•The Average person swallows three spiders per year.•In ancient form the carrot was purple not orange•The blue whale’s tongue weighs as much as an adult elephant•People who have pet fish fall asleep easier then people who don’t•Squirrels lose at least half the nuts they hide – they forget where they put them•The average take from a bank robbery is about $3,000•The cow spends 18 hours of every day chewing•4% of US employees never laugh at work•The correct order of intelligence is Moron, Imbecile, Idiot•In 1941, a gallon of gas costs 19.2cents•A healthy pig should be able to run a mile in 7.5 minutes•The typical bed contains 6 million dust mites•Ants don’t sleep•15% of Americans secretly bite their toenails..•65000 Americans are injured by their toilet seats each yearhttp://www.uap1.com/3cd/trivia.html

UNITED AMERICAN PAYROLL – FUN FACTS

Welcome to Unit 4 Welcome to Unit 4

Social Security Taxes

Prof. Hardin

CHAPTER 3 CHAPTER 3

SOCIAL SECURITY TAXESSOCIAL SECURITY TAXES

Payroll Accounting 2011 Payroll Accounting 2011 Bernard J. Bieg and Judith A. TolandBernard J. Bieg and Judith A. Toland

Developed by Lisa Swallow, CPA CMA MSDeveloped by Lisa Swallow, CPA CMA MS

Coverage under FICACoverage under FICA FICA (1935)

Federal Insurance Contributions Act Tax paid both by employees and employers 6.2% OASDI plus 1.45% HI

SECA (1951) Self-Employment Contributions Act Tax upon net earnings of self-employed (6.2% + 6.2%) = 12.4% OASDI plus (1.45% + 1.45%) = 2.9% HI

3 issues Are you an EE or an independent contractor? Is service rendered considered employment? Is compensation considered taxable wages?

http://www.ssa.gov/employer

Independent Contractor Independent Contractor (SECA) (SECA) vs. Employee (FICA)vs. Employee (FICA) Employer “employs one or more individuals

for performance of services in U.S.” IRS uses common-law test to determine status

Certain occupations specifically covered Agent- and commission-drivers of food/beverages or

dry cleaning Full-time life insurance salespersons Full-time traveling salespersons Individual working at home on products that employer

supplies and are returned to furnished specifications

More Specific SituationsMore Specific Situations

Government employees – certain exemptions from OASDI/HI depending upon date of hire

Military personnel - certain types of pay exempt from FICA

In-patriates - may be exempt from FICA (20 countries) Family employees – in certain situations, children may

be exempt from FICA Household employees

If they make cash wages of $1,700 or more per year Must pay if domestic employee, like a nanny, is under

your control Additional exemptions - inmates, medical interns,

student nurses and workers serving temporarily in case of emergency

Independent ContractorIndependent Contractor Persons may be classified as independent

contractors if they conduct an independent trade or business

Hiring agent does not pay/withhold FICA on worker classified as independent

Independent contractor liable for his/her own social security taxes on net earnings

If ER misclassifies EE, penalties will accrue to the ER If EE did report the earnings on his/her federal

tax return, the penalty is voided

What are Taxable What are Taxable Wages?Wages? Cash

Wages and salaries Bonuses and commissions

Cash value of meals/lodging provided (but only if for employee’s convenience)

Fair market value of noncash compensation, examples include: Gifts (over certain amounts) Stock options Fringe benefits like personal use of corporate

car Prizes Premiums on group term life insurance >

$50,000

WhatWhat are Taxable Wages? are Taxable Wages? Tips greater than $20 or more per month

EE can report tips to ER using Form 4070 ER calculates FICA on tips and withholds from

regular paycheck on these reported tips Must withhold on first paycheck after tips are reported ER must match FICA on reported tips “Large employers” (11+ employees) must allocate

[(Gross receipts x .08) – reported tips] Don’t have to withhold FICA on allocated tips, only

reported tips Have to show allocated tip income on W-2 ER files Form 8027 at year-end with IRS showing

food/beverage receipts and reported tips

ER can claim a credit for SS/Medicare taxes paid on employees’ tips on Form 8846

SpecificallySpecifically Exempt Exempt WagesWages

Meals/lodging for employer’s convenience Sick pay

After 6 consecutive months off (personal injury) Sick pay by 3rd party (insurance company/trustee) with

specific stipulations for ER match Pay for difference between employees’ salary and

military pay for soldiers/reservists activated more than 30 days

Employer contribution to pension plan Employer-provided nondiscriminatory education

assistance Job-related educational expenses not subject to FICA

Payments for non-job related expenses up to $5,250

FICAFICA Taxable Wage BaseTaxable Wage Base OASDI wages cap at $106,800 for 2010 HI wages never cap

The Patient Protection & Affordable Care Act of 2010 created additional .9% HI tax on taxpayers receiving wages in excess of $200,000 ($250,000 if married filing jointly) beginning in 2013.

Facts: Tamara earn $132,000/year; paid semimonthly on the 15th and 30th; determine FICA for October

30th payroll First must find prior payroll YTD gross $132,000/24 =$

5,500.00 $5,500.00 x 19 payrolls (before today)= $104,500.00 How much will be taxed for OASDI?

$106,800.00 – $104,500.00 = $2,300.00 OASDI tax is $2,300.00 x 6.2% = $142.60

HI tax is $5,500.00 x 1.45% =$ 79.75 Total FICA is $142.60 + $79.75 =$ 222.35

Example 3-2BExample 3-2B

During 2011, Marti Conners, President of Maggert Company was paid a semi-monthly salary of $5,200. Compute the amount of FICA taxes that should be withheld from her:

OASDI HIa. 9th paycheck 322.40 75.40

106,800 – (8 x 5,200) = 65,200

a. 21st paycheck 173.60 75.40

106,800 – (20 x 5,200) = 2,800 Remaining taxable income for OASDI

a. 24th paycheck 0 75.40

119,600 (23 x 5,200) >106,800 This indicates that the worker has reached the cap on taxable income for OASDI

Another Example - Another Example - Calculating FICACalculating FICAFacts: Ahmed earns $175,000/year; paid first of every

month; determine FICA for August 1 payroll

What do we calculate first? $175,000/12 = $14,583.33 per paycheck YTD gross prior to current payroll =$14,583.33 x 7 =

$102,083.31 $106,800.00 – $102,083.31 = $4,716.69 taxed for OASDI $4,716.69 x 6.2% = $292.43 OASDI tax $14,583.33 x 1.45% = $211.46 HI tax (remember - no

cap!) Total FICA = $292.43 + $211.46 =$ 503.89

Remember - the ER has withheld $503.89 from the employee’s paycheck and must match this amount

Example 3-Example 3-3B3B Eric Sherm began working as a part time waiter on

April 1, 2011 at Yardville Restaurant. The cash tips of $475 that he received during April were reported on Form 4070, which he submitted to his employer on May 1. During May, he was paid wages of $630 by the restaurant. Compute:

a. The amount of FICA taxes that the employer should withhold from Sherm’s wages during May.

b. The amount of the employer’s FICA taxes on Sherm’s wages and tips during May.

OASDI HI

a. $68.51 $16.02

b. $68.51 $16.02

( $475 tips + $630 paid wages = $1,105)

$1,105 X .062 = $68.51

$1,105 X .0145 = $16.02

Tax Holiday Tax Holiday

Hiring Incentives to Restore Employment Act of 2010 provides relief for employer’s share of OASDI taxOn wages paid 3/19/10 - 12/31/10For qualified employees onlyFull-time or part-timeRetention credit also available if remain

employed for 52 consecutive weeks

Example 3-Example 3-6B6B

Amanda Autry and Carley Wilson are partners in A & W Gift shop, which employs the individuals listed below. Paychecks are distributed every Friday to all employees. Based on the information given, compute the amounts listed below for a weekly payroll period.

Name /Position Salary

Kelly Simon, Office $650/wk

Jim Tress, Sales $3,450/Month

May Aha, Delivery $520/ wk

Amanda Autry, Partner $1,900/wk

Carley Wilson Partner $1,900/ wk

Example 3-Example 3-6B6B

Amanda Autry and Carley Wilson are partners in A & W Gift shop, which employs the individuals listed below. Paychecks are distributed every Friday to all employees. Based on the information given, compute the amounts listed below for a weekly payroll period.

Name /Position

Salary OASDI Taxable Earnings

OASDI Tax

HI Taxable Earnings

HI Tax

Kelly Simon, Office

$650/wk $650.00 $40.30 $650.00 $9.43

Jim Tress, Sales

$3,450/Month

$796.15 $49.36 $796.15 $11.54

May Aha, Delivery

$520/ wk $520.00 $32.24 $520.00 $7.54

Amanda Autry, Partner

$1,900/wk

0.00 0.00 0.00 0.00

Carley Wilson Partner

$1,900/ wk

0.00 0.00 0.00 0.00

Totals $1,966.15 $121.90 $1,966.15 $28.51

Employers OASDI Tax

$121.90 Employer’s HI Tax

28.51

SECA and Independent SECA and Independent ContractorsContractors EE and ER portion of FICA if net earnings exceed

$400 Net Earnings = Net income + distributive share of

partnership income If you own more than one business - offset losses

and income and calculate FICA based on combined net income

Can have W-2 and self employment income Count both towards calculating cap of $106,800 for

OASDI Report on Schedule C “Profit or Loss from

Business” Also file Schedule SE “Self-Employment Tax”

Must include SECA taxes in quarterly estimated payments

Calculating FICA with W-2 Calculating FICA with W-2 and and Self-Employed EarningsSelf-Employed Earnings

Facts: Celia’s W-2 = $107,768 and her self-employment income = $14,500; how much is FICA on $14,500? No OASDI because capped on W-2HI = $14,500 x 2.9% = $420.50Total FICA = $420.50

Calculating FICA with W-2 Calculating FICA with W-2 and and Self-Employed EarningsSelf-Employed Earnings

Facts: Felipe’s W-2 = $78,000 and his self-employment income = $36,000; how much is FICA on $36,000? OASDI ($106,800 - 78,000) = $28,800

taxable OASDI wages x 12.4% = $3,571.20 HI = $36,000 taxable HI wages x 2.9% =

$1,044.00 Total FICA $3,571.20 + 1,044.00 =

$4,615.20

Example 3-8BExample 3-8B

George Parker was paid a salary of $74,700 during 2011 by Umberger Company. In addition, during the year, Parker started his own business as a public accountant and reported as net business income of $38,900 on his income tax return for 2011. Compute the following:

a. The amount of FICA taxes that was withheld from his earnings during 2011 by Umberger.

b. Parker’s self employment taxes on the income derived from the public accounting business for 2011

a. OASDI: $74,700 X .062 = $4,631.40

HI: $74,700 X .0145 = $1,083.15

b. OASDI $106,800 - $74,700 = $32,100 X .124 = $3,980.40

HI: $38,900 X .029 = $1,128.10

Any questions?Any questions?

Unit 4 Unit 4 AssignmentsAssignmentsPractical Problem 3-1A (page 3-35)Continuing Payroll Problem Chapter

3 (page 3-65)◦In the Taxable Earnings Columns, record

the amount of each employee’s weekly earnings that is subject to FICA taxes

◦Using the amount recorded in the previous step, compute the taxes for each employee and record in the appropriate column

*Remember to Save your Cont Problem because you will use it again in Chapter

4

Unit 4 Discussion Board Unit 4 Discussion Board ThreadThreadFor this discussion, you are to research the

Internet for examples of independent contractors, articles about independent contractor status, or IRS tax court cases

about independent contractor status. Select one of these for your response to this

discussion that no one else has already chosen. As soon as you have selected one, put a link

directly to the information that you have found on the first line of a response to the discussion and post it. That will reserve that item for your

exclusive use.

I look forward to seeing you on the Discussion board!

Have a wonderful week!

Prof. Hardin