Vision Payroll

January 10, 2010

2009 Form W-2 Tips, Part 7, Box 6 Medicare Tax Withheld

Filed under: News — Tags: , , , — Vision @ 2:06 pm

This is one in a continuing series on the 2009 Form W-2, Wage and Tax Statement, which employers must generally furnish to employees no later than February 1, 2010. Forms mailed on the due date are considered furnished if properly addressed. Employers unable to meet that deadline may file a request for extension of time to furnish the forms. Today we review Box 6, Medicare tax withheld.

Box 6 shows the total amount of employee Medicare withheld, including the amount withheld on tips. It does not include any employer contribution toward Medicare on the employee’s behalf. The 2009 rate was 1.45% and unlike social security, there is no taxable wage base. Therefore, there is no upper limit to the amount entered in this box. If the employer paid the employee’s share of such taxes rather than withholding them, the tax must be grossed up and included in boxes 1, 3, and 5.

The next topic in this continuing series will be Box 7, social security tips. Contact Vision Payroll with any questions on the 2009 Form W-2.

January 5, 2010

2009 Form W-2 Tips, Part 6, Box 5 Medicare Wages and Tips

Filed under: News — Tags: , , , — Vision @ 10:49 am

This is one in a continuing series on the 2009 Form W-2, Wage and Tax Statement, which employers must generally furnish to employees no later than February 1, 2010. Forms mailed on the due date are considered furnished if properly addressed. Employers unable to meet that deadline may file a request for extension of time to furnish the forms. Today we review Box 5, Medicare wages and tips.

Box 5 shows the total amount of wages subject to Medicare tax. For most employees, this amount equals the sum of boxes 3 and 7, with one exception. There is no limit on the amount of Medicare wages as there is with social security wages. Additionally, depending on the date of hire, some governmental employees may have Medicare wages, but not social security wages.

The next topic in this continuing series will be Box 6, Medicare tax withheld. Contact Vision Payroll with any questions on the 2009 Form W-2.

July 28, 2009

IRS Rules Distributions from Tip Jars Are Tips, Not Wages

In the recently released Chief Counsel Advice (CCA) 200929004, the Internal Revenue Service ruled that money distributed from a company’s tip jar should be considered tips, not wages.

The company requires that all its retail locations maintain a tip jar to collect cash to be distributed to certain employees. A non-management employee distributes the tip money according to a time sheet showing hours worked by eligible employees. Management employees are not eligible to share in the tips.

The company estimates an hourly amount that each employee earns and reports that amount times the number of hours worked as wages on Form W-2. The employer also instructs employees to report any amount received above this estimate as income.

Although under §3121(q) of the Internal Revenue Code of 1986 (IRC), tips are considered remuneration for FICA tax purposes (also known as OASDI or social security and Medicare), the remuneration is not deemed paid until the employee furnishes the employer with a written statement detailing the amount of tips received (see IRC §6053(a)). This notification is not supplied by the employees in this case. Since the procedures used by the company do not have the same level of control as described in Revenue Ruling 95-7, Q & A 2, the company is not liable for the employer share of FICA tax until the IRS makes a notice and demand for such taxes.

Contact Vision Payroll if you have any questions on taxation of distributions from tip jars.

July 10, 2009

Question of the Week: Is a Non-student Holding a J-1 Visa Exempt from FICA Tax Withholding?

Filed under: News — Tags: , , , , , , — Vision @ 8:36 pm

This week’s question comes from Norma, an HR manager. I know that students with J-1 visas are exempt from FICA tax withholding in certain circumstances. We hired a non-student with a J-1 visa. Is a non-student holding a J-1 visa exempt from FICA tax withholding? Answer: Non-resident aliens are exempt from paying FICA tax, variously known as social security tax, Medicare tax, or OASDI. Foreign scholars, teachers, researchers, trainees, physicians, au pairs, summer camp workers, and other non-students in J-1 nonimmigrant status who have been in the United States less than two calendar years are considered non-resident aliens during the first two calendar years of physical presence in the United States. After two years of physical presence, a non-student is considered a resident alien and therefore is subject to FICA tax withholding. Therefore, non-students with a J-1 visa are exempt from FICA tax during their first two years of physical presence and subject to FICA tax withholding thereafter. As with students, physical presence for non-students is tested on a calendar year basis; therefore, entry into the United States on December 31 is counted as presence in the United States for one calendar year. Contact Vision Payroll if you have any questions on FICA tax withholding for J-1 visa holders.

July 3, 2009

Question of the Week: Is a Student Holding a J-1 Visa Exempt from FICA Tax Withholding?

Filed under: News — Tags: , , , , , , — Vision @ 11:16 pm

This week’s question comes from Ron, a payroll department manager. We have a student who works for us who holds a J-1 Visa. He says that he should not have FICA tax withheld. Is a student holding a J-1 visa exempt from FICA tax withholding? Answer: Non-resident aliens are exempt from paying FICA tax, variously known as social security tax, Medicare tax, or OASDI. A foreign student who arrives in the United States on a J-1 visa is considered a non-resident alien during the first five calendar years of physical presence in the United States. After five years of physical presence, a student is considered a resident alien and therefore is subject to FICA tax withholding. Therefore, students with a J-1 visa are exempt from FICA tax during their first five years of physical presence and subject to FICA tax withholding thereafter. Contact Vision Payroll if you have any questions on FICA tax withholding for J-1 visa holders.

June 26, 2009

Question of the Week: Do FUTA Taxes Apply to Children of Sole Proprietor Who Are Age 18 or Older?

Filed under: News — Tags: , , , , , , , — Vision @ 10:48 pm

This week’s question comes from Debbie, a sole proprietor. I read that children under age 18 are not subject to federal employment taxes. My children are now in college and work part-time year-round. I know they are now subject to FICA taxes. Do FUTA taxes apply to children of sole proprietor who are age 18 or older? Answer: Sole proprietors who hire their own children under age 21 are not required to pay Federal Unemployment Tax Act (FUTA) tax on those children’s wages. Once the children reach age 21, the exemption no longer applies. Contact Vision Payroll if you have any questions on payroll taxes on children.

June 23, 2009

IRS Rules Discounts Offered to Employees Are Taxable Income

In the recently released Chief Counsel Advice (CCA) 200923029, the Internal Revenue Service ruled that discounts provided to an employer’s employees who purchase or lease property from a company that formerly owned the employer are taxable as fringe benefits based on the amount of the discount. Such discounts are also taxable for FICA purposes. FICA is also known as OASDI or social security and Medicare.

Qualified employee discounts are excludible from income under §132 of the Internal Revenue Code of 1986 (IRC). Since “the discounted property was not offered for sale to customers by the same employer for which the employees receiving the discount performed the services”, the discounts were not “qualified employee discounts” under IRC §132. These amounts are to be reported on Form W-2, even for former employees. They should not be reported on Form 1099.

Since the discount was offered as a percentage off the retail price, the discount may be valued for fringe benefits purposes at the amount of the discount.

Contact Vision Payroll if you have any questions on taxation of fringe benefits.

June 12, 2009

Question of the Week: Does a Sole Proprietor Have to Pay Payroll Taxes on Children’s Wages?

This week’s question comes from Brad, a sole proprietor. My 16-year-old daughter will be out of school soon and I’d like to hire her for the summer in my sole proprietorship. Does a sole proprietor have to pay payroll taxes on children’s wages? Answer: Sole proprietors who hire their own children under age 18 do not have to pay federal employment taxes on the children’s wages. The children are exempt from having to pay social security and Medicare taxes on their wages. These taxes are sometimes known as FICA (Federal Insurance Contributions Act) or OASDI (Old-Age, Survivors, and Disability Insurance). The employer is also exempt from paying the matching portion of these taxes. Additionally, the employer is not required to pay FUTA (Federal Unemployment Tax Act) tax on these wages. Most states also exempt such wages from state unemployment tax (SUTA). Depending on their expected income, children of sole proprietors may be subject to federal and state income tax withholding. Contact Vision Payroll if you have any questions on payroll taxes on children.

June 5, 2009

Question of the Week: How Do Students Claim Exemption from Income Tax Withholding?

This week’s question comes from Will, a restaurant owner. We’ve hired several students to work for us this summer. Most of them don’t expect to owe any income tax this year. How do students claim exemption from income tax withholding? Answer: Students or others who expect to owe no tax for 2009 should review the conditions on line 7 of Form W-4, Employee’s Withholding Allowance Certificate or the Spanish W-4, Formulario W-4(SP), Certificado de Exención de la Retención del Empleado. Employees who meet both conditions should write “Exempt” (or “Exento”) on line 7 and file the form with their employer. The employer should not withhold any federal income tax from these employees for the rest of 2009. Employees who wish to continue their exempt status in 2010 must a complete and provide to their employer a 2010 Form W-4 before February 16, 2010. These employees may also wish to file a state equivalent form to claim exemption from state withholding as well. The filing of Form W-4 claiming exempt status does not stop social security or Medicare withholding or the requirement that the employer match these withholdings. These taxes, sometimes known as FICA or OASDI, have their own rules for determining exemption which are much less likely to apply. Contact Vision Payroll if you have any questions on employees claiming exempt status.

May 22, 2009

Question of the Week: At What Age Does Social Security Withholding Stop?

Filed under: News — Tags: , , , , — Vision @ 10:15 am

This week’s question comes from Elizabeth, a small-business owner. We just hired a part-time employee who is seventy years old. He’s already collecting social security benefits so I’m not sure if I should still withhold it from his wages. At what age does social security withholding stop? Answer: There is no age beyond which employers are no longer required to withhold social security or Medicare taxes, which are also known as FICA or OASDI. Employers must continue to withhold social security and Medicare taxes and pay the employer’s portion even if the employee is collecting social security or is eligible for Medicare. The Social Security Administration will recalculate benefits and may increase them after retirement if the additional earnings result in a benefits increase. Contact Vision Payroll if you have any questions on social security and Medicare tax withholding.

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