Vision Payroll

This week’s question comes from Rick, a corporate controller. We received a notification from our state unemployment agency that we may want to make a voluntary payment toward SUTA. Should we make a voluntary additional payment?

Answer: For employers that are in states that use a system that includes contributions made by employers in calculating the unemployment rate, it may be beneficial to make such a contribution. Many such states, but not all, allow employers to make voluntary contributions. Employers should estimate their taxable state unemployment wages for 2009 and multiply that by the difference between the higher rate and the lower rate. That sum should be compared to the required payment. The greater the sum is over the required payment, the more beneficial it is to make the voluntary payment.

For example, assume that taxable SUTA wages (not gross SUTA wages) will be $1,000,000 and that the employer’s rate will decrease by 0.15% if the voluntary payment is made. The estimated savings for 2009 would be $1,500 ($1,000,000 X 0.15%). Any payment greater than $1,500 would not be beneficial for 2009 since the cost would exceed the estimated benefit. Payments significantly less than $1,500 should almost always be made due to the anticipated savings for 2009. As the payment amount approaches $1,500 it becomes less valuable to make the payment because the required outlay must generally be made early in the year.

Voluntary payments are not allowed for FUTA purposes.

Contact Vision Payroll if you have any questions on voluntary additional SUTA payments.

This week’s question comes from Rob, a business owner. I paid all my federal and state unemployment taxes and didn’t lay anyone off. Why is my unemployment rate going up? Answer: Generally, your state unemployment rate is determined by the ratio of your account balance to your covered employment wages for the measurement period.

For example, if the measurement period runs from October 1 to September 30, your account balance as of September 30 is the numerator and the taxable payroll during the year from October 1 to September 30 is the denominator. The resulting fraction is the reserve percentage or ratio. Some states use longer base periods or use an average over a period of years for the denominator.

The account balance generally increases by contributions the employer has paid into SUTA and decreases by benefit claims paid against the employer’s account and solvency assessments, if necessary. The solvency assessment is used to pay benefit claims that are not charged to an employer.

Taxable wages are generally wages paid to covered employees up to the SUTA limit. They should equal the wages on which SUTA taxes were calculated.

Many states use multiple schedules to determine the employer’s unemployment rate. The reserve percentage or ratio is located on the appropriate schedule and an unemployment tax rate it assigned. The higher the reserve percentage or ratio within the parameters of the schedule, the lower the unemployment rate for the upcoming year. Many states have moved to a schedule with higher overall rates for 2009 since their overall statewide reserve percentage or ratio is lower. Therefore, even employers with lower reserve percentages or ratios can have higher tax rates because of the higher rate schedule.

We recommend you forward Vision Payroll the notice with your 2009 rate as soon as you receive it. Contact Vision Payroll if you have any questions on the determination of your unemployment rate.

This week’s question comes from Scott, a small business owner. I have received notification from the Internal Revenue Service (IRS) that I should file Form 944. Should I file Form 944 instead of Form 941? Answer: Employers who are notified that they should file Form 944 must file Form 944 unless they opt out of filing Form 944. In TD 9440, the IRS issued revised “temporary regulations relating to the annual filing of Federal employment tax returns and requirements for employment tax deposits.” These regulations make participation in filing Form 944 voluntary, beginning in 2010. According to Rev. Proc. 2009-13, employers are eligible to opt out in 2009 if they meet one of the following conditions:

1. The employer anticipates that its employment tax liability for tax year 2009 will be more than $1,000; or
2. The employer wants to file electronically quarterly Forms 941 for tax year 2009.

Eligible employers who had previously filed Form 941 or Form 944 must either call the IRS before April 2, 2009 or have written correspondence postmarked no later than March 15, 2009 to opt out of filing the 2009 Form 944.

Businesses newly required to Form 941 or Form 944 have their due dates based on the month their first Form 941 will be due. Telephone calls must therefore be made before April 2, 2009, July 2, 2009, October 2, 2009, or January 2, 2010 if their filing requirement is effective for the first, second, third, or fourth quarter, respectively. Written correspondence must be postmarked no later than the fifteenth of the month prior to the month that the Form 941 is first due. For 2009, the postmark due dates are March 15, 2009, June 15, 2009, September 15, 2009, and December 15, 2009.

As with most federal tax deadlines, any due date that falls on a Saturday, Sunday, or legal holiday is extended to the next day that is not a Saturday, Sunday, or legal holiday. For example, the March 15, 2009 deadline is automatically extended to March 16, 2009.

Whether an employer files Form 941 or Form 944, the deposit rules are generally the same, although “the de minimis deposit amount may be different.”

Contact Vision Payroll if you have any questions on the filing of Form 941 or Form 944 and the related tax deposit requirements.

This week’s question comes from Madeleine, an executive. I’ve averaged about 30% of my pay going toward federal income tax withholding each pay period. This week I had 35% of my pay withheld from my bonus for federal income tax. Why did my federal income tax withholding increase? Answer: In TD 9276, the IRS promulgated regulations covering supplemental wage payments paid by a single employer (or group of employers under common control) that exceeded $1,000,000 to a single employee in a calendar year. The American Jobs Creation Act of 2004 (Public Law 108-357) requires that withholding from such wages be at a flat rate of 35%. The regulations provide rules for determining whether wages should be considered regular wages or supplemental wages for withholding purposes. Contact Vision Payroll if you have any questions on TD 9276 and withholding on supplemental wages.

This week’s question comes from Nicole, an office manager. Our business is formed as two entities, an S corporation and a partnership. We’re located in Massachusetts. Do I now need to withhold income tax on distributions to partners and S corporation shareholders? Answer: All pass-through entities subject to pass-through withholding in Massachusetts must withhold unless the partner or shareholder to whom the distribution is paid has timely filed Form PTE-EX. The filing of Form PTE-EX with the entity certifies that the member is exempt from pass-through withholding. The deadline for filing Form PTE-EX the last day of the fourth month of the entity’s taxable year or within thirty days of the day that the member joins the entity, whichever is later. The form is now valid until changing circumstances invalidate the form, in which case the member must notify the entity within thirty days. Vision Payroll is ready to help its clients deal with the changes required by this new law. Please call us for our recommendations for a smooth transition to the new withholding requirements.

This week’s question comes from Carl, a partner in a partnership. I am an investor in a partnership and own a 25% interest as a partner. I also work for the business that the partnership owns. Can I be paid through payroll, have tax withheld, and receive a Form W-2? Answer: It is long established in tax law that partners in a partnership are not employees of the partnership. In Rev. Rul. 69-184, 1969-1 CB 256, the Internal Revenue Service confirmed this, stating:

Remuneration received by a partner from the partnership is not “wages” with respect to “employment” and therefore is not subject to the taxes imposed by the Federal Insurance Contributions Act and the Federal Unemployment Tax Act. Such remuneration also is not subject to Federal income tax withholding.

Partners cannot receive a Form W-2 from the partnership. They may receive a draw from the partnership and must pay quarterly federal estimated tax payments to cover the amount of federal income tax and self-employment tax liability they will have, unless covered by withholding on other income. Vision Payroll can work with you and your CPA to determine an appropriate draw and estimated tax payment schedule. You can then receive the draw as a check or direct deposit with each payroll and schedule appropriate deductions such as retirement plan contributions. Contact Vision Payroll today to get started.

This week’s question comes from Janet, a sales rep: I read before that the wage base for 2008 was $102,000. I’ve made over $104,000, but FICA tax is still being withheld. Why didn’t my FICA tax deduction stop? Answer: Even though your gross wages are over $104,000, the FICA tax deduction doesn’t stop until FICA taxable wages reach $102,000 and FICA tax withheld reaches $6,324. Some wage deductions such as cafeteria or §125 plan deductions reduce the amount of FICA taxable wages. So, even though your gross earnings are over $102,000, FICA tax must be withheld until the maximum withholding is reached. Contact Vision Payroll if you have any questions on the Social Security wage base.

This week’s question comes from Becca, a sales rep: I read before that the wage base for 2008 was $102,000. I made over $90,000 at my first job and have earned more than $30,000 at my new job. Why didn’t my FICA tax deduction stop? Answer: The wage base generally must be applied on an employer-by employer basis. Regardless of how much you’ve earned at previous jobs, most employers must withhold the maximum tax again. There are some exceptions, including successor employers and common paymasters, but the general rule is you must reach the maximum again at your second job to stop the withholding. Even though the employer must pay the full tax and withhold it from the employee, amounts withheld above the maximum can be claimed as a credit on Form 1040. For tax year 2008, enter any excess FICA tax withheld by two or more employers on line 65 of Form 1040 and reduce your balance due or increase your overpayment by the amount of the excess. Contact Vision Payroll if you have any questions on the Social Security wage base.

This week’s question comes from Matt, a sales rep: Every week there’s a deduction for FICA on my paycheck. Two weeks ago, the deduction was lower than usual and last week there was no deduction at all. Why did my FICA tax deduction stop? Answer: The FICA (Federal Insurance Contributions Act) tax is related to Social Security’s Old-Age, Survivors, and Disability Insurance (OASDI) program, commonly called Social Security. Under this program, there is a cap on benefits based on a maximum earnings level, called the wage base. For 2008, the wage base is $102,000 and for 2009 it is scheduled to increase to $106,800. At retirement, using current law, benefit calculations are limited to earnings at or below the wage base. Therefore, no tax is withheld on earnings above the wage base, effectively limiting the maximum withholding to $6,324 in 2008. Contact Vision Payroll if you have any questions on the Social Security wage base.

This week’s question comes from Larry, a business owner. I own a business in Indiana. I was late making a federal tax deposit due to the storms. Is there anything I can do? Answer: On September 12, 2008, the federal government declared Clark, Crawford, Dearborn, Floyd, Franklin, Gibson, Harrison, Jackson, Jasper, Jefferson, Jennings, Knox, Lake, LaPorte, Lawrence, Martin, Ohio, Orange, Perry, Pike, Porter, Posey, Ripley, Scott, Spencer, St. Joseph, Switzerland, Vanderburgh, Warrick, and Washington counties presidential disaster areas qualifying for individual assistance. Therefore, the IRS will waive the failure to deposit penalties for employment and excise deposits due on or after September 12, 2008 and on or before September 29, 2008 as long as the deposits were made by September 29, 2008. Also, the IRS is postponing until November 12, 2008 certain deadlines for return filing, tax payment and certain other time-sensitive acts otherwise due between September 12, 2008 and November 12, 2008. Contact Vision Payroll if you have been affected by these storms and need details on the postponements.