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Tag Archives: withholdings

Employers should approach payroll tax deferral cautiously

Erin Mirante0 Comment

As you’re probably aware, President Trump signed an executive memorandum on August 8 creating a payroll tax deferral. The development has brought with it much uncertainty regarding administrative compliance and the long-term impact of this pandemic-related relief.

Deferral details

Under the memorandum, an employer may choose to postpone withholding, deposit and payment of the employee’s share of Social Security tax (6.2%) on wages paid from September 1, 2020, through December 31, 2020. The wages in question must be less than $4,000 on a biweekly pay period basis or an equivalent amount in other pay periods. The threshold is determined on a pay-period-by-pay-period basis.

The IRS recently released Notice 2020-65, which postpones the withholding and remittance of the employee’s share of Social Security tax ratably between January 1, 2021, and April 30, 2021. Penalties, interest and additions to tax will begin to accrue on May 1, 2021, for any unpaid taxes. The Notice states that, if necessary, an employer may arrange to collect the total applicable taxes from the employee.

Your decision

The postponement of the withholding and remittance of the employee’s share of Social Security tax is optional. You may seek input from employees about their desire to participate but doing so isn’t required. Whether to permit employees to opt in or opt out of the postponement is also at your discretion and not addressed in recent guidance.

An IRS spokesperson has explained that Form 941 is being revised for the third quarter of 2020 to report postponed taxes for employers who elect to participate in the deferral. The final Form 941 will be released in late September for filing in October.

The Notice permits employers who have elected the postponement to begin withholding the employee’s share on January 1, 2021, but such withholding may have unforeseen and detrimental consequences. Specifically, unless Congress passes a law to forgive the deferred taxes, employees will end up receiving less in take-home pay in the first four months of 2021.

Further developments

With so many questions remaining, employers should proceed carefully when deciding whether to opt for the postponement. The IRS has stated that, regardless of whether the amounts are recovered from an employee, the employer will remain liable for the employee’s share and must remit the postponed withholding of the employee’s share of Social Security tax by April 30, 2021.

However, if you choose to elect the postponement, it’s a good idea to provide a notice to employees that clearly states that the employee’s share of Social Security is postponed until December 31, 2020, and withholding for these amounts will occur ratably between Jan. 1, 2021, and April 30, 2021. That extra withholding will be in addition to employment tax withholding otherwise required on wages for January through April 2021. Our firm can provide more information on the payroll tax deferral and keep you updated on further developments.

© 2020

Due Dates for Federal Payroll Taxes

Pam Williams0 Comment

by Eric Murphy

If you’re a Sole Proprietor, a Partner in a partnership, a member of an LLC, or an officer in a corporation, it’s likely you have employees and yourself on payroll.  Due to this fact, it’s necessary for you to pay payroll taxes for Federal Withholding, Social Security, Medicare, as well as North Carolina Withholding taxes.

The frequency in which you pay the taxes is determined by the payroll tax liability incurred in any given Quarter in the Calendar year as follows:

  • Liability under $2,500: If you are required to file Form 941 and your employment tax liability for the preceding quarter or current quarter is less than $2,500, you may pay the taxes for the current quarter with your timely filed return instead of making deposits. These would be filed the final days of the months following the end of the quarters on January 31st, April 30th, July 31st, and October 31st.  The NC withholding taxes paid in with Form NC-5 should be filed at the same time.
  • Liability of $2,500 or more: Unless you are eligible to make payments with your return, you must deposit your taxes. If you are a Form 941 filer and you are not sure your total tax liability for the current quarter will be less than $2,500, (and your liability for the preceding quarter was not less than $2,500), make deposits using the semiweekly or monthly rules so you won’t be subject to failure-to-deposit penalties.

Per IRS Tax Topic 757, if you reported taxes of $50,000 or less during the previous quarter, you are a monthly schedule depositor, and you generally must deposit your employment taxes on payments made during a given month on or before the 15th day of the following month. For example, you must deposit taxes on payments made in January by February 15. If the 15th of any calendar month falls on a Saturday, Sunday or legal holiday, the deposit is due by the next banking day.  This same schedule applies to paying NC withholding taxes with Form NC-5.

Per IRS Publication 15 (Circular E), Employer’s Tax Guide for use in 2015, the following payment schedule must be used for semi-weekly filers (Entities with over $50,000 of tax liability in the previous quarter):

  • Deposit Federal Withholding and FICA employment taxes for payroll payments made on us flagWednesday, Thursday, and/or Friday by the following Wednesday.
  • Deposit taxes for payroll payments made on Saturday, Sunday, Monday, and/or Tuesday by the following Friday.
  • Per IRS Tax Topic 757, if any of the 3 days following the date of the payroll payments is a holiday, you have an additional day for each day that’s a holiday to make the payment. For example:  If payroll was paid on Friday, September 4th the payroll tax deposits won’t be due until the following Thursday, given that Monday, September 7th, was a holiday.

You will make your deposits online through www.EFTPS.gov and report your deposits quarterly by filing Form 941 or annually by filing Form 944, it all depends on what the IRS instructs you to file based on the payroll thresholds you report in your initial 941 report.

It’s also essential that NC unemployment taxes are paid in for the quarter in the month following the end of the quarter to the NC Division of Employment Security.  These are paid in with Form NCUI-101 and must be prepared with the proper SUI rate assigned to your entity from the NC Division of Employment Security at the beginning of the year.  If you need the rate, an operator at the Division can provide it for you as long you provide either your Employer Identification Number or Account ID number assigned by the Division.  This should be filed at the same time as Form 941 is filed with the IRS.

If you have questions about your payroll taxes and withholdings, contact our office and speak to our payroll specialists.  Langdon & Company LLP has experienced professionals that would be glad to assist you in these matters.

Eric ([email protected]) is a senior in our tax practice.  He prepares and reviews a combination of both corporate and individual tax returns.

Are You Withholding Enough?

Pam Williams0 Comment

by Cody Taylor

Have you ever gotten to the end of the year, filed your taxes and then been surprised by what you owe?  One of the factors that can contribute to your surprise is not withholding enough taxes from your paycheck.  If you are a W-2 wage earner (your employer takes taxes out of your paycheck) and your income profile isn’t very complicated you may be able to use the IRS Withholding Calculator to figure out the correct withholding level for you.

The IRS gives some tips for using the program:wallet - not used

  • Have your most recent pay stubs handy
  • Have your most recent income tax return handy
  • Estimate values if necessary, remembering that the results can only be as accurate as the input you provide.

To Change Your Withholding:

  • Use your results from this calculator to help you complete a new Form W-4, Employee’s Withholding Allowance Certificate
  • Submit the completed Form to your employer

Even if you’ve always gotten a refund there may be reason to look into your withholding amount or whether you may need to make an end of year estimated payment to cover any tax liability if your situation has recently changed.  Some scenarios include an increase in nonwage income (Interest, dividends, capital gains (ex. stocks), alimony or self-employment income), a change in marital status, you moved to a new state, gained or lost a dependent or maybe you simply had a change of income level recently.  Nonwage income does not usually have taxes withheld so an increase from one year to the next can surprise people at tax time if they aren’t prepared for it.

Withholding information is especially important when you or your spouse is self-employed.  The IRS Withholding Calculator is not recommended when your income profile contains alternative minimum tax, self-employment tax, or if you receive pass-through income in the form of a K-1(s).  These more complicated situations may require an end of year tax projection to ensure your tax liabilities are covered.

If the IRS Withholding Calculator is not right for your situation and you need some additional assistance with end of year tax planning please contact our office for additional information.

Cody ([email protected]) is a staff in our tax department.  He focuses on various closely-held family companies, and trusts.