If you are a small business owner, read the important information below from the IRS that gives details on making your 941 and 944 deposits. Even if you have not done so in the past, now is the time to start making those tax deposits on time. Save your business money and yourself stress by taking care of your payroll taxes promptly and accurately. Read on to learn all the details you need to know.
The tax liability on a Form 941 (PDF), Employer's Quarterly Federal Tax Return, and Form 944, Employer's Annual Federal Tax Return, includes your employees' withheld Federal income tax, social security tax, and Medicare tax, and your share of social security and Medicare tax. If you are required to file Form 941 and you accumulate a liability for these taxes of less than $2,500 per quarter, you may submit payment of taxes due with your timely filed return. Similarly, if you are required to file Form 944 and you accumulate a liability for these taxes of less than $2,500 a year, you may submit payment of taxes due with your timely filed return. However, if you accumulate a liability for these taxes of $2,500 or more per quarter, and you are required to file Form 941, you generally must deposit your taxes periodically according to your deposit schedule (i.e., monthly or semiweekly). You generally must make tax deposits in the same manner if you are required to file the annual Form 944 and accumulate a liability of $2,500 or more per year. Some exceptions apply, as discussed below.
The withheld federal income tax and social security and Medicare taxes are added together on Form 941 and Form 944. If you made advance earned income credit payments to employees, these payments are subtracted from your total taxes. Refer to Topic 754 for more information on the advance earned income credit. The resulting net tax is the amount of employment taxes you owe for the quarter (Form 941) or the year (Form 944).
Form 944, designed to reduce the burden on small employers, is an annual employment tax return to report social security, Medicare, and withheld federal income taxes. Employers who file Form 944 will file one Form 944 for the year instead of four quarterly Forms 941. Employers cannot file Form 944 unless they are notified by the IRS that they qualify to file this form. If you believe your yearly employment taxes will be $1,000.00 or less for the tax year (approximately annual wages of $4,000 or less), please contact us at 1–800–829–0115 to determine if you are eligible to file Form 944. You should continue to file Form 941 quarterly until you receive written notification from the IRS that your filing requirement has been changed to Form 944 for a particular year.
Even if an employer's employment tax liability exceeds the de minimus deposit amount of less than $2,500 per quarter (for Form 941 filers) or per year (for Form 944 filers), the employer can make a payment with the return if the employer is a monthly schedule depositor making a payment in accordance with the Accuracy of Deposits Rule (see Publication 15, section 11).
An additional exception applies to Form 944 filers. Even if a Form 944 filer owes employment tax of $2,500 or more for the year, it may pay the fourth quarter employment tax liability with the return if it is less than $2,500, as long as the employment taxes for the first, second, and third quarters were already deposited.
If you are required to deposit your employment taxes, you must deposit them according to one of two deposit schedules, monthly or semiweekly. Which schedule you use for the current calendar year is based on the amount of taxes you reported during the four quarters in your lookback period. For details on your lookback period refer to Chapter 11 of Publication 15, or if you are required to file Form 944, refer to the Instructions for Form 944.
If you reported taxes of $50,000 or less during the lookback period, you are a monthly schedule depositor, and generally must deposit each month's accumulated employment taxes on or before the 15th day of the following month. For example, taxes for January must be deposited by February 15th.
If you reported taxes greater than $50,000 for the lookback period, you are a semiweekly schedule depositor, and generally must deposit your employment taxes on Wednesday or Friday, of each week, based on the following schedule:
1. The employment taxes on payments made to your employees on Wednesday, Thursday, and/or Friday, must be deposited by the following Wednesday.
2. The taxes on payments made to your employees on Saturday, Sunday, Monday, and/or Tuesday, must be deposited by the following Friday.
Semiweekly depositors always have at least 3 banking days to make a deposit. If any of the 3 weekdays after the end of the semiweekly period is a holiday on which banks are closed, you have one additional day to deposit.
Regardless of whether you are a monthly depositor or a semiweekly schedule depositor, if you accumulate taxes of $100,000 or more on any day during a deposit period, you must deposit them on the next banking day. If this happens, you become a semiweekly depositor for the remainder of the calendar year and for the following calendar year.
If any deposit due date falls on a Saturday, Sunday, or legal holiday, the deposit will be considered timely if made by the next banking day.
If you are a new employer, your taxes in the lookback period are considered to be zero for any quarter your business did not exist. Therefore, in the first year of business you are a monthly schedule depositor unless the $100,000 next day deposit rule applies.
Deposits are made either by using the Electronic Federal Tax Payment System (EFTPS), or by making payment to an authorized financial institution with a Form 8109, Federal Tax Deposit Coupon. If you use Form 8109, it is very important that it show the correct employer identification number, name, and type of tax and tax period, as this information is used by the IRS to credit your account. Your check or money order should be made payable to the financial institution where you make your deposit, not to the IRS. There are penalties for depositing late, or for mailing payments directly to the IRS that are required to be deposited, unless you have reasonable cause for doing so.
You must make deposits using EFTPS for all depository tax liabilities for the current year if you made more than $200,000 in aggregate deposits for all types of Federal depository taxes in the year two years before the current year or if you were required to make electronic deposits in the previous year.
If you are required to make electronic deposits through EFTPS and fail to do so, or make your deposit using a paper coupon Form 8109, you may be subject to a 10% penalty. Refer to Section 11 in Publication 15 for rules on depositing taxes.
Even if you do not have to make electronic deposits, you may voluntarily participate in EFTPS. To enroll in EFTPS, call 1–800–555–4477, or to enroll online, visit www.eftps.gov. For general information about EFTPS, call 1–800–829–1040 for individuals or 1–800–829–4933 for businesses.
Refer to Publication 966 (PDF) for Electronic Federal Tax Payment System information and Publication 15, (Circular E), Employer's Tax Guide, for deposit requirements.
Sunday, January 4, 2009
Thursday, January 1, 2009
Independent Contractor vs. Employee
As tax time approaches, your employer may approach you about your status for next year. If you are asked to consider being an independent contractor not an employee, read the info below from the IRS to see which status really applies to your situation. Your employer could just be trying to save employment taxes, while still wanting to treat you in all other ways like an employee.
To determine whether a worker is an independent contractor or an employee under common law, you must examine the relationship between the worker and the business. All evidence of control and independence in this relationship should be considered. The facts that provide this evidence fall into three categories – Behavioral Control, Financial Control, and the Type of Relationship itself.
Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training, or other means.
Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job. This includes:
• The extent to which the worker has unreimbursed business expenses,
• The extent of the worker's investment in the facilities used in performing services,
• The extent to which the worker makes his or her services available to the relevant market,
• How the business pays the worker, and
• The extent to which the worker can realize a profit or incur a loss.
Type of Relationship covers facts that show how the parties perceive their relationship. This includes:
• Written contracts describing the relationship the parties intended to create,
• The extent to which the worker is available to perform services for other, similar businesses,
• Whether the business provides the worker with employee–type benefits, such as insurance, a pension plan, vacation pay, or sick pay,
• The permanency of the relationship, and
• The extent to which services performed by the worker are a key aspect of the regular business of the company.
For more information, refer to Publication 15-A (PDF), Employer's Supplemental Tax Guide, or Publication 1779 (PDF), Independent Contractor or Employee. If you want the IRS to determine whether a specific individual is an independent contractor or an employee, file Form SS-8 (PDF), Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.
To determine whether a worker is an independent contractor or an employee under common law, you must examine the relationship between the worker and the business. All evidence of control and independence in this relationship should be considered. The facts that provide this evidence fall into three categories – Behavioral Control, Financial Control, and the Type of Relationship itself.
Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training, or other means.
Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job. This includes:
• The extent to which the worker has unreimbursed business expenses,
• The extent of the worker's investment in the facilities used in performing services,
• The extent to which the worker makes his or her services available to the relevant market,
• How the business pays the worker, and
• The extent to which the worker can realize a profit or incur a loss.
Type of Relationship covers facts that show how the parties perceive their relationship. This includes:
• Written contracts describing the relationship the parties intended to create,
• The extent to which the worker is available to perform services for other, similar businesses,
• Whether the business provides the worker with employee–type benefits, such as insurance, a pension plan, vacation pay, or sick pay,
• The permanency of the relationship, and
• The extent to which services performed by the worker are a key aspect of the regular business of the company.
For more information, refer to Publication 15-A (PDF), Employer's Supplemental Tax Guide, or Publication 1779 (PDF), Independent Contractor or Employee. If you want the IRS to determine whether a specific individual is an independent contractor or an employee, file Form SS-8 (PDF), Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.
Alaska Permanent Fund Dividend Is Taxable Income
If you are eligible for Alaska’s Permanent Fund Dividend, read the important information below, published by the IRS on the taxability of that income. If you need additional information, visit the IRS website.
SEATTLE — Don’t forget that the Alaska Permanent Fund Dividend (PFD) is taxable income on Federal income tax returns. Be sure to set aside enough to cover your tax bill, or consider making an estimated tax payment when you get your PFD. For more information on how to report the Alaska PFD income on the Federal tax return contact the IRS at 1-(800)-829-1040 or visit the the IRS web site at IRS.gov and input the key words in quotes: "Around the Nation Alaska" in the top right search engine.
The Internal Revenue Service reminds Alaskans that the Alaska PFD (including the one-time addition of the $1,200 Resource Rebate) is taxable income for both adults and children, and must be reported on a Federal income tax return.
Because of the size of the PFD this year, every child under 18 who is a dependent will be required to file a tax return, and will be affected by the “kiddie tax” rules. Many older children may be affected as well.
Special Tax Rules for Children
Special tax rules apply to children under age 18, and — beginning in 2008 — certain older children who receive more than $1,800 of unearned income, including the PFD and Native Corporation Dividends. Some people refer to this as the “kiddie tax.”
Beginning in 2008, the age of children whose unearned income is taxed at their parent’s rate increased. For children under age 18 and certain older children (described below), unearned income over $1,800 is taxed at the parent’s rate. These special tax rules apply to children who meet all of the following conditions:
1. The child had more than $1,800 of unearned income (defined below).
2. The child is required to file a tax return.
3. The child either:
a. Was under age 18 at the end of 2008,
b. Was age 18 at the end of 2008 and did not have earned income that was more
than half of the child’s support, or
c. Was over age 18 and under age 24 at the end of 2008 and was a full-time
student who did not have earned income that was more than half of the child’s
support. (Full-time Student and Support are defined below.)
4. At least one of the child’s parents was alive at the end of 2008.
5. The child does not file a joint return for 2008.
Unearned Income: For this purpose, unearned income includes taxable interest, ordinary dividends (including taxable Native Corporation Dividends), capital gains (including capital gains distributions), rents, royalties, taxable social security benefits, pension and annuity income and income received as the beneficiary of a trust.
Support: Your child’s support includes all amounts spent to provide the child with food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. To figure your child’s support, count support provided by you, your child, and others. However, a scholarship received by your child is not considered support if your child is a full-time student.
Full-time Student: A student is a child who during any part of five calendar months of the year was enrolled as a full-time student at a school, or took a full-time, on-farm training course given by a school or a state, county, or local government agency. A school includes a technical, trade, or mechanical school. It does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet.
SEATTLE — Don’t forget that the Alaska Permanent Fund Dividend (PFD) is taxable income on Federal income tax returns. Be sure to set aside enough to cover your tax bill, or consider making an estimated tax payment when you get your PFD. For more information on how to report the Alaska PFD income on the Federal tax return contact the IRS at 1-(800)-829-1040 or visit the the IRS web site at IRS.gov and input the key words in quotes: "Around the Nation Alaska" in the top right search engine.
The Internal Revenue Service reminds Alaskans that the Alaska PFD (including the one-time addition of the $1,200 Resource Rebate) is taxable income for both adults and children, and must be reported on a Federal income tax return.
Because of the size of the PFD this year, every child under 18 who is a dependent will be required to file a tax return, and will be affected by the “kiddie tax” rules. Many older children may be affected as well.
Special Tax Rules for Children
Special tax rules apply to children under age 18, and — beginning in 2008 — certain older children who receive more than $1,800 of unearned income, including the PFD and Native Corporation Dividends. Some people refer to this as the “kiddie tax.”
Beginning in 2008, the age of children whose unearned income is taxed at their parent’s rate increased. For children under age 18 and certain older children (described below), unearned income over $1,800 is taxed at the parent’s rate. These special tax rules apply to children who meet all of the following conditions:
1. The child had more than $1,800 of unearned income (defined below).
2. The child is required to file a tax return.
3. The child either:
a. Was under age 18 at the end of 2008,
b. Was age 18 at the end of 2008 and did not have earned income that was more
than half of the child’s support, or
c. Was over age 18 and under age 24 at the end of 2008 and was a full-time
student who did not have earned income that was more than half of the child’s
support. (Full-time Student and Support are defined below.)
4. At least one of the child’s parents was alive at the end of 2008.
5. The child does not file a joint return for 2008.
Unearned Income: For this purpose, unearned income includes taxable interest, ordinary dividends (including taxable Native Corporation Dividends), capital gains (including capital gains distributions), rents, royalties, taxable social security benefits, pension and annuity income and income received as the beneficiary of a trust.
Support: Your child’s support includes all amounts spent to provide the child with food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. To figure your child’s support, count support provided by you, your child, and others. However, a scholarship received by your child is not considered support if your child is a full-time student.
Full-time Student: A student is a child who during any part of five calendar months of the year was enrolled as a full-time student at a school, or took a full-time, on-farm training course given by a school or a state, county, or local government agency. A school includes a technical, trade, or mechanical school. It does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet.
Penalty Abatement
If you have received a notice from the IRS for taxes due, it may include penalties and interest. The IRS does not abate interest (unless they made an error), but they do, in some circumstances abate penalties. To have penalties abated on your tax liability you need to request this abatement in writing. You need to state the reasons why you either did not file or pay your taxes on time.
Explain that it was not due to willful neglect, but due to the reasons you will explain. You need to attach documents to substantiate what your reasons are. Keep in mind they will only accept major issues that affected your entire life, not just your taxes. If everything else in your life was handled, and your taxes were the only item you could not take care of, they will not abate penalties.
If you had a death of a loved one, a major illness or addiction that affected all aspects of your life, they may abate the penalties. Be sure to include a timeline of events that shows you life was in turmoil when you taxes were due to be filed or paid.
If you need assistance in handling your abatement, contact an Enrolled Agent.
Wednesday, December 31, 2008
We're Back
If you are a regular reader of my blog and wonder were it has been for a couple of weeks, well, we had technical snafu. We were in the process of changing to new host so I could add cool pictures like the one to left, as well as other features, when somehow, my blog disappeared off the internet and all my previous blogs were lost in the internet black hole. Unfortunately everything was lost, but not to worry, I will be adding plenty on new content for those of you who have tax questions or are looking for information about tax debt and tax issues.
For those of you who have not visited my blog before, I write on tax issues, give updates from the IRS on important tax info and discuss tax resolution and collection procedures. I am an Enrolled Agent and talk to the IRS everyday. I hope you find them interesting and informative.
If you have questions, please leave them as comments and I will try to answer them in an upcoming blog.
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