Employment Taxes

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Employment Taxes

• Requirements for Household Employers

Internal Revenue Service
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Contents

• Employer Identification Number
• Employer/Employees
• Income Tax
• Social Security Medicare Taxes
• Federal Unemployment Tax
• Information Returns
• Penalties

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Introduction

• Employment taxes represent the income tax and
  social security and Medicare taxes (FICA)
  withheld from the wages of an employee plus the
  employers share of these taxes.
• The withheld (employees) portion of employment
  taxes is referred to as
• trust fund taxes.

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Employer Identification Number (EIN)

• An EIN is required if you
• Pay wages to employees (including household
  employees)
• Withhold taxes for non-employment
• Have a Keogh plan
• Operate your business as a corporation,
  partnership, or
• File employment, excise, fiduciary or alcohol,
  tobacco firearms tax returns

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Application Form SS-4

• To obtain an EIN you will need to file Form SS-4,
  Application for Employer Identification Number.
• Applications can be obtained from IRS or the
  Social Security Administration (SSA). They are
  also available on-line at www.irs.gov.
• Completed applications can be mailed. faxed, or
  phoned in to IRS.

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After completing the Form SS-4, you can receive
your EIN by telephone using our Tele-TIN service
at 1-866-816-2065.

• You will use the EIN on all items you send to the
  IRS and SSA pertaining to your business.

You should have only one (1) EIN for yourself as
a sole proprietorship.
Refer to Publication 1635, Understanding Your EIN
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Employer/Employees

• Employee types
• Common law employee - under your direct control
• Statutory employee - no direct control
• Independent Contractor
• Performs services for you, but is not under your
  direct control. Generally, people
• who are in business for themselves
• are not considered employees.

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Right to Work

• Form I-9, Employment Eligibility Verification
• Immigration form used to certify employees legal
  right to work
• Certified by both employer and employee and
  retained in employers records

It is unlawful to employ an alien who cannot
legally work in the U.S.
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Employee Withholding

• Form W-4, Employees Withholding Allowance
  Certificate
• Use to determine the amount to be withheld from
  wages
• Send form to IRS if employee claims more than 10
  exemptions or claims exempt from withholding and
  earns more than 200 a week

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Income Tax

• Wages to employees generally are subject to
  income tax withholding. Household employees
  are exempt, but employer and employee
  can agree to withhold.
• Income tax withholding is figured on gross wages
  before any deductions are made for social
  security, union dues, insurance, etc.
• Publication 15 contains the applicable tables
  and instructions.

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Social Security Medicare Taxes

• Under the Federal Insurance Contributions Act
  (FICA), you must withhold social security and
  Medicare taxes from wages.
• You are not required to withhold taxes on a
  household employee to whom you will pay less than
  1,300 in a calendar year.

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Social Security Medicare Taxes

• As an employer, you must deposit the employees
  part of the taxes and pay a matching amount.
• You are not required to deposit if you have only
  household employees. You can file and pay these
  taxes with Form 1040 on Schedule H.

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Rates for Withholding

• For 2002 - the limit for wages subject to social
  security withholding is 80,900
• Social security tax rate is
• 6.2 employee share
• 6.2 employer share
• There is no wage limit for Medicare
  withholding
• Medicare tax rate is
• 1.45 employee share
• 1.45 employer share

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Unemployment Tax

• The Federal Unemployment Tax Act (FUTA) provides
  for the states and the Federal Government to
  cooperate in establishing and administering an
  unemployment tax program.
• You become liable for FUTA tax if you pay total
  wages of 1,000 or more in any calendar quarter
  to one or more household employees.

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Unemployment Tax

• For 2002, federal unemployment tax is figured on
  the first 7,000 you pay to each employee during
  the year.
• For household employees, FUTA tax can also be
  paid with Form 1040 on Schedule H. The adjusted
  Federal rate is .8.
• 6.2 minus 5.4. See Publication 15 and Form
  940 for more information.

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Information Returns
Form W-2, Wage and Tax Statement

• Form W-2 must be furnished to each employee by
  January 31 following the end of the calendar year
  covered.
• You must keep Form W-2 copy D in your records for
  four (4) years.

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Information Returns
Form W-3, Transmittal of Wage Tax Statements

• Form W-3 must be filed with the Social Security
  Administration by the last day of February each
  year in which the Forms W-2 are prepared.
• Note Total wages and withholding on the Form
  W-3 must equal the totals from all Schedules H
  filed for the year.

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Penalties

• 1. Failure to file
• 2. Failure to pay
• 3. Dishonored check
• 4. Failure to timely file an information
  return with IRS or SSA
• 5. Failure to timely furnish a copy of any
  information returns to the payee
• 6. Failure to file a partnership return

cont
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Penalties Cont

• 7. Failure to make Federal Tax Deposits on time
  in an authorized government depository
• 8. Failure to furnish specific information on an
  information return
• 9. Failure to collect and/or pay over Trust Find
  taxes (Trust Fund Recovery Penalty)

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Need help?

• Assistance is available in a variety of ways
• On Line
• http//www.irs.gov
• Telephone Service
• 1-800-829-1040
• TELE-TAX
• 1-800-829-4477
• TTY/TDD
• 1-800-829-4059

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Need More Information?

• Publication 15 15-A, Employers Tax Guide,
  Circular E
• Publication 926, Household Employers Tax Guide
• Publication 1635, Understanding Your EIN
• Publication 3207, Small Business Resource Guide,
  CD 2002
• Website www.irs.gov
• Visit a local office
• 1-800-829-1040