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Archive for October, 2011

What Is a Payroll Period?

October 26th

A payroll period is very much what it sounds like: that is, a certain segment of time in which you normally pay your employees. Generally speaking, the vast majority of businesses tend to operate on a payroll period, at a frequency of twice a month. In the event that you do have a regular payroll period, you should be sure to withhold the income tax for the entire time period, even in the event that you have employees that do not work the entirety of that full period in order to stay in compliance with tax law. This helps protect you against any sudden increases in taxes that you may not have been expecting, due to the fact that the employee did not work a full scale of the payroll period.  Keeping track of the payroll period is essential when it comes to keeping out of tax debt.

Irregular Payroll Periods

There are businesses that do not subscribe to regular payroll periods. If this is the case for your business, you should withhold taxes as if you paid wages for a daily or miscellaneous payroll period. Figure out the number of days, which should include Sundays and holidays in the period that is covered by the wage payment. In the event that wages are unrelated to a specific length of time, such as a salesperson working on commission, you should count back the number of days from the payment period to January 1 of the same year.

Generally speaking, it is easiest for you and your business to keep out of tax debt if you attempt to keep your payroll periods more regular than not. If you subscribe to an irregular payroll period, it requires extra bookkeeping and generally is a headache that most employers would prefer to avoid. If you can keep your payroll periods regular, you will have a much easier time figuring out wages based off of these regular increments.


The Difference between For 941 And Form 944.

October 19th

tax formDepending on the type of business that you own, you are required to fill out either Form 941 or Form 944 in order to avoid IRS penalties. These two forms are the difference between whether you file your taxes and claim tax deductions quarterly or annually. Generally speaking, the vast majority of businesses will be filing Form 941. This form is designed for businesses that pay their taxes and file for tax deductions quarterly. The vast majority of businesses are required to pay their taxes and file tax deductions quarterly, and this is advisable due to the fact that it makes bookkeeping much easier as a whole. Form 944 is designed for businesses that instead file taxes and deduct taxes annually.

How Do I Qualify for a 944?

In order to qualify for the tax status of being able to fill out Form 944, you must receive written notification. In the event that you receive this notification, and you would prefer to file Form 941, you may request to have filing requirements changed to 941, if the certain requirements outlined by tax law are satisfied.

Generally speaking, businesses that qualify for 944 are those that operate on a seasonal basis. These businesses include Christmas Tree Sellers and other holiday businesses. They qualify for Form 944 due to the fact that for the majority of the year, they are not viable businesses that are paying wages. If you have a business that operates on a year-round basis, you will likely need to file Form 941.

For more information regarding the differences between Form 941 and Four 944, be sure to visit the IRS website at www.IRS.gov. You can also check out the publication The Employer’s Tax Guide, which is provided at no cost through the IRS’ website.  Another good source of information could be your local tax lawyers and tax attorneys; they’ll have information regarding your specific jurisdiction.


What Is a Supplemental Wage?

October 18th

As an employer, keeping track of taxes and out of tax debt can be confusing. There are different classifications of employees that require adherence to different tax laws, and there are also different classifications of wages that require different rules. In order to have a financially stable business that is congruent with current tax laws, it is important to keep track of the different kinds of wages that you pay your employees and the tax regulations surrounding those wages.


The Definition of a Supplemental Wage

According to the IRS, a supplemental wage is defined as any sort of wage payments to employees that are not regular wages. For examples of supplemental wages, think about bonuses, commissions, overtime pay, payments for accumulative sick leave, severance pay, awards, prizes, back pay, retroactive pay increases, and payments for nondeductible moving expenses. There are even more ways that an employee can receive supplemental wages; if you are confused as to what counts as a supplemental wage and what does not, it is advisable to contact the IRS through their website at www.IRS.gov. Another good source of information regarding supplemental wages is the Employer’s Tax Guide, which is a free publication that can be found on the IRS website.  You may also contact a local tax attorney or tax lawyer to have a more tailored conversation regarding supplemental wages.

Supplemental wages are generally subject to the same kind of taxes that regular wages are. However, if an employee receives more than $1 million in supplemental wages from their employer during the calendar year, there are certain provisions that must be made. Be sure to contact the IRS should this situation apply to you.


Dealing with Tips

October 14th

If you happen to work in the entertainment or food industry, you are likely familiar with how vital tips can be to the livelihood of the individuals that work in these environments.  But how can employers properly record tips in order to avoid tax debt? Generally speaking, tips that an employee receives from a customer are subject to withholding. Employees are required to report cash tips to their employers by the 10th of every month that the tips are received.

Tips on Tips

If the amount of the tips received in any given month is less than $20, there are no reports required from the employer. When an employee reports tips on their tax returns, they must use Form 4070, which is known as the Employee’s Report of Tips to Employer. When this form is submitted to the employer, it must be signed by the employee and also noted with the following information:

  •  The employee’s name, address, and Social Security number
  •  The name and address of the employer
  •  The month or period that the report covers
  •  The total tips received during the month or period in question.

For more information regarding the reporting of tips and the importance of tips in tax records, be sure to check out the Employer’s Tax Guide, a free publication that can be found at the IRS website at www.IRS.gov.  You can also consider consulting a local tax attorney or tax lawyer for more information.  Tips are a vital part of their income for many workers, and this means that these wages need to be carefully courted for the purposes of taxes. Don’t risk getting stuck with IRS penalties—make sure to keep track of your tips!


The Importance of The Employer Identification Number

October 13th

EINIf you are considering starting a small business, it is important to understand what the Employer Identification Number (EIN) is and how to use it when it comes to the business of preparing your yearly tax statement for the IRS and avoiding IRS penalties. Just like every American citizen comes equipped with a Social Security number, every business registered in the United States of America has an EIN.  This number is issued to entities that are required to report employment taxes or give tax statements to their tax lawyers or annuitants. In plain English, this basically refers to any sort of business.

What is the Employer Identification Number?

 The Employer Identification Number is a nine-digit number that is issued by the IRS. The form of the EIN is 00-0000000. This number is used to identify the tax accounts of employers and others who might not have employees but rely on the services of independent contractors. You will use your EIN on all of the items that you send to the IRS and the Social Security Administration. This helps differentiate your business from other businesses in a clear, concise way.

If you have a business and do not yet have an EIN, you must apply for one online. Visit the IRS website at www.IRS.gov, and then click on the Apply for an Employer Identification Number link. The IRS will then be in contact with you shortly to give you your own unique EIN. Just like Social Security numbers, every business should not have more than one EIN. In the event that you have ended up with multiple EINs, be sure to contact the IRS so that they can tell you which one to use.


Who Is a Statutory Employee?

October 12th

employee taxesTo make things even more confusing for business owners, filing taxes is even more complicated than the general “independent contractor” versus “employee” designation. There are even differentiations within the class of those who are considered employees. There is a distinct difference between normal employees and statutory employees, and in order to file your taxes correctly and avoid IRS penalties, it is vital that you understand this difference.

Statutory Employees and Regular Ones

Generally speaking, a statutory employee is not considered a traditional employee but may still be considered an employee by statute for the purposes of Social Security, Medicare, and Federal Unemployment Tax purposes if certain conditions are met. The following conditions define a statutory employee:

  •  A worker who delivers food, beverages, laundry, or dry cleaning for another individual;
  •  Life insurance salesman that works full-time primarily for a single company;
  •  individual who works in a home using guidelines of the person for whom the work is done, using materials furnished by and returned to the employer;
  •  A traveling or city salesperson that works full-time for one firm.

If you have one or more of these individuals as your employee, they are considered statutory employees and must be classified as such in order to avoid tax debt. To learn more about statutory employees, be sure to read the IRS’ publication called the Employer’s Tax Guide.  The exact monetary provision that must be made regarding statutory employees is different depending on the nature of your business and the state in which a business operates. For more pointed information regarding the tax regulations surrounding statutory employees, visit the IRS’ website at www.IRS.gov, or consider a meeting with local tax lawyers or attorneys.



Keeping Your Record Straight

October 11th

tax recordsOne of the biggest problems that business owners of any size have with the paying of taxes is simply keeping the record straight in order to avoid IRS penalties. Everyone is fully aware that taxes need to be paid, and the frequency of purposeful fraud when it comes to businesses or individuals paying taxes is relatively low; most businesses wish to obey tax laws! However, many individuals are unsure and confused about how to best keep their records, particularly when it comes to running a business. The IRS will come after you whether you have purposefully misfiled your tax information or done so accidentally; it is best to have a full understanding of the tax situation so that you don’t end up in tax debt!

Getting the Record Right

A business should store all records of employment taxes for at least four years. Since the IRS might request to review these at any time, the records should include the following:

  •  The employer identification number (EIN)
  • Amounts and dates of all wage, annuity, and pension payments,
  • Amounts of tips reported to you by employees
  • Records of allocated tips the fair market value of in-kind wages paid
  • Names, addresses, Social Security numbers and occupations of employees and recipients
  • Any employee copies of forms W-2 and forms W-2c returned to you as undeliverable
  • Dates of employment for each employee.

There is a longer list of recommended records to be kept by business owners that can be accessed through the IRS. Be sure to check out the Employer’s Tax Guide for more information about appropriate recordkeeping; also consult local tax attorneys and tax lawyers for resources specific to your jurisdiction. With a little bit of vigilance, you can keep yourself and your business out of tax trouble.


If You Have Misclassified Contractors, This One’s for You

October 10th

One of the stickiest issues surrounding owning a small business is the issue of independent contractors versus employees. The main difference between the two sectors is that an independent contractor is an individual that is retained by a business to do a certain job for certain amount of time. An employee is an individual who is hired by the company to work exclusively for that company for an extended period of time. This may sound like it is a fairly large divide between the two classes of workers, but for some businesses who have long-term contractors, the line between what is considered an employee and what is considered an independent contractor may be confusing, and if you are found to have unpaid taxes, it can lead to trouble with the IRS.

Why Is the IRS Concerned?

Insofar as the IRS is concerned, their main issue is that businesses pay taxes in order to obey tax laws on employees, but the tax laws regarding independent contractors is slightly more complex. Generally speaking, for independent contractors, the contractor is responsible for paying taxes out of a Gross received salary. This is definitely different from employees, where the employer is responsible for paying the taxes and the employee receives a paycheck after the taxes are deducted.

Understanding the difference between independent contractors and employees can be a complex business when it comes to keeping up to date with tax laws. If you need more information regarding your small business and the relationship of the workers that you rely upon, be sure to check out the Employer’s Tax Guide, as well as the Employer Supplemental Tax Guide for more information. In the event that your question is not answered by either one of these documents, you can always contact the IRS directly through their website at www.IRS.gov.  Another good source for information could be a tax attorney or tax lawyer.



The Finer Points of Sick Pay

October 7th

If you happen to own a large enough business, or you can offer your employees some form of sick pay, it is important to pay attention to the particulars in the calculations of sick pay, as they will need to be included in your tax statements to the IRS.  In the event that you undergo an IRS audit, it is of the utmost importance to have this documented. Generally speaking, sick pay is defined as any amount that you pay to an employee due to the fact that the employee is unable to work because of sickness or injury. The amounts that are paid through sick pay may be through your own business or that of a third party.


A third party that ends up paying sick pay may include an employees’ trust or an insurance company. There are also other third parties that can be responsible for sick pay, depending upon the specific requirements of your business.

What Taxes Must Be Paid?

No matter who pays for the sick pay, the payments are still subject to Social Security, Medicare, and Federal Unemployment Taxes. At the end of six calendar months, if the employee is still out on sick leave, sick pay does become exempt from these taxes, and may be used as a tax credit.

If you need more information regarding the current tax situation surrounding sick pay, be sure to visit the IRS website at www.IRS.gov. Specifically, you’ll want to see Publication 15-A, because this is a form that specifically pertains to the tax situation regarding sick pay. Matter who ends up paying for sick pay, generally there are taxes attached. Be sure to keep clean records so that you and the IRS can stay on equal footing, and you will avoid IRS debt and penalties.



Who Must Pay The Federal Unemployment Tax?

October 6th

According to the IRS, there are three litmus tests that function to determine what sort of businesses must pay Federal Unemployment Tax in order to avoid IRS penalties. The three different tests apply to different categories of employees, and each test is separate from the others.

What Are the Tests?

In the event that one of these tests describes your particular situation, you are responsible for paying Federal Unemployment Taxes to any employee that fits within that category during the current calendar year in order to stay in compliance with tax laws.

  • General test. If you pay wages of $1500 or more in any calendar quarter in the 2010 or 2000 level fiscal year, OR if you had one or more employees for at least a part of the day for any 20 or more weeks in either 2010 or 2011.
  • Household employees test. A household employee is defined as anybody who performs household work in a home, club, or fraternity or sorority chapter. You are subject to paying the Federal Unemployment Tax if you paid a total cash wages of $1000 or more to these employees in either 2010 or 2011.
  •  Farmworkers test. If you paid cash wages of $20,000 or more to farmworkers throughout any calendar quarter in 2010 or 2011, OR if you have employed ten or more farmworkers during at least some part of the day throughout the course of 20 or more different weeks in 2009 or 2010

If any of these litmus tests apply to you, you may be swamped with paying Federal Unemployment Tax on these categories of workers during this current calendar year. If you need more information regarding the Federal Unemployment Tax, be sure to check out the IRS’ website at www.IRS.gov.  Also consider hiring the services of a tax lawyer or tax attorney if the situation gets too dire.



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