withholding
Payroll tax credit
Wednesday, July 7th, 2010 | tax | No Comments
It is time to prepare your second quarter payroll tax returns, due August 2, 2010 (July 31 falls on Saturday). If your company or tax-exempt organization has hired employees this year, you may be eligible for the HIRE Act new hire tax credit. You should check before filing Form 941. We previously posted about this and other tax credits in the spring.
Here is a checklist (but consult your tax adviser for specifics related to your situation):
- Was the new worker hired to fill a new position, or to replace someone who quit voluntarily or who was terminated for cause? The new worker may not be related to you or to another owner of the business.
- Was he/she hired after February 3, 2010, and before January 1, 2011?
- Did he/she work less than 40 hours during the 60 days ending on the hire date?
- Did he/she sign and give you the required Form W-11 certifying these facts? (Do not send this form to the IRS.)
If all of the above conditions are met, you qualify for an exemption of 6.2% (the employer share of Social Security tax) of wages paid between March 19 and December 31, 2010. This reduces the amount of your tax deposits for this year. It does not affect amounts withheld from the employee’s pay.
Form 941 has been modified to report wages to qualified employees starting with the second quarter. The IRS has provided more information in the instructions to the forms, and in a question-and-answer format at their website.
Some tax surprises
Monday, March 22nd, 2010 | tax | No Comments
Through this tax season, a few of our clients have faced an unwelcome surprise - an unexpected tax bill. Although the reasons vary for each client, the land mines are sometimes built into the regulations. Some examples:
The tables and formulas that determine the amount withheld from your paycheck for income taxes are set up for a family with one wage-earner. If both husband and wife work and declare too many withholding allowances on your W-4 forms, too little may be withheld. This can be an especially annoying problem if incomes fluctuate from year to year. One of our clients saw a $3600 reduction in withholding when the wife’s income fell and the husband’s icnome rose, even though the total household income fell only $4000. Now they are looking at a tax bill instead of a refund when they file their return.
A new tax credit for 2009 is causing unexpected tax bills for some. The Making Work Pay credit can reduce your tax bill by up to $400 ($800 on a joint return). The IRS was nice enought to give it to you a little bit at a time by reducing the amount withheld from each paycheck since April 2009 - did you notice? As a result, some of you who had just enough withheld to cover your taxes in 2008 have not had enough withheld in 2009, and you must pony up the difference by April 15. That’s not the outcome you expected from your good planning.
For some other surprises, take a look at this slideshow at bankrate.com. By the way, this website is an excellent resource for a wide variety of financial information.