is filed and paid quarterly. Watch the rate on this tax – changes are often missed and the wrong amount is reported and paid. Corporate Officers may choose to be exempt. Under the old system, Corporate Officers were generally exempt unless the corporation requested that they be covered. It's now the opposite; they will be covered unless they request not to be. You can also find rates on the web site. You can download software called UIFastTax directly from the Employment Security website for free, and pay your tax and file quarterly reports.

Department of Labor & Industries This tax, often called State Industrial Insurance, or Workers' Comp, is for injury claims. It is a type of insurance that employers are required to have in case their employees get injured on the job. Watch your payroll companies - they don't always handle L&I, and it can get missed, and get you in trouble with the state. Ask them if they are paying this tax if you are not handling it yourself. This tax is paid on hours worked, and different kinds of workers have different rates, based on risk of injury, etc. An office worker will have a different rate than a laborer, so check rates on their website and call if you aren't sure. L&I will assign rates for you. This tax can also be paid online, using Quick File or Deluxe File. See web site - http://www.lni.wa.gov. There is an employee portion of L&I and an employer portion. These are broken out on the rate notice. Also, the tax is paid only on hours worked – not holiday, sick, PTO, or vacation.

Third-party Payroll Service Providers Issues Many businesses use a third-party service provider to process their payroll. Although this is generally an efficient, cost effective way to handle a company's payroll needs, it is important for you to understand that, even if a third party is making the deposits, the employer (including potentially, the owners and officers of the employer) remains the responsible party as far as the IRS is concerned.

There have been a number of recent prosecutions of individuals and companies who have, acting under the guise of a service provider, stolen funds intended for payment of employment taxes. To ensure this does not happen to your business, we recommend taking the following precautions when using a third-party payroll service provider:

• Make sure the businesses (rather than the service provider's) name and address is on the payroll returns. If there are any issues with your account, the IRS will notify you. However, this notice will typically go to the address of record—the address on the payroll tax return, which should be your business address, so you'll get the notice if there is a problem. If appropriate, you can then forward the notice to the payroll processor.
• For your protection, always ask to see verifiable proof that the payroll service provider has a fiduciary bond in place (to help protect against the service provider defaulting on its obligations).
• If a service provider will be making your tax deposits, you should make sure it enrolls in the government's Electronic Federal Tax Payment System (EFTPS) if it hasn't already. Doing so should allow you to easily confirm that the proper payments are being made on your behalf. You should also make it a practice to verify EFTPS payments when reconciling your business bank accounts.

EFTPS is secure, accurate, easy to use, and provides an immediate confirmation for each transaction. It is free and will enable you to verify federal tax payments electronically 24 hours a day, 7 days a week through the Internet, or by phone. You can enroll online at EFTPS.gov, or call EFTPS Customer Service at (800) 555-4477 for an enrollment form.

Informational Tax Filing Requirements for 2010 (Form 1099 / W-2 etc.)

It's that time of the year again—when the government gathers information on wages and other payments your business made during the year. You are undoubtedly aware of the W-2, Wage and Tax Statement, which must be provided to each of your employees and to Social Security Administration. These forms are due to employees by January 31st & to Social Security Administration by February 28th. But your information-reporting obligations don't end there. Here's a rundown of other common payments that may require an information return.

- Payments of $600 or more to contractors or other services providers (other than corporations) must be reported to the recipient and to the IRS on Form 1099-MISC, Miscellaneous Income. The form is due to the recipient by February 1st and to the IRS by March 1st.

- Payments to attorneys for business-related services must be reported to the attorney and to the IRS. These payments must be reported on Form 1099-MISC regardless of the amount and regardless of whether the attorney is incorporated.

- Rents totaling more than $600 paid to an individual landlord, partnership, or estate (but not rents paid to a corporation) must be reported on Form 1099-MISC. (However, rents paid to a real estate agent are generally not required to be reported.)

Other less common payments made by your business may also trigger an information-reporting requirement. For example, an information return may be required if you:

• Traded your business services for the services of another business
• Paid wages to the estate or beneficiary of a deceased employee
• Made cash payments to purchase fish for resale
• Cancelled a borrower's debt in connection with a business of lending money
• Paid out winnings in connection with a gambling or race track business

Bear in mind the penalties for failure to comply with these information-reporting requirements can be stiff. For example, you can be hit with a penalty as high as $50 for each filing that is filed incorrectly or is not filed on time. If you need help sorting out your information-reporting responsibilities or assistance in preparing the required returns, please feel free to call.

With best regards,

Brian Berlage

Past newsletters :

January 2010
February 2010
March 2010
May 2010
June 2010
July 2010
August 2010
September 2010
October 2010
November 2010
December 2010
January 2011

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