Payroll and Self-Employment Taxes for 2013

The Social Security Administration has announced that the wage base for computing the Social Security tax (OASDI) in 2013 increases to $113,700 from $110,100, which was the wage base for 2012. The $3,600 increase, which is about 3.27%, is due to an increase in average total wages.

The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees, and self-employed workers—one for Old Age, Survivors and Disability Insurance (OASDI; commonly known as the Social Security tax), and the other for Hospital Insurance (HI; commonly known as the Medicare tax).

For 2013, the FICA tax rate for employers is 7.65% each—6.2% for OASDI and 1.45% for HI. For 2013, an employee pays:
• 6.2% Social Security tax on the first $113,700 of wages (maximum tax is $7,049.40 [6.20% of $113,700]), plus
• 1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return), plus
• 2.35% Medicare tax (regular 1.45% Medicare tax + 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return). (Code Sec. 3101(b)(2))

(For 2012, the OASDI rate for employees is 4.2%; the OASDI rate for employers is 6.2% and the HI rate for both employers and employees is 1.45%).

For 2013, the self-employment tax imposed on self-employed people is:
• 12.4% OASDI on the first $113,700 of self-employment income, for a maximum tax of $14,098.80 (12.40% of $113,700); plus
• 2.90% Medicare tax on the first $200,000 of self-employment income ($250,000 of combined self-employment income on a joint return, $125,000 on a separate return), (Code Sec. 1401(a), Code Sec. 1401(b)), plus
• 3.8% (2.90% regular Medicare tax + 0.9% additional Medicare tax) on all self-employment income in excess of $200,000 ($250,000 of combined self-employment income on a joint return, $125,000 for married taxpayers filing a separate return). (Code Sec. 1401(b)(2))

(For 2012, the self-employment tax rate is 13.3%: 10.4% for OASDI, reflecting the two percentage point drop in the OASDI rate for employees, plus 2.9% for HI).

FUTA TAX FOR 2012

Quick FUTA Facts

  • The FUTA tax rate for 2012 = .6% on the first $7,000 of wages or $42 per employee for most employers.
  • No requirement to pay quarterly towards the “credit reduction” amounts assessed on the annual Form 940 as of this date (April 25, 2012).

Instructions to the Form 940 for 2011: 

http://www.irs.gov/pub/irs-pdf/i940.pdf

This is where it states under the “What’s New” section in the upper left, that those employers in the credit reduction states, “…. employer must pay additional federal unemployment taxes when filing its Form 940“.  The 2012 Form 940 is due on January 31, 2013, so that’s when the credit reduction states’ employers will owe that additional FUTA tax.

The 2011 Schedule A which identifies all of the credit reduction states and the Schedule A instructions are located here:

http://www.irs.gov/pub/irs-pdf/f940sa.pdf

This Schedule may change for 2012, depending upon the monies borrowed by the individual states during 2012, or monies repaid to the federal government.

Valuing Charitable Contributions

When you contribute wearable clothing, useable household furnishings, small appliances in working order, sporting goods, and generally just about anything a CHARITABLE organization can sell in their “Resale Thrift” stores, you can deduct the “Thrift” store sales price as a noncash charitable contribution.

We usually hand out a list of suggested values provided in one of our tax reference manuals but now Goodwill of Southeastern Wisconsin has provided an excellent list of their average prices in their stores for a number of items.

http://www.goodwillsew.com/page.asp?dbID=295

If the value of your noncash donations exceeds $500 in a calendar year, you will want to print out this list FOR EACH DATE of your noncash contributions, and multiply out the number of items donated by their respective thrift store price.  That information will be needed, along with a dated receipt from the CHARITABLE organization to whom donated, in order to complete the Form 8283 on your individual income tax return.

941 for 2012

Yes, the 2% payroll tax cut for employees has been extended through December 31, 2012.  Here’s the IRS fill-in Form 941 just released:  http://www.irs.gov/pub/irs-pdf/f941.pdf

 

SCAMS – Watch out!

The scammers are getting better at convincing their victims to hand over their money and their identity by sending out real checks drawn on real banks with real company information printed on them.  However, that doesn’t mean the checks are negotiable.

An individual tax client brought me a letter he received, that was mailed with a Canadian stamp, postmarked in Canada, with no return address, and on official looking stationary, complete with a gold seal, from the United Alliance Sweepstakes Commission, identified as located in New York, New York, congratulating him on winning $175,000 in the combined “Readers Digest, Publishers Clearinghouse” sweepstakes. 

Also included was an ACTUAL check for $1,880.71 to reimburse him for fees, and that he was to call a certain phone number before depositing the check.  He kept getting a busy signal, and asked me what he should do.  He never entered sweepstakes or even played the state lottery, so he knew it was too good to be true.  He was correct!

The check was drawn against an actual manufacturing company in Indiana, and signed by the actual president of that company (all this information is available online; but the sweepstakes company has nothing to do with the manufacturer).  A  bank’s name and routing transit number were printed on the check and again, available online, but the address of the bank was listed as being in Chicago, Illinois and the bank is actually located in Michigan.  Again, that information is available online. 

Judging by the constantly busy phone number, I would say that a number of people have bitten on this bogus check scam.   The phone number, 888-233-4919 is a toll free number with no identity listed online, so that you can’t identify whom you’re calling.   I told him to bring the envelope, letter and check to his local police department so that they can warn others that these are not legitimate.

The client who received the letter is a senior citizen who owns his own home.  With the information available online, scammers can determine who owns their own homes, their respective ages, and can then mail them some very convincing evidence that they have won something. 

Make sure your parents and grandparents know that such a letter and accompanying check are most likely an attempt to steal your money and your identity!

1099 Reporting in Wisconsin – Updated for 2017 Reporting Forms

For everyone in a Wisconsin trade or business, who pays (by check or cash, NOT by credit card) an unincorporated business or individual, $600 or more for services in the calendar year, you must file a Form 1099-MISC with the IRS and the State of Wisconsin.

If you pay for services by credit card, you are not to file a 1099-MISC for those payments because the credit card companies will be reporting those payments on a 1099-K.

Here are the procedures for reporting 1099-MISC payments in Wisconsin.  The Wisconsin Department of Revenue provides Publication 117 to show you which forms they want, and to what address you mail the forms and the due dates by type of form filed: Wisconsin Publication 117

NEW FOR 2017:  If you prepare 10 or more Forms 1099-MISC, 1099-R, or W-2, you MUST FILE THESE ELECTRONICALLY WITH WISCONSIN.  QuickBooks charges $2.90 to electronically file EACH 1099 form and you could very well be assessed a $10 penalty on top of that per form by the Wisconsin Department of Revenue.  See below (*).

EFFECTIVE SINCE 2014:  YOU MUST SHOW THE WISCONSIN WITHHOLDING TAX NUMBER IN BOX 17 OF FORM 1099-MISC OR YOU WILL BE NOTIFIED TO CORRECT AND RESEND YOUR 1099-MISC FORMS!  This is true even if there is no Wisconsin withholding.  If you don’t have a Wisconsin withholding number, you must use this number 036888888888801 (yes, that’s 10 number 8’s in the middle) in Box 17.

(*) PROBLEMQuickBooks can NOT print the State identification numbers in their Forms 1099-MISC: https://community.intuit.com/articles/1467592-what-do-i-need-to-know-if-i-file-1099-state-taxes-for-wisconsin   So if you used QuickBooks to prepare your Forms 1099-MISC, you will need to manually print or type the Wisconsin withholding tax identification number on each Form 1099-MISC in Box 17.  Intuit (QuickBooks) has refused to fix this issue after multiple contacts from the Wisconsin Department of Revenue.  QuickBooks says they will pay the $10 penalty per form for failure to put the Wisconsin identification number on the electronically filed forms 1099-MISC.  QuickBooks could change their penalty reimbursement policy at any time, but in the meantime, you can go here to request your refund:

QuickBooks Wisconsin Penalty Reimbursement request

Note:  Effective for 2013 and forward, the Department changed their requirements and no longer grants a blanket waiver for businesses that file 1099-MISC forms with the IRS.  You need to provide the Wisconsin Department of Revenue with the State Copy of any 1099-MISC forms that you file with the IRS, unless you already do so electronically under the Combined Federal and State Filing Program: http://www.irs.gov/taxtopics/tc804.html .

Mail Wisconsin’s “Copy 1” of the 1099-MISC to this address,

Wisconsin Department of Revenue 

P O Box 8920,

Madison WI 53708-8920

All 1099 forms are required to be printed on “red” forms for the Internal Revenue Service, and be accompanied by a summary transmittal Form 1096, also printed in red.  The IRS, and NEW FOR 2017, ALSO THE WISCONSIN DEPARTMENT OF REVENUE requires its copy by January 31, 2017 for all nonemployee compensation 1099’s (Box 7).  THIS IS A NEW, EARLIER FILING DATE THAN PRIOR YEARS!

Payee/recipient copies are supposed to be in the hands of the payees by January 31st. In order to prepare the forms, you need each payee’s name, address and taxpayer identification number.  The IRS provides form W-9 on which this information can be collected from each payee.  I strongly suggest before making any payments throughout the year to unincorporated payees for services or rents of $600 or more, that you obtain a completed W-9. http://www.irs.gov/pub/irs-pdf/fw9.pdf?portlet=103

The W-9 instructions explain which taxpayer identification number is used for the various forms of business entities.  The most confusing is the single member LLC.  This kind of entity, when a single member “look thru” entity, is treated and reported as a sole proprietorship on the Form W-9, if the LLC is not incorporated.  Read the instructions carefully!  If the LLC is treated as a sole proprietorship, you will need to use the Social Security Number of the LLC owner.  You will not use the LLC number!   The reason for this “glitch” is that the sole member LLC does not file a tax return separate from its owner, and therefore, the payments made to a sole member LLC in the LLC’s identity are not traceable for the IRS taxpayer identification number matching program.

Pages 24 through 26 on this link to the IRS instructions provides a handy table of the types of payments and dollar thresholds for reporting 1099-MISC payments: http://www.irs.gov/pub/irs-pdf/i1099gi.pdf The biggest question I get asked is what to do when total payments to an unincorporated service vendor include payments for merchandise along with the services provided.  Considering the penalties now in effect for filing an incorrect 1099-MISC, I’d rather err on the side of caution and report the full payment.  In the IRS instructions specific to the 1099-MISC for “nonemployee compensation”, the IRS provides a repair example, saying that the parts are incidental to the repair service, and are therefore reportable.  Look at the example at the bottom of page 7 on the instructions:  http://www.irs.gov/pub/irs-pdf/i1099msc.pdf

To save cost when purchasing forms, you can photocopy the red printed copies for the recipient.  In that way, you only need purchase the “red” forms.  QuickBooks does not print the form pages; it only prints the data that goes on the Forms 1099 that you need to purchase. To sum up, you will need to produce:

  • Form 1096 red transmittal cover form with each group of 1099-MISC to the IRS by January 31st
  • Form 1099’s to the individual payees (recipient copy) by January 31st
  • Form 1099’s Copy 1 (or a photocopy of the IRS copy) with Box 17 completed to the Wisconsin Department of Revenue by January 31st (assuming no extension has been requested and obtained)

Keep a copy for yourself, and note the dates mailed.  With the penalties of up to $500,000 now for failure to file, you need to take this seriously. Note for owners of rental properties:  Remember that the rule to report 1099-MISC payments was repealed for you.  Per the IRS instructions for 2011 reporting, “The requirement described in the 2011 instructions for persons receiving rental income from real estate to report payments for certain rental property expenses on Form 1099-MISC was repealed by Congress.   You do not have to report those payments on Form 1099-MISC.”  This HAS NOT CHANGED FOR 2017 reporting.

1099-MISC TRAP!

New Federal rules just increased the penalty for FAILURE to file a 1099-MISC form from $50 to $500,000.  That makes Wisconsin’s $25,000 penalty for WRONGLY filing a 1099-MISC in the construction industry seem pale in comparison. 

Here are the details of the new Federal penalties for failure to file a Form 1099-MISC for payments for services in excess of $600 during the calendar, in your trade or business, to unincorporated payees:

A person that fails to file a correct information return by the due date and cannot show reasonable cause may be subject to a penalty. The penalty applies if the person fails to file timely, fails to include all information required to be shown on a return, or includes incorrect information on a return. The penalty also applies if a person files on paper when required to file electronically, reports an incorrect taxpayer identification number (TIN) or fails to report a TIN, or fails to file paper forms that are machine readable. The amount of the penalty is based on when the correct information return is filed. For returns required to be filed on or after January 1, 2011, the penalty is:

(1) $30 per information return for returns filed correctly within 30 days after the due date (by March 30 if the due date is February 28), with a maximum penalty of $250,000 a year ($75,000 for certain small businesses);

(2) $60 per information return for returns filed more than 30 days after the due date but by August 1, with a maximum penalty of $500,000 a year ($200,000 for certain small businesses); and

(3) $100 per information return for returns filed after August 1 or not filed at all, with a maximum penalty of $1,500,000 a year ($500,000 for certain small businesses).

For this purpose, a business is a small business for any calendar year if its average annual gross receipts for the most recent three tax years (or for the period it was in existence, if shorter) ending before the calendar year do not exceed $5,000,000.

Persons who are required to file information returns electronically but who fail to do so (without an approved waiver) are treated as having failed to file the return, and are therefore subject to a penalty of up to $100 per return unless the person shows reasonable cause for the failure. However, they can file up to 250 returns on paper; those returns will not be subject to a penalty for failure to file electronically. The penalty applies separately to original returns and corrected returns.

For each fifth calendar year beginning after 2012, each of the dollar amounts described above is subject to indexing for inflation.