An obligation that comes into existence as a result of past contractual commitments or tax legislation (Payroll Liabilities)
Need to make sure our obligations are recorded properly. Need to make sure they are recorded in the right time frame.
When you process payroll a liability is automatically created for taxes due to agencies (IRS, State, etc.) These liabilities reside on the balance sheet. Compare balances to a report from your payroll module and identify any discrepancies. Examples: Balances for SUTA and FUTA accumulating Adjustments from prior quarters rolling forward Payroll check voided AFTER taxes are called in (results in a Debit balances in the liability account)
Liability accounts for FICA and FIT should zero out after every pay period!
Garnishments and Deductions These follow the same rules as payroll taxes and should zero out each pay period.
Quarterly Payroll Procedures
Prepare bank reconciliations for quarter. Are there any outstanding payroll checks? How are you going to handle these outstanding payroll checks Reissue Wait Void
Ensure updates are completed: Print a new circular E (Publication 15) – Unemployment Rates SD Investment Rate is.53% SD Surcharge Rate is 0% for Quarters 1 & 2 SUTA wage base is $11,000 FUTA (Federal Unemployment Tax Act) wage base is $7,000 – If Applicable FUTA rate is.8% for Quarters 1 & 2, and.6% for Quarters 3 & 4 FICA max ($106,800 Social Security)
Check tax deposit dates. Did you make all of your deposits? Were they made on time? Were they applied to the correct quarter?
Make sure benefit and deduction codes are set up properly with respect to pre- tax designation (See Publication 15, Pages 10-14) Health Savings Accounts 401k Deductions Employer paid fringe benefits
Health Savings Accounts Employer contributions are not subject to Social Security, Medicare, or FUTA As long as the amount is used for excludable expenses Employee contributions Included in gross wages Unless made in a section 125 cafeteria plan
401 K Liability (Employer Contributions) Excluded from the employers gross income Make sure the liability does NOT affect taxes
401 K Deductions (Employee Contributions) Pre-tax contributions excluded from Federal Income Tax, but included for FICA Include contributions in Box 3 & 5 on W-2s Include contributions in lines 5a and 5c on Form 941 (4a and 4c of Form 944) Please See IRC Section 415 for more information and Publication 15 B of Circular E
Fringe Benefits Vehicles used for commuting to and from work Cash payments Tickets to entertainment and sporting events NOT considered taxable fringe benefits: Services provided at no additional cost to the company Expenses the employee can claim
Obtain new W-4:
Prepare Forms 941 If a biweekly depositor make sure line 10 equals bottom line on Schedule B Schedule B is tax liability NOT taxes paid. This is IRSs cheat sheet. Use 941x for corrections Due Dates Monthly depositor is the 15 th of the following month Semi – Weekly Pay date is Saturday through Tuesday, due on Friday Pay date is Wednesday through Friday, due on Wednesday
Penalties 2% to 15% in penalties Will pay interest on balance due as well Separate deposit arrangements Deposit payroll taxes in separate bank account Will not be able to access Will be required to file a 941- M
SUTA Form 21 Make sure rates are updated Make sure excess wages are correct State has updated online submission. Register online at : sd.wagereport.com Rates: SD Investment Rate is.53% SD Surcharge Rate is 0% for Quarters 1 & 2 SUTA wage base is $11,000
Year End Procedures
Compile Following Payroll Reports: Form 941 – Previous 4 Quarters Unemployment Forms – All 4 Quarters Form 940 (If Applicable) Prepare Bank Reconciliation for January Prepare Forms Prepare W-2s and W-3 Tie W-3 number to total of all 4 quarters of 941
W-2 to Employee by January 31 st, 2012 W-2s and W-3 to Social Security Administration by: March 1, 2012 (Paper File) March 31, 2012 (Electronic File) State Copies of W-2s and W-3. (Check with each individual state) 941 and SUTA Reports January 31, 2012
Include in income in boxes 1, 3, 5, and 12 on form W-2 And on Form 941 and SUTA Calculation for every $1,000 over $50,000 of coverage you provide for employees Calculation table found in Publication 15B
Facts that provide evidence of the degree of control and independence fall into three categories: Behavioral Financial Type of Relationship
Behavioral Type of instructions given Degree of instruction Evaluation systems Training Set hours
Financial Significant investment Un-reimbursed expenses Services available to the market
Type of Relationship: How the worker and business perceive their relationship to each other. Written contracts Employee benefits Permanency of the relationship
Are Board and Tribal Council Members Employees? Tribal Council- Employees but not subject to FICA. FIT voluntary Appointed Board Members- Use category of evidence method to determine status.
Stipends are taxable. Board Members should be treated as employees not Independent contractors. IRS Publication 4268 Employment Tax Desk Guide for Indian Tribal Governments
Uncollected/unreconciled Travel Advances for non-employees IF the IRS audits and finds these situations you will be assessed penalties and interest for failure to issue 1099s.
Considered compensation to employees Should be included on W-2 and reported on 941, SUTA, etc… Creates an increased expense for the organization Important to reconcile monthly or as frequently as possible. IRS has indicated that amending returns might be necessary. If you record an allowance for these, you should probably have included it on the W-2.
SUTA rates will be issued in December Health Insurance reporting on W-2 has been delayed one year. Not reportable until Social Security withholding decreased by 2% (from 6.2% to 4.2%) for employees – Employers still pay 6.2% IRS will no longer be sending blank forms out. You must retrieve them from the IRS website.