The payroll tax rates seem to be constantly changing. To help you keep abreast of filing requirements, the following is a summary of the various payroll tax returns so you can better understand them. These rates apply to 2002, 2003, 2004 and 2005 payroll.
There are 4 different payroll reporting requirements to be met:
Withheld from Employee:
1. Federal form 941 (Fed withholding and FICA)
2. Louisiana withholding
Employer Expense only:
3. Louisiana unemployment-regular
4. Federal form 940 (Fed Unemployment)
The following is a short comment on each of the taxes to help you comply with the requirements of each one better.
WITHHOLDING &
FICA (IRS Form 941)
Federal Withholding is merely the money withheld from the employee and sent to the IRS for the employee. It is his money and does not cost the employer anything. The exact amounts to be withheld are in a table in IRS Circular E.
FICA is the social security contributions for the employee. The employer is to withhold 7.65% (2002-2005 Rate) from the employee's payroll and the employer is to match that with an additional 7.65% (2002-2005 Rate). Payroll is taxable up to a maximum of $84,900 (2002 Limit), $87,000 (2003 rate), $87,900 (2004 rate) and will probably be close to $90,000 for 2005 of pay per year.
For most employees, there is no change and the last paragraph provides all the instruction needed. BUT for employees earning more than the above FICA limits, you must continue to withhold an additional 1.45% of their earnings and the employer must also match 1.45% for all of their earnings above $84,900 ($87,000).
The employer is to send this money to the IRS as it is withheld by making deposits to a bank with the special IRS deposit coupon marking it for the proper quarter and for form 941 or by using the new electronic deposit procedure. When the total taxes are computed at the end of the quarter, these deposits are to be shown as payments against the total tax leaving only a balance due.
The "pay as you go" schedule varies with the amount of liability involved. The liability amounts are the Federal withholding plus FICA withholdings plus the employer's matched FICA. The required deposit schedule is:
There are two categories of deposits that are now required. If your total tax liability for last year was $50,000 or less, then you are required to deposit the taxes by the 15th of the month following when the taxes were withheld or accrued.
If your total payroll taxes for last year were greater than $50,000 for the entire year, then you are a "semi-weekly depositer." In this category, if your payroll falls on Wednesday through Friday, you must make the deposit by the following Wednesday. Otherwise, you must make the deposit by the following Friday.
If the deposits are not made timely, a penalty can be assessed at 10% of the under-deposited amount. A deposit of only 1 day late can still bear this full penalty.
OUCH !!!
Louisiana withholding is based on a table prepared by the State similar to the Federal withholding. Normally, a return is filed quarterly and the withheld tax is sent with the return. When the withholdings are over $300 per month, the return and payment will normally be due each month. This money is the employee's money that is merely sent to the State for him and it is not an expense of the employer.
The Louisiana Department of Employment Security (LDES) collects an unemployment tax at the rate of 5.4% of salary for new employers to a low of .3% from established employers with few layoffs. The rate of tax is applied to the first $7,000 of wages per employee for the year. Therefore, the early months of the year will bear this tax prior to the salary going over the $7,000 maximum. This is an expense of the employer with no withholding from the employee.
The tax rate for each employer is determined annually based on the record of amount of prior unemployment dollars charged to his account and the balance of that account. If there is stable employment, the rate should go down. However, if there is a lot of unemployment claims, the rate can stay high.
The federal government (IRS) collects an unemployment tax at the rate of .8% of the first $7,000 of an employee's wages. The actual tax is 6.2% but you are allowed a credit of 5.4% if all of the state unemployment taxes are timely paid. If not, then the full 6.2 % tax applies.
The employer is required to make a deposit using the Federal deposit coupon quarterly when the total taxes due is $100 or more. If the required deposit is less than $100, it can be carried over and combined with the next quarter's liability.
In January of each year, Form 940 is filed with the IRS showing the tax liability per quarter, the date and amount deposited, and balance due, if any. If there is a balance due it is sent with the form at this time. This form is due by January 31 of each year.
All Payroll tax returns are due at the end of the month following each calendar quarter as follows:
Date Quarter Ends Returns Due
1st Quarter - Mar 31 Apr 30
2nd Quarter - Jun 30 Jul 31
3rd Quarter - Sep 30 Oct 31
4th Quarter - Dec 31 Jan 31
For Form 940 and 941
Internal Revenue Service Center
Memphis, Tennessee 37501
For La Withholdings
La Department of Revenue
P.O. Box 201
Baton Rouge, Louisiana 70821
For La Unemployment Forms
La Dept of Employment Security
P.O. Box 44094
Baton Rouge, Louisiana 70804
Here are a few quick pointers to keep in mind when dealing with employees that may keep you out of trouble-----
ALL PAYMENTS to employees are taxable payroll whether it is called salary, commission, overtime, bonus, Christmas pay, etc. Therefore, any payment to an employee should have the proper withholdings deducted.
The employer is required to keep records of hours worked for all employees and to pay overtime when more than 40 hours have been worked during a week. There are exceptions to this rule but they are few. If the proper overtime is not paid, the employer could be stuck with sizable taxes and penalties due.
If the person is working under the control of the employer, he is probably an employee and subject to all the payroll taxes. Trying to save payroll taxes by treating the person as a sub-contractor when he really is not can be more expensive in the long run.
If the person is truly a sub-contractor, you are required to give him a form 1099 at the end of the year if he has received $600 or more for the year.
If a person does work as you direct him to do it, if you supply him with the tools and necessary supplies, if he works and is paid by the hour, then he is probably going to be classified by the IRS as an employee.
======================== WARNING =======================
AND DISCLAIMER
This information is provided for the reader's benefit in
becoming familiar with the legal matters discussed. Your
particular facts may be different from the points above.
You should not rely on the above data without consulting a
attorney to discuss the specific facts of your case
and the law of your state.
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