Section 6 Witholding taxes Flashcards
*What is the principle of Constructive Payment?
Employers must withhold federal income tax, social security tax, and medicare tax when the employee is actually or Constructively paid.
An Employee is considered to be paid wages When the wages have been made available to the employee without “substancial limitation or restrictions”
Are paychecks sent through mail “contructively paid”?
No, the wages are not available until the check is delivered.
Regardless of the date printed on the check, the date of constructive payment is when employer’s withholding and deposit obligations are triggered.
What is the purpose of Social security number/SSN?
- to establish an account for individual for posting income for receiving social security retirement benefits
- Identification number used by IRS
- Indentification when reports of wages paid and taxes withheld are made to social security administration IRS
How many digits does SSN number have?
9 digits
Format:
000-00-0000
What is the policy for SSN and entering in Records?
- Employers must enter each new employee’s name and SSN into its records exactly as shown on the SSN card
- Employees are required to show their social security card on the first day of work if it is available
- If an employee does not produce a SSN card on the first day of work, the employer must ask to see it
- If the employee does not hava SSN card: The employer must tell the employee that he/she is required to file an applicate with the SSA
*Where to get SSN?
Submit Form SS-5, application for SSN card to social security administration (
Employer should keepi a stock of SS-5 for new employees who do not have a SSN card
How does employer verify SSNs?
Internet verification
- through the social security number verification service (SSNVS)
- Available at WWW. SSA.Gov
- Immediate response for up to 10 SSNS, next business day for files up to 250,000
What is another name for Form W4?
Employee’s Withholdings Allowance Certificate
What is W4 information used for?
W-4 information is used to calcualte the correct amount of FIT to withhold
For each withholding allowance claimed, the employee reduces the amount of wages subject to federal income tax withholdings
If an employee does not provide an orginal, complete, valid, signed W-4 consider him/her single with 0 withholdings
When must newly hired employees sumbit W4?
On or before the fist day of work
Within how many days must amended W-4s be submitted after a DECREASE in the number or allowances
10 days
Within how many days must amended W-4 be submitted after a INCREASE in allowances?
any time
When is the W4 election effective?
The first payroll period ending after the form is filed
An amended W-4 no later than the beginning of the first payroll period ending on or after 30th day after the form is filed.
How many years must employers retain a copy of employees W4?
To be kept on file for at least 4 years since the last return was filed.
When should employers submit W-4 to the IRS?
Only if the IRS request it in writing
What is a W4-P form?
Withholdings certificate for Pension or annuity payments.
for Retirees
What is a W-4S form?
Request for Federal Income tax withholidngs from sick pay
-When being paid by a 3rd party insurer
What are other alternative withholdings methods for Withholding FIT?
Annualized wages
- Based on annual payroll period than divided among the actual payroll periods
Average estimated wages
-Based on employees estimated wages during a quarter
Cumulative wages
- Useful for adjusting withholdings amounts for employees who wage payments are inconsistently high or low
Part-year employment
-Reduces withholdings for employees who work only during part of calendar year on a seasonal basis or because they have been unemployed
other alternatives
What are supplemential wage payments?
Payments that are not part of the employee’s ordinary wages (ex bounus)
What are the rules for withholding Federal income tax for suplemental wages?
When payments are combined (ordinary wages & bounus) and amounts of each are not clearly indicated.
-FIT must be withheld as if all were regular paymenst
When a supplemental payment is paid seperately or is clearly indicated
-Flat withholding rate
(FIT may be withheld at 25% unless totla of supplemental wages to the employee is greater than $1million)
Aggregate method
-an option for employers
-must be used if the employee had no FIT withheld on the most recent paycheck, due to allowances
(more beneficial form employee)
Are distributions from an employers retirement or deferred compensation plan subject to federal income tax?
yes
What are methods and ruls for withholding federal income tax for pension and annuities?
Method of withholding depends on the type of payment
-periodic or nonperiodic
The amount of withholding cannot exceed the amount of money distributed plus the value of any property distributed
No withholdings if distribution consist soley of the employers securities and up to $200 in case representing fractional shares.
(Pension and Annuities)
What are periodic payments?
payments made over a period of more than one year.
When is Federal income tax withheld for periodic pension/annuities payments?
Withhold FIT as if payments were wages.
The payroll period is the frequency of the payments.
Recipients can submit W-4p. If not W-4P calculate as if recipient claimed married with 3 allowances.
Restrictions on right to refuse withholdings if recipients:
-has payments mailed outside the U.S.
Has not given a payer resident address for mailing: or
-Has not given SSN, or the IRS has told the payer the SSN provided is inaccurate
