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Frequently Asked Tax Questions And Answers
Keyword: Salaries
4.3 Interest/Dividends/Other Types of Income: 1099–MISC, Independent Contractors, and Self-employed
I received a Form 1099-MISC for an employee bonus. How do I report
it?
Employee bonuses should be reported on Form W-2, not on Form 1099-MISC.
Contact your employer and ask them to issue the correct form. If they will
not issue you a Form W-2 for the bonus, complete Form 4852 (PDF), Substitute for Form W-2, Wage and Tax Statement. The
bonus amount is reported on Line 7 on your Form 1040 or 1040A or line 1 of Form 1040EZ (PDF).
References:
4.6 Interest/Dividends/Other Types of Income: Employee Reimbursements, Form W–2, Wage Inquiries
On my Form W-2, why would line 1, wages, tips, other compensation,
be different from line 3, social security wages, and line 5, medicare wages
and tips?
When the amount in box 1 is less than the amount in boxes 3 and 5, you
have received some employee compensation that is not subject to Federal income
tax but is subject to Social Security and Medicare taxes. The most common
example of this is deferred compensation, e.g. contributions to a 401(k) plan.
Another example is an employee benefit plan that provides for the contribution
of pretax dollars (e.g. cafeteria plan, flexible spending arrangement, dependent
care plan, etc.).
When the amount in box 1 is more than the amount in boxes 3 and 5, you
have received some employee compensation that is not defined as wages for
the purpose of social security and Medicare taxes. An example of this would
be when a child works for his or her parent in the parent's trade or business
and is under age 18.
References:
Is my employer supposed to include mileage reimbursement as a part
of my gross income on my Form W-2, and do I include it on my return as wages,
tips & salaries?
That depends on whether you were reimbursed under an accountable plan or
under a nonaccountable plan. Generally, an employer will have an accountable
plan if it pays business expenses that would otherwise be deductible by the
employee, requires the employee to substantiate the expense, and does not
permit the employee to keep any reimbursements that exceed expenses. If the
employer does not use an accountable plan, mileage reimbursement would be
included in your wages on Form W-2. For more information on reimbursements
and accountable plans, refer to Chapter 6 of Publication 463, Travel,
Entertainment, Gift, and Car Expenses.
If your mileage reimbursement is included in box 1 on Form W-2, you need
to enter that amount on the "wages, salaries, and tips" line of your tax return.
If you itemize your deductions on Form 1040, Schedule A (PDF), Itemized
Deductions, you may deduct the business transportation expense as an
employee business expense, subject to the 2% limitation of adjusted gross
income. You may usually deduct either your actual business automobile expenses
or use the standard mileage rate. For more information on when you may use
the standard mileage rate, refer to Chapter 4 of Publication 463, Travel,
Entertainment, Gift, and Car Expenses.
References:
Is there any amount of wages too low to report on my tax return?
There is no wage amount too low that you would not include in gross income
on your tax return. If your total income were below your filing requirement,
however, you would not have to file a tax return. However, you may wish to
file to claim a refund of withheld taxes. For information on filing requirements,
please refer to the instructions for your income tax form.
References:
4.10 Interest/Dividends/Other Types of Income: Ministers' Compensation & Housing Allowance
A minister receives a salary plus a housing allowance. Is the housing
allowance income? Where do the minister report it?
A minister's housing allowance, sometimes called a parsonage allowance
or a rental allowance, is excludable from gross income for income tax purposes,
but not for self-employment tax purposes.
If you are a minister and receive as part of your pay for your services
as a minister an amount officially designated as a rental allowance, you can
exclude the allowance from income if the amount is used to provide or rent
a home. However, the exclusion is limited to the lesser of the fair market
rental value (including furnishing, utilities, garage, etc.) the amount officially
designated (in advance of payment) as a rental or housing allowance, or the
actual amount used to provide a home, and cannot exceed what is reasonable
pay for your services.
If housing is furnished to you by your congregation as pay for your services
as a minister, the exclusion cannot be more than what is reasonable pay for
your services, and is limited to the fair market rental value (including furnishings,
utilities, garage, etc.) of the home.
If you own your home and you receive a housing allowance as part of your
pay, for your services as a minister, the exclusion cannot be more than the
smaller of the following:
the amount actually used to provide a home,
the amount officially designated (in advance of payment) as a rental or
housing allowance, or
the fair market rental value of the home, including furnishings, utilities,
garage, etc.
References:
- Publication 517, Social Security and Other Information
for the Members of the Clergy and Religious Workers
- Tax Topic 417, Earnings for clergy
12.1 Small Business/Self-Employed/Other Business : Entities: Sole Proprietor, Partnership, Limited Liability Company/Partnership (LLC/LLP), Corporation, Subchapter S Corporation
Are partners considered employees of a partnership or are they self-employed?
Partners are considered to be self-employed. If you are a member of a partnership
that carries on a trade or business, your distributive share of its income or loss
from that trade or business is net earnings from self-employment. Limited partners
are subject to self-employment tax only on guaranteed payments, such as salary and
professional fees for services rendered.
References:
12.2 Small Business/Self-Employed/Other Business : Form 1099–MISC & Independent Contractors
I received a Form 1099-MISC from a company that paid all workers this way.
Will my income go on line 21 of Form 1040 as Other Income or on Schedule
C?
Do not report the income reported on Form 1099-MISC, box 7 on line 21 if the income
is self employment income. If your income was reported to you on a Form 1099-MISC,
in box 7, the company has treated you as an independent contractor and your income
is treated as self-employment income. You will need to report that income, and any
related expenses, on Form 1040, Schedule C (PDF), Profit
or Loss from Business, or you may qualify to use Form 1040, Schedule C-EZ (PDF), Net Profit from Business. You will also need
to use Form 1040, Schedule SE (PDF), Self-Employment
Tax to compute and report your social security and Medicare tax. You may also
need to make quarterly estimated tax payments. You would use Form 1040-ES (PDF), Estimated Tax for Individuals, for this.
References:
- Form 1040, Schedule C (PDF), Profit
or Loss from Business
- Form 1040, Schedule C-EZ (PDF), Net
Profit from Business
-
Instructions for Form 1040, Schedule C
- Form 1040, Schedule SE (PDF), Self-Employment
Tax
- Form 1040-ES (PDF), Estimated Tax for
Individuals
- Publication 334, Tax Guide for Small Business
- Tax Topic 355, Estimated Tax
12.3 Small Business/Self-Employed/Other Business : Form W–2, FICA, Medicare, Tips, Employee Benefits
I started a new business. I need information on how to file Forms W-2?
First of all, Form W-2 (PDF) should be furnished to your
employees by January 31. It is also your responsibility as an employer to file Forms
W-2 with the Social Security Administration (SSA) for your employees, showing wages
paid and taxes withheld for the year. You must send Copy A to the SSA with Form W-3 (PDF) by February 28. If you file electronically (not by magnetic
media) the due date is March 31. Form W-3 shows the total of all W-2s being sent.
The address is listed in the
Instructions for Form W-2 and W-3. Refer
to Tax Topic 752, Form W-2 - Where, When and How to File, or Publication 15, Circular E, Employer's Tax Guide.
References:
I sold my business and the new owners kept the employees. What is my requirement
as the former owner for filing Forms W-2 for the employees?
If the new owner acquired substantially all of your business property and retained
your employees, you may need to file a final Form 941 (PDF), Employers
Quarterly Federal Tax Return . The final Form 941 generally must be filed on
or before the last day of the first calendar month following the quarter for which
the return is made. You will need to furnish Forms W-2 to your employees by the time
you are required to file the final Form 941. You will also need to file Forms W-2
and W-3 on or before the last day of the second calendar month following the period
for which the final Form 941 is filed.
If you and the new owner agree, you can be relieved of furnishing Forms W-2 to
the employees and filing Forms W-2 and W-3 with the Social Security Administration.
Such an agreement would be allowed if the employees will be paid wages by the new
owner in the same calendar year and the Forms W-2 furnished to these employees will
contain the required information , i.e. wages paid and taxes withheld, from both employers.
The new employer will furnish Forms W-2 to the employees and will also file the required
Forms W-2 and W-3 with the Social Security Administration. These actions will follow
the normal end-of-year time lines. You will remain responsible for the Form W-2 and
W-3 reporting obligations for the employees who are not employed by the new owner.
Please refer to Revenue Procedure 96-60 for a full discussion of this
situation.
References:
12.6 Small Business/Self-Employed/Other Business : Forms 941, 940, Employment Taxes
All of the Forms 941 that I can find ask for the number of employees on
record as of March 12th. Is there a similar form for the second quarter?
The Form 941 is the same for all 4 quarters. Only on the January-March calendar
quarter Form 941 should you enter the number of employees on your payroll during the
pay period that includes March 12. You do not need to answer this question on the
Forms 941 for the other 3 quarters.
References:
We are about to hire employees and need to know how much tax to take out
and where to send this money?
You will need to secure a completed Form W-4 (PDF), Employee's
Withholding Allowance Certificate, from each employee. You will need Publication 15, Circular E, Employer's Tax Guide, and Publication 15-A (PDF), Employer's Supplemental Tax Guide, to determine
the amount of withholding and for directions on depositing the withholding amounts
and other employment taxes. Publication 15T, New Withholding Tables contains
the revised withholding tables. The change is a result of the Jobs and Growth Tax
Relief Reconciliation Act of 2003. This publication is a supplement to Publication
15.
Generally, employers will quarterly file Form 941 (PDF), Employer's
Quarterly Federal Tax Return, and annually file Form 940 (PDF), Employer's Annual Federal Unemployment Tax Return (FUTA), and Form W-2 (PDF), Wage and Tax Statement, with Form W-3 (PDF), Transmittal of Income and Tax Statements.
References:
- Publication 15, Circular E, Employer's Tax Guide
- Publication 15-A (PDF), Employer's
Supplemental Tax Guide
- Form 940 (PDF), Employer's Annual Federal
Unemployment Tax Return
- Form 941 (PDF), Employer's Quarterly
Federal Tax Return
- Form W-2 (PDF), Wage and Tax Statement
- Form W-3 (PDF), Transmittal of Income
and Tax Statements
- Form W-4 (PDF), Employee's Withholding
Allowance Certificate
- Publication 15-T (PDF) , New Withholding
Tables (For wages Paid Through December 2004)
If a new employee has reached the limit for social security wage base with
a previous employer in the same year, does the new employer need to withhold FICA
taxes on wages paid for both the company and employee?
Yes, the social security wages base limit is applied to each separately employer.
The individual employee is subject to social security taxes up to the maximum amount
from each employer. As a result of an employee working for two or more employers in
the same year, social security tax in excess of the maximum wage base may be withheld
from his or her pay. An employee can claim the excess of social security tax withheld
from pay resulting from working for two or more employers as a credit against the
employee's income tax when filing Form 1040 (PDF), U.S.
Individual Income Tax Return. However, there is no provision for an employer
to get a credit for the employer portion of social security tax paid in this situation.
There is no wage limit on the Hospital Insurance tax.
References:
We have an employee who has reached the limit for social security tax. We
understand that this limits withholding requirements on the employee's portion of
social security tax. However, is the employer still required to contribute their portion
of the social security tax for this employee?
The employer is subject to the same social security tax rate and wage base limits
as the employee. When the employee reaches their limitation, the employer also reaches
the limitation and no longer has to pay social security taxes for that employee.
References:
If an employee is collecting social security benefits, is the employer required
to take out social security and medicare taxes?
Yes, the employer is required to follow the withholding requirements for social
security and medicare taxes even if an employee is collecting social security benefits.
Per Chapter 9 of Publication 15, Circular E, Employer's Tax Guide, employee
wages are subject to social security and Medicare taxes regardless of the employee's
age or whether he or she is receiving social security benefits.
References:
What are the maximum wages subject to social security and the maximum social
security tax to be withheld for 2003?
The maximum wages subject to social security is $87,000 for 2003 resulting in a
maximum for the employee portion of social security tax of $5,394.00 (of course, there
is no limit on wages subject to medicare tax). Additional information can be found
at the Social Security Administration web site.
References:
12.8 Small Business/Self-Employed/Other Business : Schedule C & Schedule SE
I am self-employed. How do I report my income and how do I pay Medicare
and social security taxes?
Your self-employment income is reported on Form 1040, Schedule C (PDF), Profit
or Loss from Business, or on Form 1040, Schedule C-EZ (PDF), Net
Profit from Business.
Your Medicare and social security taxes are reported on Form 1040, Schedule SE (PDF), Self-Employment Tax.
As a self-employed person, you pay your Medicare and social security taxes the
same way you pay your income taxes. If you expect to owe less than $1,000 in total
taxes, you can pay them when you file your income tax return. If you expect to owe
$1,000 or more in total taxes, you will need to make estimated tax payments. These
payments are made quarterly using Form 1040-ES (PDF), Estimated
Tax for Individuals. You will need to figure these taxes at the beginning of
the year. To learn about figuring and making estimated tax payments, please refer
to Publication 505, Tax Withholding and Estimated Tax.
References:
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