1. UNITED AMERICAN PAYROLL – FUN FACTS
The Average person swallows three spiders per year.
In ancient form the carrot was purple not orange
The blue whale’s tongue weighs as much as an adult elephant
People who have pet fish fall asleep easier then people who don’t
Squirrels lose at least half the nuts they hide – they forget where they put them
The average take from a bank robbery is about $3,000
The cow spends 18 hours of every day chewing
4% of US employees never laugh at work
The correct order of intelligence is Moron, Imbecile, Idiot
In 1941, a gallon of gas costs 19.2cents
A healthy pig should be able to run a mile in 7.5 minutes
The typical bed contains 6 million dust mites
Ants don’t sleep
15% of Americans secretly bite their toenails..
65000 Americans are injured by their toilet seats each year

2. Social Security Taxes Prof. Hardin
Welcome to Unit 4
Social Security Taxes Prof. Hardin

3. Bernard J. Bieg and Judith A. Toland
Payroll Accounting 2011
Bernard J. Bieg and Judith A. Toland
CHAPTER 3
SOCIAL SECURITY TAXES
Developed by Lisa Swallow, CPA CMA MS

4. Coverage under FICA http://www.ssa.gov/employer FICA (1935)
Federal Insurance Contributions Act
Tax paid both by employees and employers
6.2% OASDI plus % HI
SECA (1951)
Self-Employment Contributions Act
Tax upon net earnings of self-employed
(6.2% + 6.2%) = 12.4% OASDI plus (1.45% %) = 2.9% HI
3 issues
Are you an EE or an independent contractor?
Is service rendered considered employment?
Is compensation considered taxable wages?

5. Independent Contractor (SECA) vs. Employee (FICA)
Employer “employs one or more individuals for performance of services in U.S.”
IRS uses common-law test to determine status
Certain occupations specifically covered
Agent- and commission-drivers of food/beverages or dry cleaning
Full-time life insurance salespersons
Full-time traveling salespersons
Individual working at home on products that employer supplies and are returned to furnished specifications

6. More Specific Situations
Government employees – certain exemptions from OASDI/HI depending upon date of hire
Military personnel - certain types of pay exempt from FICA
In-patriates - may be exempt from FICA (20 countries)
Family employees – in certain situations, children may be exempt from FICA
Household employees
If they make cash wages of $1,700 or more per year
Must pay if domestic employee, like a nanny, is under your control
Additional exemptions - inmates, medical interns, student nurses and workers serving temporarily in case of emergency

7. Independent Contractor
Persons may be classified as independent contractors if they conduct an independent trade or business
Hiring agent does not pay/withhold FICA on worker classified as independent
Independent contractor liable for his/her own social security taxes on net earnings
If ER misclassifies EE, penalties will accrue to the ER
If EE did report the earnings on his/her federal tax return, the penalty is voided

8. What are Taxable Wages? Cash
Wages and salaries
Bonuses and commissions
Cash value of meals/lodging provided (but only if for employee’s convenience)
Fair market value of noncash compensation, examples include:
Gifts (over certain amounts)
Stock options
Fringe benefits like personal use of corporate car
Prizes
Premiums on group term life insurance > $50,000

9. What are Taxable Wages? Tips greater than $20 or more per month
EE can report tips to ER using Form 4070
ER calculates FICA on tips and withholds from regular paycheck on these reported tips
Must withhold on first paycheck after tips are reported
ER must match FICA on reported tips
“Large employers” (11+ employees) must allocate
[(Gross receipts x .08) – reported tips]
Don’t have to withhold FICA on allocated tips, only reported tips
Have to show allocated tip income on W-2
ER files Form 8027 at year-end with IRS showing food/beverage receipts and reported tips
ER can claim a credit for SS/Medicare taxes paid on employees’ tips on Form 8846

10. Specifically Exempt Wages
Meals/lodging for employer’s convenience
Sick pay
After 6 consecutive months off (personal injury)
Sick pay by 3rd party (insurance company/trustee) with specific stipulations for ER match
Pay for difference between employees’ salary and military pay for soldiers/reservists activated more than 30 days
Employer contribution to pension plan
Employer-provided nondiscriminatory education assistance
Job-related educational expenses not subject to FICA
Payments for non-job related expenses up to $5,250

11. FICA Taxable Wage Base
OASDI wages cap at $106,800 for 2010
HI wages never cap
The Patient Protection & Affordable Care Act of 2010 created additional .9% HI tax on taxpayers receiving wages in excess of $200,000 ($250,000 if married filing jointly) beginning in 2013.
Facts: Tamara earn $132,000/year; paid semimonthly on the th and 30th; determine FICA for October 30th payroll
First must find prior payroll YTD gross $132,000/24 =$ 5,500.00
$5, x 19 payrolls (before today)= $104,500.00
How much will be taxed for OASDI?
$106, – $104, = $2,300.00
OASDI tax is $2, x 6.2% = $142.60
HI tax is $5, x 1.45% =$ 79.75
Total FICA is $ $79.75 =$

12. Example 3-2B
During 2011, Marti Conners, President of Maggert Company was paid a semi-monthly salary of $5,200. Compute the amount of FICA taxes that should be withheld from her:
OASDI HI
9th paycheck
106,800 – (8 x 5,200) = 65,200
21st paycheck
106,800 – (20 x 5,200) = 2,800 Remaining taxable income for OASDI
24th paycheck
119,600 (23 x 5,200) >106,800 This indicates that the worker has reached the cap on taxable income for OASDI

13. Another Example - Calculating FICA
Facts: Ahmed earns $175,000/year; paid first of every month; determine FICA for August 1 payroll
What do we calculate first?
$175,000/12 = $14, per paycheck
YTD gross prior to current payroll =$14, x 7 = $102,083.31
$106, – $102, = $4, taxed for OASDI
$4, x 6.2% = $ OASDI tax
$14, x 1.45% = $ HI tax (remember - no cap!)
Total FICA = $ $ =$
Remember - the ER has withheld $ from the employee’s paycheck and must match this amount

14. ( $475 tips + $630 paid wages = $1,105)
Example 3-3B
Eric Sherm began working as a part time waiter on April 1, at Yardville Restaurant. The cash tips of $475 that he received during April were reported on Form 4070, which he submitted to his employer on May 1. During May, he was paid wages of $630 by the restaurant. Compute:
The amount of FICA taxes that the employer should withhold from Sherm’s wages during May.
The amount of the employer’s FICA taxes on Sherm’s wages and tips during May.
OASDI HI
$ $16.02
( $475 tips + $630 paid wages = $1,105)
$1,105 X .062 = $68.51
$1,105 X = $16.02

15. Tax Holiday
Hiring Incentives to Restore Employment Act of 2010 provides relief for employer’s share of OASDI tax
On wages paid 3/19/ /31/10
For qualified employees only
Full-time or part-time
Retention credit also available if remain employed for 52 consecutive weeks

16. Example 3-6B
Amanda Autry and Carley Wilson are partners in A & W Gift shop, which employs the individuals listed below. Paychecks are distributed every Friday to all employees. Based on the information given, compute the amounts listed below for a weekly payroll period.
Name /Position
Salary
Kelly Simon, Office
$650/wk
Jim Tress, Sales
$3,450/Month
May Aha, Delivery
$520/ wk
Amanda Autry, Partner
$1,900/wk
Carley Wilson Partner
$1,900/ wk

17. Example 3-6B
Amanda Autry and Carley Wilson are partners in A & W Gift shop, which employs the individuals listed below. Paychecks are distributed every Friday to all employees. Based on the information given, compute the amounts listed below for a weekly payroll period.
Name /Position
Salary
OASDI Taxable Earnings
OASDI Tax
HI Taxable Earnings
HI Tax
Kelly Simon, Office
$650/wk
$650.00
$40.30
$9.43
Jim Tress, Sales
$3,450/
Month
$796.15
$49.36
$11.54
May Aha, Delivery
$520/ wk
$520.00
$32.24
$7.54
Amanda Autry, Partner
$1,900/ wk
0.00
Carley Wilson Partner
$1,900/ wk
Totals
$1,966.15
$121.90
$28.51
Employers OASDI Tax
Employer’s HI Tax
28.51

18. SECA and Independent Contractors
EE and ER portion of FICA if net earnings exceed $400
Net Earnings = Net income + distributive share of partnership income
If you own more than one business - offset losses and income and calculate FICA based on combined net income
Can have W-2 and self employment income
Count both towards calculating cap of $106,800 for OASDI
Report on Schedule C “Profit or Loss from Business”
Also file Schedule SE “Self-Employment Tax”
Must include SECA taxes in quarterly estimated payments

19. Calculating FICA with W-2 and Self-Employed Earnings
Facts: Celia’s W-2 = $107,768 and her self- employment income = $14,500; how much is FICA on $14,500?
No OASDI because capped on W-2
HI = $14,500 x 2.9% = $420.50
Total FICA = $420.50

20. Calculating FICA with W-2 and Self-Employed Earnings
Facts: Felipe’s W-2 = $78,000 and his self- employment income = $36,000; how much is FICA on $36,000?
OASDI ($106, ,000) = $28,800 taxable OASDI wages x 12.4% = $3,571.20
HI = $36,000 taxable HI wages x 2.9% = $1,044.00
Total FICA $3, , = $4,615.20

21. Example 3-8B
George Parker was paid a salary of $74,700 during 2011 by Umberger Company. In addition, during the year, Parker started his own business as a public accountant and reported as net business income of $38,900 on his income tax return for Compute the following:
The amount of FICA taxes that was withheld from his earnings during 2011 by Umberger.
Parker’s self employment taxes on the income derived from the public accounting business for 2011
a. OASDI: $74,700 X .062 = $4,631.40
HI: $74,700 X = $1,083.15
OASDI $106,800 - $74,700 = $32,100 X .124 = $3,980.40
HI: $38,900 X = $1,128.10

22. Any questions?

23. Unit 4 Assignments Practical Problem 3-1A (page 3-35)
Continuing Payroll Problem Chapter 3 (page 3-65)
In the Taxable Earnings Columns, record the amount of each employee’s weekly earnings that is subject to FICA taxes
Using the amount recorded in the previous step, compute the taxes for each employee and record in the appropriate column
*Remember to Save your Cont Problem because you will use it again in Chapter 4

24. Unit 4 Discussion Board Thread
For this discussion, you are to research the Internet for examples of independent contractors, articles about independent contractor status, or IRS tax court cases about independent contractor status. Select one of these for your response to this discussion that no one else has already chosen. As soon as you have selected one, put a link directly to the information that you have found on the first line of a response to the discussion and post it. That will reserve that item for your exclusive use.
I look forward to seeing you on the Discussion board!

25. Have a wonderful week!
Prof. Hardin