by Fresh Start Tax | May 22, 2014 | Tax Help
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Fresh start tax puts out a series of blogs regarding different tax issues.
This blog , Employment Tax. Lucky us!!
Federal Employment Tax in Puerto Rico
Employers in Puerto Rico are subject to the taxes imposed by the Federal Insurance Contribution Act (FICA) (Social Security and Medicare taxes) and the Federal Unemployment Tax Act (FUTA).
An employer is a person or organization for whom a worker performs services as an employee.
As an employer you are required to withhold, report and pay employment taxes on wages paid.
To file the various employment tax returns, you need an employer identification number (EIN). If you do not have an EIN, you may apply for one online at the IRS.gov website link, Apply for an Employer Identification Number (EIN) Online.
You may also apply for an EIN by fax or mail, use Form SS-4PR (PDF). (Use only one method for each entity so you do not receive more than one EIN for an entity.) For more information about EINs, see Topic 755.
FICA taxes are used to finance the Social Security and Medicare systems. FICA taxes consist of two components:
- the social security tax and the Medicare tax. You must withhold the employee portion of FICA taxes from your employees’ wages and contribute the employer portion of FICA tax.
The current tax rate for social security is 6.2% for the employer and 6.2% for the employee, or 12.4% total. The current rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total.
Beginning January 1, 2013, Additional Medicare Tax applies to an individual’s Medicare wages that exceed a threshold amount based on the taxpayer’s filing status. Employers are responsible for withholding the 0.9% Additional Medicare Tax on an individual’s wages paid in excess of $200,000 in a calendar year, without regard to filing status.
An employer is required to begin withholding Additional Medicare Tax in the pay period in which it pays wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year.
There is no employer match for Additional Medicare Tax.
The forms used by employers in Puerto Rico to report the social security and Medicare taxes are: Form 941-PR (PDF), Form 943-PR (PDF), Form 944 (PDF) or Form 944(SP) (PDF), and Anexo H-PR (Formulario 1040-PR) (PDF) for household employers.
In addition, the forms used by employers in Puerto Rico to make corrections to employment taxes are: Form 941-X (PR) (PDF), Form 943-X (PR) (PDF), Form 944-X (PDF), Form 944-X (SP) (PDF), Form 944-X (PR) (PDF), and amended Anexo H-PR (Formulario 1040-PR) (PDF).
Employers who filed Form 944-PR prior to tax year 2012 will continue to file annually on Form 944 (or Form 944(SP), Declaración Federal ANUAL de Impuestos del Patrono o Empleador, the Spanish language equivalent of Form 944). Employers may request to file Form 941-PR, Planilla para la Declaración Federal TRIMESTRAL del Patrono, instead of Form 944.
If you are not an agricultural employer and all of your employees are bona fide residents of Puerto Rico, file Form 941-PR to report all wages paid, tips your employees reported to you, and other compensation, and social security and Medicare taxes.
Form 941-PR is filed quarterly and is due the last day of the month following the end of the quarter. For example, for wages you paid January through March (the first quarter of the year) Form 941-PR is due April 30.
If the due date for filing a return falls on a Saturday, Sunday or legal holiday, you may file the return on the next business day.
The term “legal holiday” means any legal holiday in the District of Columbia. For a list of legal holidays, see Publication 15, (Circular E), Employer’s Tax Guide, or visit IRS.gov and enter the words “legal holidays” in the search box.
If you are not an agricultural employer, you may be eligible to file annual Form 944 (or Form 944(SP), the Spanish language equivalent of Form 944). The Form 944 is filed annually and is due by January 31 after the end of the calendar year.
Employers that have an estimated employment tax liability of $1,000 or less for the entire calendar year are eligible to file an annual Form 944.
Employers are not permitted to file Form 944 unless they are notified by the IRS that they qualify to file this form. Employers who may be eligible to file Form 944, because their estimated annual employment tax liability is $1,000 or less, have to contact the IRS to elect to file annually (Form 944).
Employers who are required to file Form 944 and want to file Forms 941-PR instead, must notify the IRS they are electing to file quarterly Forms 941-PR and opting out of filing Form 944. For further information, see Revenue Procedure 2009-51 and the Form 944 Instructions (PDF).
Employers notified to file Form 944, whose businesses grow during the year and exceed the $1,000 eligibility threshold must still file Form 944 for the year.
Employers who exceed the eligibility threshold will be notified by the IRS that their filing requirement has been changed to Form 941-PR for a particular year.
Most employers are required to deposit their FICA taxes before filing Form 941-PR. If you are filing Form 944, you may be able to pay your FICA taxes with your return. For additional information about the Form 941-PR (PDF), refer to Topic 758, in English, or see the Form 941-PR Instructions (PDF) in Spanish.
For more information about the Form 944 (PDF), refer to Topic 758 or see the Form 944 Instructions (PDF) in English. For information about the rules to make deposits, refer to Topic 757, in English.
If you have deposited all your tax on time, you have 10 additional days to file.
Household Employees
If you pay a household employee cash wages, you may be required to withhold and pay FICA taxes on all wages you pay to that employee. To see if you are required to withhold and pay these taxes, see Publication 926 (PDF), Household Employer’s Tax Guide, in English. File Anexo H-PR (Formulario 1040-PR) (PDF) to report and pay social security and Medicare taxes corresponding to the employer and the employee for all household employees.
Household employees include housekeepers, maids, babysitters, gardeners, and others who work in or around your residence as your employee. Repairmen, plumbers, contractors, and other business people who are self-employed and own their equipment and control how the work is performed, normally are not considered household employees.
Agricultural Employees
If you are an agricultural employer in Puerto Rico, you must file Form 943-PR (PDF) to report the employer’s and the employee’s share of the FICA taxes for agricultural employees.
To see if you are required to withhold and pay FICA taxes on your agricultural employees, refer to Publication 51, (Circular A), Agricultural Employer’s Tax Guide, in English. Form 943-PR is filed annually and is due by January 31 after the end of the calendar year.
Most employers are required to deposit both the employer and employee portions of FICA taxes before the Form 943-PR is filed.
Publication 15 in English and Publication 179 (PDF) in Spanish, explain the requirements for deposits.
Federal Unemployment Taxes (FUTA)
If you are an employer in Puerto Rico, you might have to file a Federal Unemployment Tax Return. To see if you are required to pay FUTA taxes, refer to Publication 51 if you are an agricultural employer or Publication 926 (PDF) if you are a household employer.
All other employers should refer to Publication 15 or Publication 179 (Spanish version). With the exception of those who use Anexo H-PR (Formulario 1040-PR) for household employees, employers in Puerto Rico who are subject to FUTA are required to file Form 940-PR (PDF) to report and pay FUTA taxes.
Form 940-PR is filed annually and is due by January 31 after the end of the calendar year. Most employers are required to deposit FUTA taxes. FUTA taxes are not withheld from the employees’ wages.
The FUTA tax rate is 6.0%.
by Fresh Start Tax | May 14, 2014 | Tax Help
Understanding Employment Taxes, What You Need to Know
All Employers must deposit and report employment taxes.
You should see the Employment Tax Due Dates page for specific forms and due dates.
At the end of the year, you must prepare and file Form W-2, Wage and Tax Statement to report wages, tips and other compensation paid to an employee.
You should use Form W-3, Transmittal of Wage and Tax Statements to transmit Forms W-2 to the Social Security Administration.
Federal Income Tax
Employers generally must withhold federal income tax from employees’ wages.
To figure out how much tax to withhold, use the employee’s Form W-4 and withholding tables described in Publication 15, Employer’s Tax Guide.
Please Note: You must deposit your withholding.
The requirements for depositing, as explained in Publication 15, vary based on your business and the amount you withhold.
Social Security and Medicare Taxes
Employers generally must withhold part of social security and Medicare taxes from employees’ wages and you pay a matching amount yourself.
To figure out how much tax to withhold, use the employee’s Form W-4 and the methods described in Publication 15, Employer’s Tax Guide and Publication 15-A, Employer’s Supplemental Tax Guide.
You must deposit the wages you withhold. See requirements for depositing.
For 2013, the employee tax rate for social security increased to 6.2%. The social security wage base limit increased to $113,700.
Additional Medicare Tax
Beginning January 1, 2013, employers are responsible for withholding the 0.9% Additional Medicare Tax on an employee’s wages and compensation that exceeds a threshold amount based on the employee’s filing status.
You are required to begin withholding Additional Medicare Tax in the pay period in which it pays wages and compensation in excess of the threshold amount to an employee.
There is now no employer match for the Additional Medicare Tax.
Federal Unemployment (FUTA) Tax
Employers report and pay FUTA tax separately from Federal Income tax, and social security and Medicare taxes.
You pay FUTA tax only from your own funds.
Employees do not pay this tax or have it withheld from their pay. Refer to Publication 15, Employer’s Tax Guide and Publication 15-A, Employer’s Supplemental Tax Guide for more information on FUTA tax.
Self-Employment Tax
Self-Employment Tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves.
It is similar to the social security and Medicare taxes withheld from the pay of most employees.
Employment Taxes, What You Need to Know, Former IRS
by Fresh Start Tax | May 14, 2014 | Tax Help
We defend taxpayers from Trust Fund Penalties.
Call us today for an initial free tax consultation and speak to a former IRS agent who is a true expert in the IRS trust fund penalty.
We can provide you with the best possible tax defense to avoid these trust fund penalties.
The IRS Trust Fund Recovery Penalty, What you Need to Know
To encourage prompt payment of withheld income and employment taxes, including social security taxes, railroad retirement taxes, or collected excise taxes, Congress passed a law that provides for the Trust Fund Penalty.
These taxes are called trust fund taxes because you actually hold the employee’s money in trust until you make a federal tax deposit in that amount.
In reality, they are not a tax.
The TFRP may apply to you if these unpaid trust fund taxes cannot be immediately collected from the business.
The business does not have to have stopped operating in order for the TFRP to be assessed.
Who Can Be Responsible for the Trust Fund Penalty
The TFRP may be assessed against any person who:
1. Is responsible for collecting or paying withheld income and employment taxes, or for paying collected excise taxes, and
2.Willfully fails to collect or pay them.
A responsible person is a person or group of people who has the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes.
This person ma/can be:
- An officer or an employee of a corporation,
- A member or employee of a partnership,
- A corporate director or shareholder,
- A member of a board of trustees of a nonprofit organization,
- Another person with authority and control over funds to direct their disbursement,
- Another corporation or third party payer,
- Payroll Service Providers (PSP) ore responsible parties within a PSP
- Professional Employer Organizations (PEO) or
- Responsible parties within a PEO, or
- Responsible parties within the common law employer (client of PSP/PEO).
For willfulness to exist, the responsible person:
- Must have been, or should have been, aware of the outstanding taxes and
- Either intentionally disregarded the law or was plainly indifferent to its requirements (no evil intent or bad motive is required).
- Using available funds to pay other creditors when the business is unable to pay the employment taxes is an indication of willfulness.
How IRS proceeds
You may be asked by the IRS to complete an interview in order to determine the full scope of your duties and responsibilities. See Form 4180 on our website.
Responsibility is based on whether an individual exercised independent judgment with respect to the financial affairs of the business.
An employee is not a responsible person if the employee’s function was solely to pay the bills as directed by a superior, rather than to determine which creditors would or would not be paid.
Notice 784, Could You Be Personally Liable for Certain Unpaid Federal Taxes?, contains additional information regarding the TFRP.
How to Figure the TFRP Amount
The amount of the penalty is equal to the unpaid balance of the trust fund tax.
The penalty is computed based on:
- The unpaid income taxes withheld, plus
- The employee’s portion of the withheld FICA taxes.
For collected taxes, the penalty is based on the unpaid amount of collected excise taxes.
Assessing the TFRP
Determination
If the IRS determines that you are a responsible person, we will provide you a letter stating that we plan to assess the TFRP against you.
You have 60 days (75 days if this letter is addressed to you outside the United States) from the date of this letter to appeal our proposal.
The letter will explain your appeal rights. Refer to Publication 5, Your Appeal Rights and How to Prepare a Protest if You Don’t Agree (PDF), for a clear outline of the appeals process.
If you do not respond to our letter, we will assess the penalty against you and send you a Notice and Demand for Payment.
Big Caution
Once the IRS asserts the penalty, IRS can and will take collection action against your personal assets. For instance, we can file a federal tax lien or take levy or seizure action.
Call us today for a free initial tax consultation. Our firm defends against the trust fund penalties.
by Fresh Start Tax | Feb 19, 2014 | Tax Help
Beware of IRS Scams and Identity Theft, Former IRS
Beware – Tax scams can take many forms, with perpetrators posing as the IRS in everything from e-mail refund schemes to phone impersonators.
The IRS has warned taxpayers to be vigilant of any unexpected communication that is purportedly from the IRS at the start of tax season.
The IRS encourages taxpayers to be on the lookout for phone and email scams that use the IRS as a lure.
The IRS does never contacts with taxpayers by email to request personal or financial information.
This includes any type of electronic communication, such as text messages and social media channels.
The IRS also does not ask for personal identification numbers (PINs), passwords or similar confidential access information for credit card, bank or other financial accounts.
Taxpayers should not open any attachments or click on any links contained in the message. Instead, forward the e-mail to phishing@irs.gov.
The IRS continues to aggressively expand its efforts to protect and prevent refund fraud involving identity theft as well as work with federal, state and local officials to pursue the perpetrators of this fraud.
The IRS offers several suggestions for taxpayers to help protect themselves against scams and identity theft:
- Do not carry your Social Security card or any documents that include your Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN).
- Do not give a business your SSN or ITIN just because they ask. Give it only when required.
- Protect all your financial information.
- Check all 3 your credit report every 6 months.
- Secure personal information in your home.
- Protect your personal computers by using firewalls and anti-spam/virus software, updating security patches and changing passwords for Internet accounts.
- Do not give personal information over the phone, through the mail or on the Internet unless you have initiated the contact and are sure of the recipient.
Taxpayers also should be very careful when choosing a tax preparer.
While most preparers provide excellent service to their clients, a few unscrupulous return preparers file false and fraudulent tax returns and ultimately defraud their clients.
It is important to know that even if someone else prepares your return, you are ultimately responsible for all the information on the tax return.
Basically, use common sense.
Beware of IRS Scams and Identity Theft, Former IRS
