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Employer's Tax Guide Study Guide
Quiz
What is an EIN, and why is it necessary for employers? An Employer Identification Number (EIN) is a nine-digit number issued by the IRS. It is required for employers to identify their tax accounts when reporting employment taxes or providing tax statements to employees, as well as for other entities with no employees who are still required to report information to the IRS.
Briefly explain the common law definition of an employee. Under common law, an employee is someone for whom the employer has the right to control what work will be done and how it will be done. Even if the employee is given some freedom of action, it's the right to control the details of how services are performed that matters.
What is the significance of Form W-4, and when should employers request it from their employees? Form W-4, Employee's Withholding Certificate, is used by employees to indicate their filing status and withholding allowances to determine the amount of federal income tax to withhold from their wages. Employers should ask new employees for Form W-4 when they are hired and should also ask for an updated form from current employees when they have a change in their status.
Describe the difference between regular wages and supplemental wages and give two examples of each. Regular wages are standard payments for work, such as hourly pay or salaries. Supplemental wages are payments that are not considered regular wages, like bonuses, commissions, or overtime pay, while some employers treat overtime as regular wages.
How do the monthly and semiweekly deposit schedules differ, and what determines which schedule an employer must use? The monthly schedule requires employers to deposit taxes by the 15th of the following month. The semiweekly schedule requires deposits by the following Wednesday for payments made Wednesday-Friday and by the following Friday for payments made Saturday-Tuesday. The schedule used is determined by the employer's total tax liability during a lookback period.
What is the $100,000 Next-Day Deposit Rule, and how does it affect employers? The $100,000 Next-Day Deposit Rule states that if an employer accumulates $100,000 or more in taxes on any single day, they must deposit the amount by the next business day, regardless of their usual deposit schedule. It also converts a monthly schedule employer into a semiweekly schedule employer for the rest of the calendar year.
What steps should an employer take to ensure the accuracy of their tax deposits? To ensure the accuracy of tax deposits, employers should verify that their total tax liability reported on their forms matches the total tax liability shown in their records and on relevant schedules. They also shouldn't show negative amounts and make sure not to adjust liabilities on a current return for prior period errors.
What is the lookback period and how is it used? The lookback period is a specific period of time used to determine an employer's deposit schedule. It is based on the total employment tax liability reported during a specific set of quarters or the preceding year, depending on the forms the employer is using.
Describe the penalties for failing to deposit taxes. There are civil penalties for failing to deposit taxes correctly which can range from 2% to 10%. There can also be additional penalties if the employer is found to willfully attempt to evade, not truthfully account for, or not pay over taxes.
What are the employer's responsibilities regarding a new employee's eligibility to work in the U.S.? Employers must verify that each new employee is legally eligible to work in the United States. This includes completing the U.S. Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification, and keeping the form on file.
Essay Questions
Discuss the different types of workers (common law employee, statutory employee, independent contractor) and how their classification impacts an employer's tax responsibilities.
Explain the process for determining and maintaining an accurate deposit schedule for employment taxes, including the implications of the $100,000 next-day deposit rule and the accuracy of deposits rule.
Describe an employer's responsibilities regarding wage payments and withholdings, including social security, Medicare, and federal income taxes. Include how different compensation situations impact these withholdings.
Detail the requirements for reporting and correcting employment taxes, including when to use Forms 941, 943, 944, 945, and the respective adjusted forms.
Analyze the employer's responsibilities concerning fringe benefits, including taxable and nontaxable benefits, and how these benefits impact an employer's employment tax responsibilities.
Glossary
Accountable Plan: A reimbursement or allowance arrangement that meets specific IRS rules, ensuring reimbursements for business expenses are not considered taxable income for employees.
Additional Medicare Tax: A 0.9% tax on wages exceeding a certain threshold, imposed on employees. Employers must withhold this tax when required and it must be reported on the relevant tax form.
Common Law Employee: An individual over whom an employer has the right to control both what work is done and how it is done.
Crew Leader: A person who hires and pays farmworkers on their own behalf or on behalf of the farm operator.
EIN (Employer Identification Number): A nine-digit number assigned by the IRS to businesses for tax identification purposes.
EFTPS (Electronic Federal Tax Payment System): The system used to make federal tax deposits electronically.
FICA Taxes: Refers to both social security and Medicare taxes.
Form 941: Employer's Quarterly Federal Tax Return, used to report income, social security, and Medicare taxes withheld.
Form 943: Employer's Annual Federal Tax Return for Agricultural Employees, used to report farmworker employment taxes.
Form 944: Employer's Annual Federal Tax Return, used by smaller employers to report employment taxes annually.
Form 945: Annual Return of Withheld Federal Income Tax, used to report withheld income tax from nonpayroll payments.
Form W-2: Wage and Tax Statement, provided to employees annually, detailing their earnings and taxes withheld.
Form W-4: Employee's Withholding Certificate, used by employees to indicate their filing status and allowances for tax withholding.
Fractions-of-cents adjustment: An adjustment to the total social security and Medicare taxes withheld when the actual amount withheld is slightly more or less than the calculated amount due to rounding.
FUTA Tax (Federal Unemployment Tax): A tax paid by employers to fund unemployment benefits.
Lookback Period: A specified period used to determine an employer's deposit schedule for employment taxes.
Monthly Schedule Depositor: An employer who deposits employment taxes on a monthly basis, typically due by the 15th of the following month.
Nonaccountable Plan: A reimbursement or allowance arrangement that does not meet all IRS requirements; any payments made under it are included in the employee's taxable wages.
Nonpayroll Taxes: Federal income tax that is withheld from payments other than wages.
Payroll Period: A period for which an employer usually pays wages.
Private Delivery Service (PDS): Certain designated delivery services that can be used to meet the timely mailing as timely filing rule for tax returns.
Semiweekly Schedule Depositor: An employer who deposits employment taxes on a semiweekly basis (deposits are due on Wednesdays or Fridays, based on the pay date).
Statutory Employee: A worker who may not be considered an employee under common law but is classified as an employee by statute for social security and Medicare tax purposes.
Supplemental Wages: Wage payments to an employee that are not regular wages, such as bonuses, commissions, and overtime pay.

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