1. Kathy Mizejewski, CPP GBA
Withholding Taxes
Kathy Mizejewski, CPP GBA
February 11, 2017
Phone:

2. Constructive Payment of Wages 6-2
Wages made available to EE Without “substantial limitation or restriction”
Employer makes payment and Wages become available to EE = constructive payment:
Cash – Paid to EE
Available at office – To Pick Up
Direct deposit – EE Account Credited
Mail – Check Delivered to Home

3. Social Security Numbers 6-5
SSN Verification>
Internet Verification Process - Online–
Social Security Number Verification Service (SSNVS)
Registration required
Register to use SSNVS at:
Request access and activation code from BSO homepage
10 EE’s per screen (immediate results), or
up to 250,000 per file submitted – results next business day. Must register first.

4. Social Security Numbers 6-6
SSN Verification>
Effective September 2011, SSA stopped using a person’s gender as part of the verification process.
Each SSN sent to the SSA through the SSNVS will be returned with 1 of 6 verification codes – see P Only the last 4 digits of the will be returned if the SSN matches the SSA’s database
SSN is required – even if there is no withholding

5. Social Security Numbers 6-7
Name changes (Marriage, divorce)
Employee should promptly complete Form SS Application for Social Security Number (New or Change) and submit to SSA. Request form by calling SSA at 800–772–1213 or download from
Employer should refuse to make name change until EE provides new SS card with new name

6. Form W-4 6-11 Employee Withholding Allowance Certificate
Original, complete, valid, signed
Single-zero, if no W-4 on file
Before first day of work
Within 10 days after decrease in # of withholding (divorce, death, life event, etc.)
Effective W4-Form
New EE- first payroll period ending after filing
Current EE - first payroll ending 30 days after filing

7. Form W-4 6-10 Employee Withholding Allowance Certificate
Exempt if:
Employee had no liability in prior year
Expects no liability in current year
Not Exempt if:
EE can be claimed as a dependent on another person’s return
Income >$1,050 which includes >$350 in non-wage income (e.g. interest and dividends)
Exemption effective for one year only - must re-file each year - by February 15th of next year (15th is a holiday or week-end, the next business day)

8. Form W-4 6-11 Employee Withholding Allowance Certificate
Invalid W-4
Altered in Any Way
Strike outs or Changes to Form
Additions - Written in – Not Allowed
Invalid: (Must be allowances + $)
NO - Flat Dollar Amount Only
NO - Percentage Only
False Info on Form – Invalidates Form

9. Form W-4 6-12 Employee Withholding Allowance Certificate
Perjury Statement – Beginning 2005
Employee Examines & Acknowledges all Information on W-4 Form is Correct:
Allowances
Social Security Number
Exemptions
Name, Address, Marital Status

10. Form W-4 6-12 Employee Withholding Allowance Certificate
Submit copy of W-4 to IRS
Only upon written notice to Employer from IRS
W-4’s Sent to IRS – EE Withholding:
Withhold based on W-4 on file until notified by IRS
IRS Lock-In-Letter will specify maximum number of exemptions employee can claim
ER must give EE copy of IRS notice

11. Form W-4 6-10 Employee Withholding Allowance Certificate

12. Form W-4 6-10 Employee Withholding Allowance Certificate

13. Form W-4 6-14 Employee Withholding Allowance Certificate
Retention - 4 years after date of last return filed, using info on the W-4
Successor / Predecessor
Standard procedure – Predecessor reports and continues to maintain W-4’s
Alternate procedure – Successor reports and maintains W-4’s

14. Form W-4 6-15 Employee Withholding Allowance Certificate
W-4 - Electronic filing – Must meet requirement of Paper W-4 Form filing with perjury statement and signature
W-4 - Also used for New Hire Reporting for Child Support
With additional information such as Employer Name, Address and EIN
Aids Fed and States to increase Child Support withholding

15. Form W-4P and W-4S 6-16 Form W-4P - Pension Form W-4S - Sick Pay
Withholding Certificate for Pension or Annuity Payments – Retirees must complete
Form W-4S - Sick Pay
Submit for Federal Income Tax W/H From Sick Pay (Non Job Related Sick)
3rd Party Sick Pay – No withholding unless W-4 filed by EE. Flat dollar amount only

16. Form W-4 6-16 State Withholding Certificates
More than 40 States have Withholding Tax and require withholding from wages
Approximately 50% will accept Federal W-4 Form – others required their own Withholding Certificate (Table 6.1, p. 6-18)

17. Federal Withholding Methods 6-18
Useful link:
- free paycheck calculation – registration required
IRS Withholding Calculator
Wage Bracket method
Percentage method
Supplemental
Annualized
Cumulative

18. Federal Withholding Methods Wage Bracket Method 6-19
Tables issued by IRS in Publication 15, Circular E, Employers Tax Guide
Based on Employer pay period or frequency
Two tables for each payroll period
Married, Single
Pay periods
Weekly, Biweekly, Semimonthly, Monthly, Quarterly, Semiannual, Annual or Daily/Misc.

19. Federal Withholding Methods Wage Bracket Method 6-19
Daily or Miscellaneous
(1) Number of days in that Misc period – Not the Payroll Period (Includes Sat, Sun, Holiday)
(2) Daily wage rate (Taxable Wage / # of days)
(3) Daily withholding rate (Per Tables in Circular E)
Multiply daily withholding rate (3) by number of days (1) and withhold from Taxable Wages

20. Federal Withholding Methods Wage Bracket Method 6-21
Payments above max table amount – use Percentage Method
Payments equal to bracket amount – use next higher wage bracket
More than 10 allowances :
Treat as if EE is claiming only 10 allowances (may result in over withholding), or
Multiply # of allowances > 10 by value of one allowance for Frequency from Table 6.2 (P 22). Then subtract the result from EE wages subject to Fed W/H. Use this reduced wage amount and the column for 10 allowances to determine the amount of tax to withhold from the taxable wages.

21. Federal Withholding Methods Wage Bracket Method 6-20

22. Federal Withholding Methods Percentage Method 6-21
Automated systems – easily programmed – use Annual
More Flexible
More Unusual Payroll Frequencies
Quarterly, Semiannual, Annual, Daily/Misc

23. Federal Withholding Methods Allowance Table 6-22
2015 Payroll Period - One Allowance > $4,000
Weekly x 52 = 4,000
Biweekly x 26 = 4,000
Semimonthly x 24 = 4,000
Monthly x 12 = 4,000
Quarterly , x 4 = 4,000
Semiannually , x 2 = 4,000
Annually ,000.00
Daily or Misc

24. Federal Withholding Methods Bi-Weekly Percentage Method 6-22

25. Federal Withholding Methods Percentage Method 6-22
Example using 2016 biweekly % table:
Harvey’s biweekly taxable compensation is $2, He is married and claims 3 allowances – Ex. 6-22
$ x = $
$2, $ = $1,832.60
$1, $ 1, = $
$ x 15% = $
$ $ = $

26. Federal Withholding Methods Alternative Methods 6-23/24
Annualized wages
Calculate on annual payroll period
Used by automated systems
Cumulative wages – Inconsistent $$
Commissions
Bonuses
Employee must request in writing
Same frequency for entire year

27. Federal Withholding Methods Alternative Methods 6-23/24
Average estimated wages
Tipped employees
Partial -year employment
Seasonal, unemployed
Request in writing-expires at year end
Term of Continuous employment

28. Federal Withholding 6-25/26 Supplemental Wage Payments
Any Wages that are not Regular Wages
Paid at same time as regular or any other time
Supplemental Wages Include:
Reported Tips, Overtime Pay, Bonuses, Back Pay, Commissions, Expense Allowance, Non Qualified Deferred Comp, Non-cash Fringe, 3rd Party Sick Pay, Amounts under Sec. 409A (see full list on Page 6-26)

29. Federal Withholding 6-26/27 Supplemental Wage Payments
Taxed Using Aggregate Method if
Supplemental pay aggregated with regular wage and taxed as if a single payment
Flat rate - 25% - Allowed when
Amounts indicated separately (Regular pay & Supplemental Pay)
Combined payment with amounts listed separately
Only if Fed Tax was withheld from last regular wage payment

30. Federal Withholding Supplemental Wage Payments 6-28
Supplemental Wage Payments over $1,000,000 in one calendar year:
Due to American Jobs Creation Act of (AJCA)
Requires Higher income tax when Supplemental Wages are over $1 Million to one employee in one calendar year
Mandatory tax rate is 39.6% on Supplemental Wages over $1 Million.

31. Federal Withholding 6-26/27 Supplemental Wage Payments
Aggregate method
Use if employee has no federal tax withheld from regular wages due to # of allowances
Combine supplemental and regular
Calculate on total, subtract previous tax, withhold remaining
If EE claims “Exempt” then Supplemental wages less than $1,000,000 should not have withholding providing YTD is not over $1,000,000
See 2008 IRS Guidelines for treating certain payments – 9 Situations (p to 6-32)

32. Federal Withholding 6-34 Pensions and Annuities
W4-P – For Pension and Annuity Payment
Depends on type of payment
Periodic vs. non-periodic
Periodic (payments made over period of one year). Indicate on W4-P:
Can request no withholding on W4-P
Marital status, allowances
Additional amount to withhold
If No W-4P - Use Married 3 allowances

33. Federal Withholding Pensions and Annuities 6-34
Non-periodic
Not eligible for rollover and > $200
Withhold 10%
Eligible for rollover
Mandatory Withholding of 20% unless rolled to another qualified plan, IRA or §403(b) annuity
Tax is withheld by plan administrator or payer

34. Federal Withholding Backup Withholding 6-38
Tax rate of 28% required on payments if:
No TIN furnished (TIN = SS#, ITIN, EIN)
TIN is obviously incorrect (ex. Wrong # of digits)
IRS Notification that TIN is incorrect (through a “B” Notice)
The payer does not receive a certification that the payee is not subject to withholding
Online TIN Matching is available- payers can verify TIN’s through either Interactive (25 Tin’s) or Bulk (up to 100,000 TIN’s) Matching Systems

35. Federal Withholding Earned Income Credit 6-39
EIC is a tax credit that reduces the taxes owed by the employee.
ER’s must notify EE’s earning less than $53,505 in 2016 that they may be eligible to claim EIC.
Required Notice to EE’s on: 1) Copy B of Form W-2; 2) Notice 797; 3) Written statement with exact wording as Notice 797.

36. Social Security and Medicare Taxes 6-40
FICA (Federal Insurance Contribution Act) - Social Security & Medicare
Social Security
OASI (Old Age and Survivors Insurance)
DI (Disability Insurance)
Medicare
HI (Health Insurance)

37. Social Security and Medicare Taxes 6-41
Employee share withheld from employee wages
Matching amount paid by employer
Fixed rate – Same 1990 to Current
6.2% of wages to Social Security wage limit
1.45% of wages - No Medicare wage limit
Note: No rounding on SS or Medicare

38. Social Security and Medicare Taxes 6-41
Medicare Tax Increase on High Earners – Effective EE’s Medicare rate will increase from 1.45% to 2.34% on wages over $200K for single employees and wages over $250K for married employees. Over and under withholding will be reconciled on personal tax return (1040). Also known as the Additional Medicare Tax.
Filing Status Threshold Amount
Married-Joint $250,000
Married-Separately ,000
Single ,000
Head of Hs – w/qualifying person ,000
Qual.Widow(er) w/dep child ,000

39. Social Security and Medicare Taxes 6-43
SS Wage Base – SS tax is applied only up to a certain wage base. For 2016 that is $118,500
EE Rate – 6.2% X 118,500 = $7,347.00
ER Rate – 6.2% X 118,500 = $7,347.00
The Wage Base for Medicare taxes was eliminated beginning January 1, 1994 with the Omnibus Budget Reconciliation Act of Prior to that SS and Medicare had a wage base and a maximum annual tax

40. Social Security and Medicare Taxes 6-46
Employees Working for more than one Employer
Credit for tax withheld from employee from previous employer in current year >> NO!
Wages by Common Law ER’s Can’t be Combined
Successor Employers – May credit wages toward wage base, if
Acquisition of all or substantially all property
Employed and paid wages by predecessor and successor
Wages paid in next year
Subject to tax rate in effect when actually paid

41. Social Security and Medicare Taxes 6-47
Subject to tax when deferred: (not when paid)
Elective deferrals to §401(k) & other deferred compensation plans
Non-qualified deferred compensation that is not subject to substantial risk of forfeiture
Dependent Care Assistance benefits are treated as received in year when benefit costs are incurred, not when paid, for determining how much of benefits are taxable for SS and Medicare

42. Social Security and Medicare Taxes 6-47
Common Paymaster for SS & Medicare & FUTA (Not WH)
Related corporations-must meet one of:
Controlled group - 50% stock owned by one Corporation
Board of directors - 50% voting power on the other Board
Concurrent officers - 50% on other Board
Concurrent employees - 30% by both Corporations
Concurrent employment for two or more related corporations
Then Payroll responsibility - payment, tax withholding, depositing and reporting may be treated as one employer

43. Self –Employment Tax
SE Individuals Pay both Employer and Employee shares of Social Security and Medicare – Rate is 12.4% for SS Tax up to Base. For Medicare 2.9% on total wages (to total of 15.3%).
Tax Determined and Paid with Personal Income Tax Return (Form 1040)

44. Social Security and Medicare Exempt Wages 6-48
All compensation is taxable unless specifically exempted under IRC:
Workers compensation payments
Sick / disability payments - after 6 mo.
§125 flexible benefit plan contributions
Qualified moving expense reimbursements
Cash tips <$20 per month
Wages paid after year of death
See List of Additional Exempt Wages on page 6-48

45. Social Security and Medicare Exempt Employment 6-49
Employment exempt from SS and Medicare:
Temporary foreign agricultural work
Work by child <18 for parents
Student work for school where enrolled and attending classes
Work by student nurses
Non-resident aliens with F, J, M, Q visas
Domestic service performed if <18 years

46. Social Security and Medicare 6-51 State and Local Government Employees
Prior to §218 agreement to cover under federal system
4/1/86 hired or rehired - Became covered by Medicare
7/2/91 - Became covered by Social Security and Medicare
If not members of public employee retirement system or not subject to §218 agreement

47. Failure to Withhold Penalties 6-54
No tax withheld by employer:
If employer can prove that employee later paid tax - employer not liable for amount not withheld
Penalties for
Late deposits or returns
Responsible person
10 year time limit to collect taxes

48. State and Local Withholding 6-54
All but 9 States have Personal Income Taxes and require Employers to Withhold
Many Localities also have Income Taxes and require Withholding
Directory of State Agencies – Table 6.5

49. Federal Withholding
QUESTIONS ?????????????

50. E-Mail: chicago_chapter_apa@hotmail.com
Thank You and Good Luck !
Kathy Miz, CPP GBA
February 11, 2017
Phone: