Social Security Taxes
The Federal Insurance Contributions Act was enacted to insure income for retired persons who work for a certain period of time before their retirement. Both the employee and the employer pay Social Security or FICA taxes. Nearly all employees, employers and self-employed people are required to participate in the Social Security program. Employers are required to withhold the appropriate percentage from an employee’s income and provide the employee a receipt for this deduction. The employer has to keep records for each employee, match the employee’s contribution and make periodic deposits. There is a yearly ceiling on the amount of wages subject to FICA taxes. Additional information can be obtained at the Internal Revenue Service Web site www.irs.ustreas.gov or the Social Security Administration Web site at www.ssa.gov.
Form: Schedule SE-filed with Form 1040
The purpose of the Self-Employment Tax is to provide you with Social Security coverage, if you work for yourself. If you have income subject to Self-Employment Tax, use Schedule SE (Form 1040) to figure the tax. If you have more than one business, the profits and losses from all of your businesses are combined on the Schedule SE.
Income Tax Withholding
Besides withholding Social Security Tax, the employer must withhold Income Tax from employee wages. There is no ceiling on the amount of wages subject to Income Tax Withholding. No matter how much each employee earns, the employer continues to withhold income taxes. Each employee should furnish a Form W-4 to the employer declaring the number of withholding exemptions allowable.
The amount of Income Tax withheld from the employee’s gross wages is determined by:
- Gross wages
- Pay period frequency
- Marital status
- Withholding exemptions allowable
Based on information provided by the employee on Form W-4, the employer will use the Income Tax Withholding Tables provided in Publication 15, Circular E, Employer’s Tax Guide, to determine how much to withhold from the employee’s wages each pay period. If an employee fails to furnish a W-4, the employer must withhold taxes as if the employee were single and had no withholding exemptions.
An employer that is required to withhold income taxes or social security taxes must file a quarterly return reporting the amounts withheld. Form 941, Employer’s Quarterly Federal Tax Return, is normally used for this purpose. Form 941 is due on or before the last day of the month following the close of each quarter.
Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage & Tax Statements, should be filed by the designated date. Employees must be given three copies of Form W-2 by January 31and a copy must be sent to the Social Security Administration Office along with Form W-3. Employers filing 250 or more W-2 Forms must file them with the Social Security Administration electronically. Information on filing with the Social Security Administration can be found at www.ssa.gov/bso. Or:
Social Security Administration
Toll-Free: (800) 772-1213
Toll-Free: (800) 772-6270 Business Services Online (BSO)
reporting questions or problems
Toll-Free: (888) 772-2970 Electronic filing questions
Fax: (410) 597-0237
TTY: (Hearing Impaired): (800) 325-0778
Regional Wage Reporting Assistance
Employer Services Liaison Officer, Kansas City
Phone: (816) 936-5657
The tax withheld must be deposited with an authorized commercial bank, domestic savings and loan association, credit union or a federal reserve bank.
A Federal Tax Deposit Coupon-Form 8109B must accompany each deposit of withheld income and Social Security taxes, unless you are making electronic deposits. After applying for a Federal Employer’s Identification Number (FEIN) the deposit forms are automatically mailed to each employer. If none are received, Form 8109B can be obtained at your local IRS office or (800) 829-4933. Computer generated forms will not be accepted. Some taxpayers are required to deposit by electronic funds transfer. Contact the IRS for information about the Electronic Federal Tax Payment. Or enroll at www.eftps.gov or contact Customer Service at (800) 555-4777 or TTY (800) 733-4829.
Criminal and civil penalties are provided for the willful failure to file returns and pay the tax, or for willfully filing false or fraudulent returns.
Federal Unemployment Tax (FUTA)
An employer liable for Withholding Taxes is usually liable for Federal Unemployment Taxes as well. The Federal Unemployment Tax Act provides for cooperation between the state and federal government in establishing and administering the Unemployment Insurance Program. Only the employer pays FUTA Tax.
If an employer paid wages of $1,500 or more in any calendar year (not necessarily consecutive weeks), the employer usually must file Form 940 or Form 940 EZ if the business meets certain conditions by January 31 of the following calendar year. Deposits may be required depending upon amounts due. Information on filing FUTA can be found at www.irs.gov (e-file) or the Electronic Federal Tax Payment System (EFTPS) at www.eftps.gov or (800) 555-4477.
Federal Estimated Income Tax
Generally, sole proprietors, partners and shareholders of an S Corporation pay taxes on income by making regular payments of estimated tax during the year. If you expect to owe taxes, including Self-Employment Tax of $1,000 or more when you file your return, you generally have to make estimated tax payments.
Form 1040-ES has instructions, an Estimated Tax Worksheet, and four Declaration Vouchers. Use the worksheet to figure your estimated tax and keep it for your records. The filing deadlines are April 15, June 15, September 15 and January 15. Corporations should use Form 1120-W to compute estimated tax.
In general, employers who file at least 250 information returns, including Forms W-2 and W-2P, must file electronically to report payee income to the IRS or Social Security Administration. Form 4419, Application for Filing Information Returns Electronically should be submitted to the IRS, Enterprise Computing Center, Martinsburg at least 30 days before the due date of the returns. Arrangements can be made for the payment of federal taxes either directly or through a financial institution. For more information, refer to the following publications that can be found on the IRS web site:
- Tax Topic 802, Applications, Forms and Information
- Tax Topic 803, Waivers and Extensions
- Tax Topic 804, Test Files and Combined Federal and State Filing
- Tax Topic 805, Electronic Filing of Information Returns
For further information, including approval procedures to file electronically write or call:
Internal Revenue Service
Enterprise Computing Center, Martinsburg
Information Reporting Program
230 Murall Drive
Kearneysville, WV 25430
Toll Free: (866) 455-7438
Or call the Electronic Federal Tax Payment System for enrollment forms and further information at:
Customer Service: (800) 555-8778
TTY (Hearing Impaired): (800) 733-4829
Federal Excise Taxes
Various Excise Taxes apply to motor fuel vendors, over-the-road truckers and certain other business operators. For guidance in determining if your business has a Federal Excise Tax liability, call (866)699-4096 or TTY (Hearing Impaired), call (800) 829-4059, weekdays during business hours.