Tax

Federal law requires most employers to withhold federal taxes from their employees’ wages. Whether you’re a small business owner who’s just starting out or one who has been in business a while and is ready to hire an employee or two, here are five things you should know about withholding, reporting, and paying employment taxes.

1. Federal Income Tax. Small businesses first need to figure out how much tax to withhold. Small business employers can better understand the process by starting with an employee’s Form W-4 and the withholding tables described in Publication 15, Employer’s Tax Guide. Please call if you need help understanding withholding tables.

2. Social Security and Medicare Taxes. Most employers also withhold social security and Medicare taxes from employees’ wages and deposit them along with the employers’ matching share. In 2013, employers became responsible for withholding the Additional Medicare Tax on wages that exceed a threshold amount as well. There is no employer match for the Additional Medicare Tax, and certain types of wages and compensation are not subject to withholding.

3. Federal Unemployment (FUTA) Tax. Employers report and pay FUTA tax separately from other taxes. Employees do not pay this tax or have it withheld from their pay. Businesses pay FUTA taxes from their own funds.

4. Depositing Employment Taxes. Generally, employers pay employment taxes by making federal tax deposits through the Electronic Federal Tax Payment System (EFTPS). The amount of taxes withheld during a prior one-year period determines when to make the deposits. Publication 3151-A, The ABCs of FTDs: Resource Guide for Understanding Federal Tax Deposits and the IRS Tax Calendar for Businesses and Self-Employed are helpful tools.

Failure to make a timely deposit can mean being subject to a failure-to-deposit penalty of up to 15 percent. But the penalty can be waived if an employer has a history of filing required returns and making tax payments on time. Penalty relief is available, however. Please call the office for more information.

5. Reporting Employment Taxes. Generally, employers report wages and compensation paid to an employee by filing the required forms with the IRS. E-filing Forms 940, 941, 943, 944 and 945 is an easy, secure and accurate way to file employment tax forms. Employers filing quarterly tax returns with an estimated total of $1,000 or less for the calendar year may now request to file Form 944,Employer’s ANNUAL Federal Tax Return once a year instead. At the end of the year, the employer must provide employees with Form W-2, Wage and Tax Statement, to report wages, tips, and other compensation. Small businesses file Forms W-2 and Form W-3, Transmittal of Wage and Tax Statements, with the Social Security Administration and if required, state or local tax departments.

Questions about payroll taxes?

If you have any questions about payroll taxes, please contact the office.

• By Leon Clinton
• July 28, 2017

If you’re one of the more than 3.4 million taxpayers who claimed deductions for business use of a home (commonly referred to as the home office deduction)–but haven’t taken advantage of it because you thought it was too complicated–then you might be interested in the simplified option.

Available since tax year 2013, the optional home office deduction is capped at $1,500 per year and is based on $5 a square foot for up to 300 square feet of office space.

Currently, taxpayers claiming the home office deduction are generally required to fill out a 43-line form (Form 8829, Expenses for Business Use of Your Home) often with complex calculations of allocated expenses, depreciation, and carryovers of unused deductions. Taxpayers claiming the optional deduction complete a significantly simplified form requiring taxpayers to complete a short worksheet in the tax instructions, and then enter the result on the tax return. There is a special calculation for daycare providers.

Self-employed individuals claim the home office deduction on Form 1040, Schedule C, Line 30; farmers claim it on Schedule F, Line 32 and eligible employees claim it on Schedule A, Line 21.

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method. Business expenses unrelated to the home, such as advertising, supplies, and wages paid to employees are still fully deductible.

Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.

Regardless of the method used to compute the deduction, business expenses in excess of the gross income limitations are not deductible. Deductible expenses for business use of a home include the business portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance, and repairs. In general, expenses for the parts of the home not used for business are not deductible.Deductions for business storage are deductible when the dwelling unit is the sole fixed location of the business or for regular use of a residence for the provision of daycare services; exclusive use isn’t required in these cases.

Please contact the office if you would like more details about the simplified home office deduction.

• By Leon Clinton
• July 28, 2017

Under a joint IRS and U.S. Department of the Treasury ruling issued in 2013, same-sex couples, legally married in jurisdictions that recognize their marriages, are treated as married for federal tax purposes, including income and gift and estate taxes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.

In addition, the ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit.

Any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, a U.S. territory or a foreign country is covered by the ruling. However, the ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law.

Legally-married same-sex couples generally must file their federal income tax return using either the married filing jointly or married filing separately filing status.

Individuals who were in same-sex marriages may, but are not required to, file original or amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the statute of limitations.

Generally, the statute of limitations for filing a refund claim is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. As a result, refund claims can still be filed for tax years 2014, 2015 and 2016. Some taxpayers may have special circumstances, such as signing an agreement with the IRS to keep the statute of limitations open, which permit them to file refund claims for earlier tax years.

In addition, employees who purchased same-sex spouse health insurance coverage from their employers on an after-tax basis may treat the amounts paid for that coverage as pre-tax and excludable from income.

Need help?

If you need to file a claim for a refund or have any questions about the IRS ruling, please call for assistance.

• By Leon Clinton
• July 25, 2017