Posted on Mon, Feb 06, 2012
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Ever feel like it's an uphill climb to find answers for your business?
You could spend your day digging up the latest payroll rates and limits, such as the Social Security taxable wage base and the FUTA tax rate.
And if you offer a health or retirement plan or reimburse employees for expenses, you need:
- the current annual contribution limits for HSAs,
- the annual limit for a defined contribution plan, or
- the business mileage rate or per diem rates for high-cost locations.
Don’t waste precious time searching for answers: we have them.
Employer Rates and Limits for 2012, a free resource from Patriot Software, gathers common payroll and employment benefit rates and limits for 2010-2012. Print out the chart and keep it as a desk reference: free from Patriot Software.
Posted on Tue, Jan 31, 2012
January 31 is an important deadline for many small business owners. It's the due date for the following items:
- W-2s. Postmark and mail W-2s by today. Double-check the employee addresses, and be on the lookout for missing information. Form W-3, the Transmittal of Wage and Tax Statements, is due by Feb. 29, 2012.
- 1099-MISC. Furnish 1099-MISC to any contractors you paid $600 or more. Form 1096, the transmittal of 1099s to the IRS, is due Feb. 28, 2012.
- Form 941. File the Employer's Quarterly Federal Tax Return for the fourth quarter, and pay any non-deposited income tax, Social Security and Medicare payroll taxes.
- Form 940. File the Employer's Annual Federal Unemployment (FUTA) Tax Return, and pay any tax due through December 2011. (Consult Frequently Asked Questions about the 2011 Form 940 for more info.)
Need to remember more payroll deadlines?
Download our free calendar:
This content is provided by Patriot Software, Inc., developer of online payroll software and other small business software solutions for small businesses. For more information, visit www.PatriotSoftware.com.
Posted on Tue, Jan 31, 2012
Draw against commission salary systems can be a great way to keep a sales force motivated and a great way for the employees to maintain their living standards. The business of sales can be unpredictable and the draw against commission system can be a tool that limits this uncertainty.
A common practice is for the employee to take a set draw each pay period. Then, at the end of the pay period the draw is deducted from their sales commissions and returned to the company. If an employee draws $500.00 per week, then their commissions must be at least $2,000.00 that month to cover their draw. If their commissions are less than $2,000.00 the remaining draw amount will start to accrue as a debt to their company. If their commissions exceed $2,000.00 that month, then they would receive the commission amount over the $2,000.00 draw.
Employers need to be able to recoup the draws they give in order to maintain and grow their profit margins. At the same time the employees need to meet or exceed their projected sales to avoid accumulating significant debt with the employer. The terms of the agreement should be reviewed carefully with mutual options to renegotiate at set times during the professional relationship. Of course, the particulars are governed by federal and state laws.
The
United States Department of Labor is great place to start. Some states require a company to guarantee an employee's right to at least minimum wage regardless of commission, so researching the labor department for the appropriate state can provide guidance referring to state laws and practices. Employers may find subscribing to the
Society for Human Resource Management helpful as well.
The tax treatment of income earned by draws against commission may vary from state to state. Some states may have adopted the federal government's practice of taxing the employee on their draw against commission as well as their actual commission which would all be reflected on the employee’s W-2. In the case that Federal income tax is not withheld by the employer, then they must to file a
1099-MISC .
Before instituting a policy allowing employees to draw against commission, consult with a lawyer experienced in the labor laws of your state.
Posted on Tue, Jan 31, 2012
While gross wages are typically what an individual refers to when defining personal income,
take-home pay determines how much money an employee has to spend from one paycheck to the next. From the employer’s perspective, take-home pay refers to the money paid directly to employees, and gross pay is the total amount of money that must be paid to cover labor expenses.
Because take-home pay is a determined by subtracting deductions from gross pay, it’s helpful to understand the different types of deductions. Standard deductions include:
- Federal income tax
- Social Security taxes, referred to as FICA-OASDI (Federal Insurance Contributions Act – Old-Age, Survivors and Disability Insurance)
- Medicare taxes, also known as FICA-HI (Hospital Insurance)
- State and local income taxes
Depending on the type of benefits an employer may offer and an employee elects, additional deductions taken from a paycheck and impacting take-home pay can include:
- 401(k) or other retirement contributions
- Premiums for medical, dental or life insurance
- Contributions to flexible spending accounts or health savings accounts
- Any other obligation that may be deducted from an employee’s earnings (e.g., an employee’s portion of costs for a work-sponsored mobile phone plan)
Regardless of the number of deductions, federal taxes typically consume the largest portion of deductions. To help determine exactly how much federal income tax will be withheld from each paycheck, new employees should complete an
IRS Form W-4 for their employer. Employers can also refer to
Publication 15, (Circular E), Employer’s Tax Guide, which outlines their responsibilities for filing and reporting tax information. This guide also includes tables that outline federal income tax withholding thresholds.
When considering the overall salary or pay rate for a job, it is important for employees to remember—and employers to remind—that total compensation includes more than just the money an employee takes home at the end of a pay period. Many of the benefits that appear as deductions on a paycheck, including health insurance and the opportunity to contribute to a retirement account, are part of the total payment package.
Posted on Thu, Jan 26, 2012
Make sure you have the right postage before you mail your W-2 forms this year, as the price has officially gone up.
As of Jan. 22, 2012, it now costs $0.45 to mail a first-class letter weighing up to 1 ounce. The price for each additional ounce remains at $0.20. The one-cent price hike is the first increase on the first-class stamp since 2009.
Forever® stamps that you may already have remain valid, but the price to purchase new Forever® stamps is now $0.45.
If you don't have a postal scale to weigh your letters, the rule of thumb is no more than three sheets of paper per standard envelope. But to be sure you have the proper postage, take your items to be weighed at the post office.
The U.S. Postal Service has also raised prices on mailing other types of items, including postcards. For more information, refer to the Postal Service website.
This content has been provided by Patriot Software, developer of online business software solutions including payroll software. For more information, visit www.PatriotSoftware.com.
Posted on Tue, Jan 24, 2012
Although the combined tax rate for Social Security Taxes and Medicare Taxes remained 15.3 percent from 2011 to 2012, the actual rate to be collected and paid remains dynamic due to passage of the Temporary Payroll Tax Cut Continuation Act of 2011, which temporarily extends by two months the 2-percent tax cut previously granted to employees. As the Internal Revenue Service noted in December 23, 2011, press release, “Employers should implement the new payroll tax rate as soon as possible in 2012, but not later than Jan. 31, 2012. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment to workers’ pay as soon as possible but not later than March 31, 2012.”
To further complicate matters for those who must plan for payroll accounting, Congress is currently debating a “full-year extension of the payroll-tax cut” for the remainder of 2012. It is therefore essential that employers stay up-to-date with payroll tax changes, including those represented by such temporary measures as the Temporary Payroll Tax Cut Continuation Act of 2011. Small business owners should rely on a professional, comprehensive payroll solution to stay up-to-date with these and other payroll tax changes.
Posted on Thu, Jan 19, 2012
Fringe benefits are benefits that employers give employees outside of their stated cash wages.
Employers should know which benefits they plan to offer will be most valuable to employees. Providing benefits that employees value will help keep employees content. Benefits also affect the wages employees are willing to work for. For example, some employees may accept lower wages from an employer who provides health and dental coverage than an employer who does not provide any benefits. Employees who travel for work will greatly appreciate transportation benefits. Sometimes, employers can save money by offering excellent benefits instead of high wages. Other times, benefits end up costing the employer a large sum of money. One drawback to providing benefits is that the cost of some benefits can rise annually, especially the cost of health insurance.
Employers should know which benefits are taxable and nontaxable, because this information is necessary to properly calculate payroll. This knowledge will also make it easier to fill out required W-2 forms. It can also help employers choose which benefits to offer employees. Employees will often be extra appreciative of benefits for which they do not have to pay taxes on.
Some examples of taxable benefits include:
- Cash bonuses
- Employer-provided vehicles
- Some graduate-level educational assistance
Examples of nontaxable benefits include:
- Most health benefits
- Employer-owned or employer-leased athletic facilities
- Retirement planning services
- Meals
- Most employee discounts
Partially-taxable benefits
Some benefits are exempt from taxes up to certain amounts. For example, up to $5,250 per year in education assistance is exempt. Similarly, dependent care assistance is usually exempt up to $5,000. Employees will have to pay taxes on benefit values greater than partially-exempt amounts.
Cafeteria Plans
A common way to ensure that employees get benefits they value is for employers to offer a Section 125 plan, commonly called a "cafeteria plan". Cafeteria plans allow employees to choose between benefits and extra pay, so they can have cash instead of benefits they do not want. Cafeteria plans allow employees to make more decisions for themselves. For example, an employee with a cafeteria plan option could either get health insurance through work or get extra wages in lieu of health insurance. With this type of plan, an employee who does not like the work-selected insurance package has the opportunity to use the extra cash to purchase his own insurance or to spend the money elsewhere.
Benefits that employers may include in a cafeteria plan include:
- Health benefits
- Accident benefits
- Adoption assistance
- Group-term life insurance
- Health savings accounts
- Dependent care assistance
Many other types of fringe benefits, such as employee discounts, meals, transportation, educational assistance and athletic facilities, cannot be part of a cafeteria plan.
For more complete descriptions of which benefits are and aren't taxable, look at the Employer's Tax Guide to Fringe Benefits published by the IRS.
Posted on Thu, Jan 19, 2012
A W-2 is a required tax form that employers send to employees and the IRS at after the year ends. Employees then use information on the W-2 form to fill out their income tax forms.
On the W-2 form, the employer inputs information about the employee's earnings and tax payments from the previous year. The employee uses this information about income and taxes paid when filing taxes, and the IRS also gets a copy to ensure the correctness of filed tax forms.
The 2012 form includes the following boxes:
- a: Employee's Social Security number
- b: Employer identification number (EIN)
- c: Employer's name, address and ZIP code
- d: Control number
- e: Employee's first name, initial, last name and suffix
- f: Employee's address and ZIP code
- 1: Wages, tips and other compensation (total from the previous tax year)
- 2: Federal income tax withheld
- 3: Social security wages
- 4: Social security tax withheld
- 5: Medicare wages and tips
- 6: Medicare tax withheld
- 7: Social security tips
- 8: Allocated tips
- 9: Blank
- 10: Dependent care benefits
- 11: Nonqualified plans
- 12 (Sections a-d): Deferrals
- 13: Check-boxes for statutory employee, retirement plan and third-party sick pay
- 14: Other
- 15: State and employer's state ID number
- 16: State wages, tips, etc.
- 17: State income tax
- 18: Local wages, tips, etc.
- 19: Local income tax
- 20: Locality name
These boxes can change, depending on current legislation. Some of these boxes may be left blank by the employer if they are not relevant to the specific employee. For example, the "Allocated tips" box may be left blank for an employee who did not earn tips. Boxes 18 and 19 might also be left blank for employees whose local areas do not collect taxes.
Timeline
For work done between January 1 and December 31 of any given year, the employer is legally required to send out W-2 forms by January 31 of the next year. This deadline gives employees plenty of time to file their taxes by the April income tax deadline.
Exceptions
There are some exceptions to typical W-2 requirements:
- In some situations, an employer can file for an extension and send out the form later than January 31.
- Self-employed individuals and independent contractors do not receive this form each year. Only wage and salary employees must receive this form. If an employer hires a self-employed contract worker for a specific project, the employer will probably have to send the contract worker and the IRS a 1099 form instead.
Form Help
Today, many employers use payroll software programs that make it possible to print W-2 forms on IRS-required paper supply on the employer's desktop printer. Many bookkeeping programs have options to help fill out required tax forms, and Social Security also provides filing instructions and free software to help check the correctness of information on the forms.
If the task of filling out these forms for employees seems daunting, check out the free help that Social Security provides or look into a bookkeeping program to make the task easier. Employees who need help using W-2 forms to fill out tax forms can also find free or inexpensive software programs to use.
Posted on Thu, Jan 19, 2012
Mistakes on Form W-2 and W-3 can result in a no-match letter from Social Security or other notifications, as well as fines. Carefully review your W-2s before you present them to your employees, and look out for these common errors.
Incorrect Format
- Using the wrong kind of paper. You can purchase the official W-2/W-3 paper from an office supply store, select an acceptable substitute as listed in IRS Pub. 1141, or choose electronic filing.
- Downloading the W-2 or W-3 form and printing directly from the IRS site. The W-2/W-3 form is displayed on the IRS site for information only.
- Using ink that is too light to be read by SSA scanners. Use black ink in 12-point Courier font. Other ink colors cannot be read by the machines.
- Handwriting your forms. The SSA scanners must be able to read the font.
- Using an outdated W-2 form. The form changes from year to year. For reporting 2011 wages, use the 2011 form and instructions.
- Using dollar signs ($) in the money fields.
- Omitting the decimal point and cents from numerical entries. The amounts must be expressed like this: 00000.00.
Incorrect or Missing Business Information
- Using incorrect or missing (EIN) Employer Identification numbers or digits (federal, state, or local). The federal EIN number is expressed in the following format: XX-XXXXXXX. Use the dash to separate the numbers, which indicates that this is an EIN.
Incorrect or Missing Employee Information
- Using titles, abbreviations, nicknames, or shortened forms of names in the Name Fields. Include the employee’s legal name exactly as it is listed in your records. For example, using “Nick” instead of “Nicholas” may cause the form to be flagged.
- Using the wrong name. Employees may forget to notify you when their name changes. An employee must contact Social Security to go through the official name-change process. Using the wrong name can result in a no-match letter from the SSA.
- Using an incorrect Social Security Number. Double-check the SSN against the W-4 that your employee completed when hired. Look for missing numbers or digits for all employees. The SSN should be expressed in the following format: XXX-XX-XXXX. Be sure to use the dashes, which indicates that this is a SSN.
Improperly Completing Required Fields
- Failing to complete the “Retirement Plan” block of Form W-2.
- Omitting or using incorrect figures for Medicare Wages & Tips.
- Having missing codes or labels in box 12 or 14 (if applicable).
- Using invalid IRS codes for box 12 (if applicable).
Missing Deadlines
- Mailing W-2s late. Postmark employee W-2s by January 31, 2012. This gives employees enough time to check for errors.
- Forgetting about the W-3. Submit the W-3 Transmittal of Wages and copies of the W-2 to the SSA by Feb. 29, 2012. The deadline for electronically filing the W/2-W-3 with the SSA is April 2, 2012.
For more information, consult these resources:
Internal Revenue Service
2011 IRS Instructions for Forms W-2 and W-3
Social Security Administration, Business Services Online
Employer W-2 Filing Instructions & Information
Articles from Patriot Software, Inc.
What is a W-2?
Reissuing a W-2 to an Employee
Correcting W-2s for Employees
What to Do if an Employee's W-2 Comes Back Undeliverable?
This content has been provided by Patriot Software, Inc., developer of online payroll software and other small business software solutions for American employers. For more information, visit www.PatriotSoftware.com.
Posted on Tue, Jan 17, 2012
What is Form 940?
Form 940 is the Employer's Annual Federal Unemployment (FUTA) Tax Return.
What is FUTA?Unemployment funding consists of two parts: the federal unemployment program (FUTA), and the program for your state (SUTA). Employers pay both taxes. For more information, read
“What is FUTA Tax?”
Do I have to file Form 940?
According to the IRS, you must file this form if:
- You paid employees $1,500 or more in any quarter during 2010 or 2011, or
- You have one or more employees on your payroll for a part of the day in 20 or more separate weeks in 2010 or 2011.
Where can I find the 2011 Form 940?You can find the
940 form on the IRS website.
How do I fill out the 940?You will need the following info:
- Your EIN and business contact info
- Total payments to all employees
You can type your information directly into the 940 form, which is a PDF format, and print it out. You can also print it out first and type your information using 12-point Courier font. Refer to the
940 instructions for more help.
Where do I send the completed 940?That depends on your state, and whether you will be sending a payment. For the list of IRS addresses, consult page 2 of the
940 instructions. You can also file and pay online. Visit
IRS.gov for more information.
When is the 940 for 2011 due?The 940 form for 2011 is due Jan. 31, 2012. However, if you paid all FUTA tax when it was due, your filing deadline is Feb. 10, 2012. (For more deadlines, download our free calendar,
"Important Tax Dates for 2012.”)
What is the FUTA tax rate?
For the first half of the year, employers paid 6.2% (.062) tax on the first $7,000 paid to each employee for the calendar year. After June 30, a FUTA surtax rate expired, dropping the rate to 6.0% (.060).
Employers also get a credit for amounts they pay for state (SUTA) unemployment tax. However, many states have borrowed unemployment funds from the federal program and have not repaid their debt. In those states, the credit has been reduced.
What are FUTA credit reduction states?
Employers receive a FUTA credit for amounts they pay into the state fund. However, in the last few years, certain states hit hard by unemployment have borrowed money from the federal fund to pay benefits to unemployed workers in their state. Those states include: Arkansas, California, Connecticut, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, North Carolina, New Jersey, Nevada, New York, Ohio, Pennsylvania, Rhode Island, Virginia, Wisconsin, and the U.S. Virgin Islands.
If you were required to pay state unemployment tax in any of these states, you must fill out
Schedule A (Form 940) for 2011, and may be subject to a FUTA credit reduction (meaning more tax may be due.)
This content has been provided by Patriot Software, Inc., developer of small business software solutions, including payroll software as well as a payroll tax filing service. For more information, visit www.PatriotSoftware.com.