Withholding, Social Security and Unemployment Taxes on Compensation, written by Peter J. Allman, Esq., of Willkie Farr & Gallagher LLP, focuses on the tax Code provisions applicable to the federal income tax withholding, Social Security and unemployment taxes, as well as self-employment taxes on U.S. citizens and residents.
This Portfolio explains which compensation is subject to tax in addition to the employees and employers subject to tax (including self-employed individuals), the rate and computation of tax, and the reporting and deposit requirements.
This Portfolio examines the circumstances under which the various types of employment taxes are imposed, the amount of the tax, and the manner of payment.
Additional specific topics found in this Portfolio include the employment tax considerations for deferred compensation and stock options, noncash remuneration and de minimis amounts, golden parachute payments, medical savings accounts, group-term life insurance, and more.
Withholding, Social Security and Unemployment Taxes on Compensation allows you to benefit from:
This Portfolio is part of the U.S. Income Portfolios Library, a comprehensive series that includes more than 200 Portfolios, which cover every federal tax topic with expert, in-depth analysis, and offer commentary on a wide range of federal taxation topics, including Compensation Planning, Deductions and Credits, Partnerships and Corporations, Special Pass-Through Entities, Corporate Reorganizations, Real Estate, Procedure and Administration, and more.
Detailed Analysis
I. Overview
II. Social Security and Unemployment Taxes
Introductory Material
A. FICA and FUTA
1. Rate and Computation of Tax
a. FICA
(1) Rate of Tax
(2) Computation of Tax
(3) Collection and Liability
b. FUTA
(2) Credits Against Tax
(a) Normal, Additional and Successor Credits
(b) Limitations on Total Credits Against Tax
(c) Limitations on Credit Reductions
(3) Liability
2. Compensation Subject to Tax
a. In General
b. Statutory Exceptions and Inclusions
(1) Taxable Wage Base
(a) Successor Employers
(b) Concurrent Employment/Common Paymaster
(2) Deferred Compensation and Stock Options
(a) Tax-Qualified Arrangements
(b) Non-Qualified Arrangements
(c) Stock Options
(3) Medical, Disability and Survivor Benefits
(a) Death Benefits
(b) Sick Pay, Medical Reimbursements and Disability Payments
(c) Voluntary Employees' Beneficiary Associations
(4) Noncash Remuneration and De Minimis Amounts
(a) Agricultural Workers
(b) Domestic Workers
(c) Casual Workers
(d) Exempt Organizations
(e) Tips
(f) Home Workers
(5) Remuneration Excluded from Income
(a) Moving Expenses
(b) Dependent Care Assistance
(c) Scholarships and Fellowship Grants and Educational Assistance Programs
(d) Meals and Lodging
(e) Fringe Benefits
(f) Employer Reimbursements
(g) Supplemental Unemployment Benefits
(h) Cafeteria Plans
(i) Medical Savings Accounts
(j) Benefits Provided to Volunteer Firefighters and Emergency Medical Responders
(6) Totalization Agreements
3. Employees Subject to Tax
b. Statutory Employees
(1) Agent and Commission Drivers
(2) Insurance Salesmen
(3) Home Workers
(4) Traveling Salesmen
c. Statutory Nonemployees
(1) Agricultural Employees
(2) Student Employees
(a) Students Enrolled in a School, College or University
(b) Students Performing Domestic Service
(c) Students Employed in Hospitals
(d) Students in "Work-study" Programs
(3) Government Employees
(a) Employees of the United States
(b) Employees of States
(c) Employees of Foreign Governments
(d) Employees of Indian Tribes
(4) Employees of International Organizations
(5) Nonimmigrant Aliens
(6) Family Members
(7) Religious Service
(a) Ministers
(b) Religious Orders
(c) Church Employees
(d) Members of Religious Sects
(8) Exempt Organizations
(9) Railroad Employees and Representatives
(10) Newspaper Distributors
(11) Communist Organizations
(12) Fishing Crews
(13) Real Estate Agents and Direct Sellers
d. Included and Excluded Service
4. Elected Coverage
a. Employment by Foreign Affiliates
(1) In General
(2) Coverage Agreements
(3) Termination
b. State and Local Governments
(2) Termination
c. Religious Orders
B. SECA
a. Rate of Tax
b. Maximum and Minimum Earnings Subject to Tax
c. Collection and Liability
2. Income Subject to Tax
a. Net Earnings from Self-employment
(2) Exclusions in Determining Net Earnings
(a) Rental Income
(i) Real Estate
(ii) Farming
(b) Dividends and Interest
(c) Gains and Losses from Dispositions of Property
(i) Capital Assets
(ii) Timber, Coal and Iron Ore
(iii) Other Dispositions of Property
(d) Retirement Payments to Partners
(e) Distributive Share of Limited Partners
(3) Other Adjustments in Determining Net Earnings
(a) Community Income
(b) Foreign Source Earned Income
(c) Income from Sources Within U.S. Possessions
(d) Ministers and Members of Religious Orders
(e) Optional § 1402(a)(12) Deduction
(f) Miscellaneous Adjustments
b. Alternative Methods for Computing Net Earnings
(1) Farm Optional Method
(2) Nonfarm Optional Method
(3) Using Both Options
3. Individuals Subject to Tax
a. Trade or Business Requirement
b. Statutory Exclusions
(1) Public Officials
(2) Employees
(a) Newspaper Distributors
(b) Sharecroppers
(c) Employees of Foreign Governments and International Organizations
(d) Fishing Crews
(e) Real Estate Agents and Direct Sellers
(f) State Employees
(g) Employees of Churches and Church-Controlled Organizations
(3) Railroad Employees
(4) Religious Service
(a) Ministers, Members of Religious Orders, Christian Science Practitioners
(i) Ministers
(ii) Members of Religious Orders
(iii) Christian Science Practitioners
(iv) Application for Exemption from SECA
(b) Other Religious Faiths
(5) Payments to Former Insurance Salesmen
III. Collection of Income Tax at Source
A. Withholding from Wages
1. Liability for Withheld Taxes
a. Employers
b. Deemed Employers
c. Authorized Agents
d. Third Party Payors
e. Companion Sitters
2. Computation of Withheld Tax
a. Payroll Periods
b. Withholding Exemptions and Allowances
(1) Exemptions
(2) Allowances
(3) Withholding Certificates
c. Withholding Methods
(1) Percentage Method Withholding
(2) Wage Bracket Method Withholding
(3) Annualized Wage Withholding
(4) Cumulative Wage Withholding
(5) Part-Year Wage Withholding
(6) Supplemental Wage Withholding
(7) Withholding on Tips
(8) Other Permissible Methods
d. Rules for Wage Withholding Amounts and W-4 Filing Procedures for Nonresident Alien Employees
3. Compensation Subject to Withholding
b. Wages Excluded from Income
(1) Military Pay
(a) Qualified Arrangements
(b) Nonqualified Arrangements
(3) Moving Expenses
(4) Dependent Care Assistance
(5) Accident and Health Plan Payments
(6) Scholarships and Fellowship Grants and Educational Assistance Programs
(7) Fringe Benefits
(8) Group-Term Life Insurance
(9) Employer Reimbursements
(10) Death Benefits
(11) Medical Savings Accounts
(12) Benefits Provided to Volunteer Firefighters and Emergency Medical Responders
c. Noncash Remuneration and De Minimis Amounts
(1) Casual Workers
(2) Tips
(3) Sales Commissions
(4) Meals and Lodging
(5) Loans with Below-Market Interest Rates
4. Employees Subject to Withholding
b. Statutory Exceptions
(2) Agricultural Workers
(3) Domestic Workers
(4) Employees of Foreign Governments
(5) Employees of International Organizations
(6) Ministers and Members of Religious Orders
(7) Newspaper Distributors
(8) Peace Corps Volunteers
(9) Fishing Crews
(10) Nonresident Aliens
(a) Services Performed Outside the United States
(b) Residents of Canada and Mexico
(c) Residents of Puerto Rico
(d) Exempt Income
(11) Citizens Performing Services Outside the United States
(a) Citizens Working Abroad
(b) Citizens Working in United States Possessions
(c) Citizens Working in Puerto Rico
(12) Permanent Residents of the Virgin Islands
c. Employees Incurring No Income Tax Liability
B. Payments Subject to Withholding Other Than Wages
1. Gambling Winnings
2. Supplemental Unemployment Compensation
3. Deferred Compensation Payments
(1) Distributions Treated as Wages Under § 3401(a)
(2) Distributions Excludible from Gross Income
(3) Distributions to Nonresident Aliens and Foreign Corporations
(4) Dividends
b. Amount to Withhold
(1) Periodic Payments
(2) Nonperiodic Payments
(3) Eligible Rollover Distributions
c. Election Not to Have Withholding Apply
4. Backup Withholding
b. Reportable Interest and Dividends
c. Reportable Broker Transactions
(1) Interest and Dividends
(2) Sales and Exchanges
d. Other Reportable Payments
(1) Payments Reported Under § § 6041(a) and 6041A(a)
(2) Payments Reported Under § 6050A
5. Voluntary Withholding
a. Nonwage Payments
b. Sick Pay Paid by Third Parties
c. Annuities
6. Golden Parachutes
7. Indian Casino Profits
8. Stock Compensation of Expatriated Corporation Insiders
9. Government Payments
IV. Reporting and Paying Taxes
A. FICA, FUTA, and Withheld Income Taxes
1. FICA and Withheld Income Taxes
a. Returns
(1) Quarterly and Annual Returns
(2) Monthly Returns
(3) Final Returns
(4) Extensions Due to Disasters or Terroristic or Military Actions
(5) Extensions Due to Service in a Combat Zone or Contingency Operation
b. Deposits
(1) Employment Tax Deposit System
(2) Nonpayroll Tax Deposits
c. Information Returns
(1) Providing Forms W-2 Electronically
(2) Filing Extensions
2. FUTA
a. Annual Return
3. Records
a. Withheld Income Taxes
b. FICA
c. FUTA
4. Employment Tax Compliance by Disregarded Entities
B. Miscellaneous Wage and Nonwage Payments
1. Tips
a. Employee Reporting
b. Collection and Reporting by the Employer
(1) FICA and Income Tax Withholding
(2) FUTA
c. Tip Reporting and Allocation Rules
(1) Reported Information
(2) Application
(3) Allocation
2. Gambling Winnings
a. Quarterly Returns and Deposits
b. Information Returns
3. Backup Withholding
4. Deferred Compensation Payments
5. Third Party Payments of Sick Pay
6. Fringe Benefits
a. Withholding, Depositing and Reporting Periods
b. Withholding and Deposits
(2) Special Rule for Highway Motor Vehicles
(3) Special Accounting Rule
(a) Special Accounting Period
(b) Conformity Rules
7. Golden Parachute Payments
8. Advance Earned Income Payments
a. Eligible Employees
b. EIC Payments
c. Reporting and Deposit Requirements
9. Employee Reimbursements
10. Group-Term Life Insurance
11. USERRA Make-Up Contributions
V. Penalties
A. Civil Penalties
B. Criminal Penalties
Working Papers
TABLE OF WORKSHEETS
Worksheet 1 Excerpt from Circular E (IRS Pub. 15) Section 15 - Special Rules for Various Types of Services and Payments
Worksheet 2 Excerpt from Circular E (IRS Pub. 15 - T) New Wage Withholding and Advance Earned Income Credit Payment Tables - Alternative Methods for Figuring Income Tax Withholding
Worksheet 3 Social Security and Self-Employment Tax Rates
Bibliography
OFFICIAL
Statutes:
Treasury Regulations:
Legislative History:
Treasury Rulings:
Cases:
UNOFFICIAL
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