Payroll Tax FAQ
Payroll Tax FAQ
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Answers to the most frequently asked questions about your annual payroll tax filings.
HomeWork Solutions, Inc., December 2011
PLEASE NOTE: All Form 1040 and Schedule H line numbers refer to the forms for the tax year 2011.
Q. How do I distribute the many copies of Form W-2?
First, employee copies must be distributed no later than January 31, 2012. These copies have been separated and inserted into mailing envelopes for your convenience. For individuals no longer in your employ, mail the W-2s no later than January 31 to their last known address.
HomeWork Solutions' Premium Service Clients, we offer "Employee Self Service" which enables your employees to access their W-2 form electronically via the 4nannytaxes.com website.
| S T O P! BE SURE TO HAVE YOUR EMPLOYEE(S) REVIEW THE INFORMATION ON HIS/HER W-2 CAREFULLY BEFORE PROCEEDING TO THE NEXT STEP. Pay particular attention to the spelling of the employee's name and the Social Security Number. |
Next, you are required to mail the Form W-3 and a copy of all W-2(s) to the Social Security Administration no later than February 28, 2011. SIGN the original Form W-3 and mail it with your Form(s) W-2 Copy A (red ink). Mail the entire sheets - do not separate forms.
HomeWork Solutions' Premium Service Clients, we make these filings on your behalf.
Mail to: Social Security Administration, Data Operations Center, Wilkes-Barre, PA 18769-0001
Lastly, an Employer Copy is to be retained with your records. It is stapled with your copies of your year end returns. Some states require you to submit Form W-2 also. If required, separate instructions will be with the state transmittal form.
Reminders
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Q. Why are my FUTA taxes (Schedule H page 2) higher than estimated?
Twenty states have been assessed FUTA Credit Reductions, meaning employers must pay FUTA tax surcharges, because Federal loans to these states to support unemployment benefits distribution have not been properly repaid.
- Eighteen states and one territory will have a credit reduction of 0.3%: Arkansas, California, Connecticut, Florida, Georgia, Illinois, Kentucky, Minnesota, Missouri, North Carolina, New Jersey, Nevada, New York, Ohio, Pennsylvania, Rhode Island, Virginia, Virgin Islands and Wisconsin.
- Michigan will have a total credit reduction of 0.9% (0.6% in 2010).
- Indiana will have a total credit reduction of 0.6% (0.3% in 2010).
- Your Employer Identification Number (EIN or FEIN) was issued less than 6 months ago.
- The nanny's Social Security Number was issued within the last year and this is her first Federal Income Tax filing.
- The nanny's name was changed with the Social Security Administration within the last year due to marriage or divorce.
For background information about the credit reductions, visit this website. If you live in a Credit Reduction state you may be prohibited from e-filing your Federal return this year.
Q. Why could the wages in Box 1 of Form W-2 be greater than those in Boxes 3 & 5?
Taxes paid by the employer on behalf of an employee (generally Social Security and Medicare) are included in the wage amounts in Box 1 but not in the amounts in Boxes 3 and 5. This typically occurs when an employer pays a net amount to the worker and agrees to pay the worker's portion of Social Security and Medicare taxes.
Q. Why could my quarterly state unemployment tax return show no tax due even though I paid wages?
Unemployment contributions are paid on a wage base determined by state legislature. If you paid your employee wages in excess of this base, those excess wages are exempt from tax. However, you must submit the tax returns, even if no tax is due.
Q. How do Nanny Taxes impact my personal Federal Tax Return?
The wages paid and reconciliation of federal payroll taxes due are reported on Schedule H. You should attach Schedule H to your Form 1040 and enter the total of payroll taxes on Form 1040 Line 59a. If you made quarterly tax payments on Form 1040ES, enter the sum of those payments remitted before January 15, 2012 on Form 1040 Line 63.
HomeWork Solutions' Premium Service Clients, we make your Form 1040ES payments electronically via the IRS EFTPS system. You or your authorized tax preparer can verify actual payments made online with the IRS.
Q. Why do I need a Schedule H?
Schedule H calculates federal employment taxes due for household workers and is filed with your personal income tax Form 1040. The amounts shown on Line 24 of Schedule H must be entered on Form 1040 Line 59a.
Q. Why are the Social Security and Medicare taxes shown on Form(s) W-2 less than the amounts shown on Schedule H?
Social Security and Medicare taxes remitted with Schedule H include the employee and employer components combined (13.3%). The Form W-2 reflects employee paid taxes only (5.65%) and does not include your employer contributions.
Q. My employee is concerned because no income taxes were deducted in 2011. What should I do?
Advise your employee that he/she is responsible for paying any income taxes due on wages he/she received. You may withhold (deduct) income taxes in 2012 to avoid these year end surprises. Our online tax calculator facilitates these calculations UNLESS you are in a nanny share.
Q. I use TurboTax. Why did the amount of tax I owe go up when I entered my Schedule H information?
It is most likely that you forgot to take credit for the quarterly 1040ES payments you made throughout the year. The Schedule H adds tax due to your income tax return; the 1040ES payments credit tax paid to your return. Typically they will offset each other.
You will find a list of the 1040ES vouchers we prepared for you on your Year End Summary. Verify that you actually made the payments! The online interview asks you if you made Estimated Tax Payments - you need to answer YES and follow the online data entry prompts. If you already reached the Schedule H section of TurboTax, you missed it. Go back to your W-2 entry area and go through those questions again! Unfortunately, our staff is unable to provide technical support for TurboTax or any other personal income tax software.
Q. My tax software is asking me for FUTA wages paid January through June and then July through December. Why is this?
Historically the FUTA tax has been 6% of subject wages, with a 'temporary' 0.2% surcharge in place since 1977 that Congress reauthorized from time to time as it expired. Employers who paid all state unemployment taxes timely received a 5.4% credit - no matter what their state tax rate was - effectively reducing the tax to 0.8% of subject wages.
The 0.2% surcharge expired on June 30, 2011. For the first time in 34 years, Congress did not act to extend the 'temporary' surcharge. Consequently, the effective FUTA tax rate for 2011 was 0.8% of subject wages 1/1 - 6/30 and 0.6% of subject wages 7/1 - 12/31 for those employers current with their state unemployment tax obligations.
Additionally, 20 states are in default on FUTA loan repayment to the Federal government. Employers in these states have the 5.4% state unemployment tax credit reduced as mandatory repayment of the state's outstanding loan. The credit reduction effectively raises the FUTA tax due. The IRS published notification of credit reduction states on December 7, 2011.
Q. My nanny tried to e-File and couldn't. Why would that happen?
The IRS has very strict controls on its e-File system to protect against fraud and abuse. Typical reasons we have found that a nanny has difficulty with e-File include:
In all of the above cases, the nanny simply needs to file a paper return this year.
If the nanny's name has changed and she HAS NOT recorded this with the Social Security Administration (SSA) she could experience difficulties when applying for a tax refund due to a "mis-match" between the name on the W-2 and tax return and the name in SSA records associated with that Social Security Number. The nanny generally will need to go to a local SSA office to get this straightened out.
Q. My nanny has moved back to her home country. Does she still need to file and if so, how does she do that?
Generally, anyone who receives US-source income is required by law to file a federal tax return. There are particular instances when this is not required and these can be found at the IRS website. Most states have filing requirements that mirror the Federal income tax system. Filing instructions for the Federal form 1040 or 1040NR should be consulted for specifics.
