JULY 14TH, 2010
By CPA SAM
Q. I have a full-time and a part-time job with different companies. My employers are both taking out Social Security tax. Is this correct?
A. Good Question! There are several common misconceptions about Social Security withholding from a paycheck. This is probably one of the biggest. The answer is….a resounding YES!!! Each employer of record is required to withholding 6.2% of your taxable wage for Social Security purposes up to the annual limit. That is $106,800 for 2010. Even if you have 5 jobs at once, each employer is required to withhold this amount. Even if you are retired and collecting Social Security and have a job somewhere just for fun, the employer is still required to withhold Social Security tax.
You may ask, “What happens if the income from all my jobs add up to more than that limit? Can I get all my employers to stop withholding Social Security?” The answer is no. You do have the ability to get a refund on your tax return if the total Social Security tax paid during the year was more than the maximum required. That is $6621.60 for 2010. You’ll see this on line 69 of the 1040 form. The biggest drawback to this is that the multiple employers are not permitted to recover the overpaid Social Security. They will match 6.2% up to the limit for everyone regardless whether that employee will be refunded overpaid tax later in the year.
APRIL 7TH, 2010
By CPA SAM
Today is a special edition targeted to those who are still in the education system. The consensus this time of year is “spring fever” and “I can’t wait until summer is here.” Before you start the 2-month brain checkout however, let’s keep some things in mind.
One of my favorite bloggers, Jeff Thredgold, publishes a regular weekly economic new update. While I don’t always agree with his thoughts, it is fascinating to read the updates of statistics published by the government relating to all facets of our economy. In the most recent edition, he discusses the job market and the associated unemployment rate. One of the facts published is:
“It comes as no surprise that one’s educational attainment typically has a direct impact on employment. The jobless rate for those workers with less than a high school diploma was 14.5% in March. For those with a high school diploma, but no college, the rate was 10.8%.
For those workers with some college or an Associate’s degree, the jobless rate was 8.2%. For those with a Bachelor’s degree and higher, the average unemployment rate was 4.9%.”
My blog topics focus mainly on personal finance, tax and accounting. In this case though, economic statistics point out a very important concept. The best way to gain control over your finances is through education. Many other studies promote the fact that educated employees tend to earn higher incomes over their lifetime as well.
A combination of education, higher wages, less job loss and responsible financial moves can lead to a happier and more successful life. Those that look forward to getting out of high school and never going back to school are setting themselves up for a much more difficult life financially. As we move ever closer to the close of another school year, keep these facts in mind as you make plans for the future. The financial and educational choices made early in life have dramatic effects on the later years of life.
You can sign up to receive the weekly economic news for free from essentially any page on Mr. Thredgold’s website.
MARCH 24TH, 2010
By CPA SAM
Q. A 2% shareholder of an s corporation is also an emploeye. The corporation offers health insurance under a premium only 125 cafeteria plan. Is the shareholder/employee eligible to participate? If so should the corporation’s contribution be reported as wages?
A. There are lots of good articles already on the web about 2% shareholders of S corporations. These would of course be secondary resources on the topic but they can provide coverage from the perspective of those who work in this field every day.
The key is that the IRS considers an S corp to be a partnership when dealing with employee fringe benefits. If the company pays for the health insurance of a 2% shareholder, it is allowed to take a deduction for that benefit. The full amount of that premium would be considered taxable income to the shareholder/employee. So…yes, a shareholder can participate in the plan, but cannot get pre-tax treatment like the rest of the employees would under a section 125 or “cafeteria plan”.
Some states do not allow single person health plans to be purchased as a business. If the 2% shareholder is the only shareholder in the S corp, then perhaps he should consider hiring his spouse to enable them to purchase a business plan. Otherwise, health insurance must be purchased as an individual and can only be deducted once it passes 7.5% of AGI on the tax return if the individual itemizes.
The IRS published a bulletin about this topic that goes into much more detail. It is IRB 2008-2 and can be found here.
JANUARY 8TH, 2010
By CPA SAM
Hooray!! The annual update to the document every employer is anticipating finally occurred. Okay, maybe not all employers were as excited to see this as I was. Publication 15 should be every employer’s best friend. This document contains instructions on everything from obtaining an Employer Identification Number (EIN) to withholding, to employer taxes.
How does a business determine if it has employees or contractors? Read page 8 section 2.
What if I want to hire a family member for an employee? Read page 9 section 3.
How does the IRS define wages? What is included? Read page 10 section 5.
How much do I withhold from my employees’ wages? Read page 39 and 40 if you want to use a formula. Reference pages 41-60 if you wish to use the charts. You could also use PaycheckCity.com for this since all the values have already been programmed into all the calculators for the last 10 years.
Have you considered employer costs like FUTA (unemployment)? Read page 30 section 14.
Do you get the hint yet that this is a very important document? Some of the most frequent questions I get from employers through the American Payroll Associations member hotline are related to supplemental pay. This could be bonuses, commissions, overtime pay etc. There are specific instructions in Publication 15 for the right way to withhold from these types of payments.
Each state that has required withholding will have a similar document. Employers should also find and download a version of the state document to make sure they understand specific requirements for their state that may be different than the federal information.
