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Withholding, Social Security and Unemployment Taxes on Compensation (Portfolio 392)

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TABLE OF CONTENTS

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

(1) Rate of Tax

(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

a. In General

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

(1) In General

(2) Termination

c. Religious Orders

B. SECA

1. Rate and Computation of Tax

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

(1) In General

(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

a. In General

b. Wages Excluded from Income

(1) Military Pay

(2) Deferred Compensation and Stock Options

(a) Qualified Arrangements

(b) Nonqualified Arrangements

(c) Stock Options

(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

a. In General

b. Statutory Exceptions

(1) Public Officials

(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

(13) Real Estate Agents and Direct Sellers

c. Employees Incurring No Income Tax Liability

d. Included and Excluded Service

B. Payments Subject to Withholding Other Than Wages

1. Gambling Winnings

2. Supplemental Unemployment Compensation

3. Deferred Compensation Payments

a. In General

(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

a. In General

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

b. Deposits

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

a. Quarterly Returns and Deposits

b. Information Returns

4. Deferred Compensation Payments

a. Quarterly Returns and Deposits

b. Information Returns

5. Third Party Payments of Sick Pay

a. Quarterly Returns and Deposits

b. Information Returns

6. Fringe Benefits

a. Withholding, Depositing and Reporting Periods

b. Withholding and Deposits

(1) In General

(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

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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