Online Payroll Guide
Answers to Hundreds of Federal & State Payroll Questions
What is a fringe benefit?
Feb 14th
A fringe benefit is defined as compensation other than wages provided to an employee. Common examples include health and life insurance, vacation, employer-provided vehicles, and public transportation subsidies. Fringe benefits may be taxable or non-taxable.
What types of federal employment taxes exist?
Feb 14th
There are generally three types of federal employment taxes:
- Employee Income Tax Withholding
- Federal Insurance Contributions Act (FICA)
- Federal Unemployment Tax Act (FUTA)
Employee Income Tax Withholding is the amount withheld from the employee’s wage to offset their projected annual income tax due to be paid by April 15th of the following year.
The Federal Insurance Contributions Act (FICA) consists of two components commonly referred to as Social Security and Medicare. Strictly speaking, FICA provides for a federal system of old age, survivors, and disability insurance (OASDI) and hospital insurance (HI). The OASDI component is financed through the social security portion of FICA and the HI component (for persons 65 or older) is financed through the medicare portion.
The Federal Unemployment Tax Act (FUTA) was implemented to fund a federal program to provide unemployment compensation benefits to eligible employees who have lost their jobs. The FUTA system does not pay unemployment benefits directly to displaced workers, but rather coordinates the payment of these benefits with each state. Unemployment benefits are paid in compliance with each state’s unemployment compensation laws.
What is an authorized depository financial institution?
Feb 14th
An authorized depository financial institution is a bank that is able to accept federal tax deposits on behalf of an employer.
How are non-taxable fringe benefits reported?
Feb 14th
Generally, non-taxable fringe benefits do not need to be reported. Exceptions arise when the employee will report an item on their personal income tax return. These include dependent care benefits, excludable moving expenses, medical savings account contributions, and adoption assistance. These items must be reported on Form W-2 by the employer.
How does an employer obtain preprinted Federal Tax Deposit coupons (Form 8109-B)?
Feb 14th
If you would like to receive a pre-printed Federal Tax Deposit Coupon booklet, call 1-800-829-4933. Allow 5 to 6 weeks for delivery.
What are supplemental wages?
Feb 14th
Supplemental wages are wages received “in addition to” ordinary wages. These may be paid at the same time as ordinary wages or at any other time. Common examples of supplemental wages include bonuses, awards, commissions, back-pay, overtime pay, severance, paid time off payout, and retirement incentive.
What are the basic types of federal employment taxes?
Feb 14th
There are basically three types of federal employment taxes: Employee only, Employer only, and Employee and Employer Taxes.
Employee Only: Each employee is subject to Federal Income Tax (FIT) and files a personal income tax return, IRS Form 1040, at the end of the year. Federal income tax is withheld from each paycheck to offset their federal tax liability.
Employer Only: Each employer is responsible for paying Federal Unemployment Tax (FUTA) on the first $7,000 of annual wages for each employee. The effective FUTA rate is generally 0.8%, subject to certain state unemployment insurance requirements.
Employee and Employer: Both the employee and employer are responsible for FICA tax. FICA is made up of two components, social security and medicare. The effective rate for social security is 6.2% up to the wage base ($106,800 for 2010) and the effective rate for medicare is 1.45% with no limit.
When is Form 944 due?
Feb 14th
Form 944 is due by January 31 following the end of the calendar year. However, an automatic ten day extension is provided for an employer who made all tax deposits on time. Form 944 is considered on time if it is properly addressed and postmarked by an authorized carrier no later than January 31.
What is the supplemental withholding rate?
Feb 14th
The current supplemental withholding rate is 25%, which is used when supplemental wages are paid separate from regular wages.
How are FICA taxes computed?
Feb 14th
Social Security: The effective tax rate is 12.4 percent of an employee’s wages up to the 2010 Social Security wage base of $106,800. Both the employer and the employee are responsible for paying 6.2 percent of the Social Security employment tax up to the 2007 wage base. Example 1: For an employee with no prior wages who earns $1,000 during the payroll period, the Social Security withholding from gross pay will equal $62.00 ($1,000 x 6.2%) and the employer portion of Social Security employment tax will equal $62.00 ($1,000 x 6.2%) for a total combined tax due of $124.00. Example 2: For an employee with current year-to-date wages of $600 less than the wage base who earns $1,000 during the payroll period, this employee will reach the Social Security wage base during the period. Therfore the amount subject to Social Security tax is reduced from $1,000 to $600 (current year wage base minus year-to-date earnings), resulting in both an employee and employer Social Security tax of $37.20 ($600 x 6.2%).
Medicare: The effective tax rate is 2.9 percent of an employee’s wages with no limit. Both the employee and employer are responsible for paying 1.45 percent of the Medicare employment tax. Example 1: For an employee with no prior wages who earns $1,000 during the payroll period, the Medicare withholding from gross pay will equal $14.5 ($1,000 x 1.45%) and the employer portion of Medicare employment tax will equal $14.50 ($1,000 x 1.45%) for a total combined tax due of $29.00. Example 2: For an employee with current year-to-date wages of $600 less than the wage base who earns $1,000 during the payroll period, 100% of the current period earnings are subject to Medicare tax since there is no wage base. Therefore, the amount due the IRS in example 2 is the same as in example 1.