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The Tax Facts for Business Owners


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Be Attentive to Employee and Worker ConcernsBe Attentive to Employee and Worker Concerns

As part of our blog series on tax literacy, MBDA will highlight the latest tax-related news issued by the IRS for business owners.  The material presented in this website is not offered as legal or tax advice.  You are urged to seek the advice of your tax advisor, attorney, and/or financial planner for any issue related to tax obligations.

Payroll

Maintaining good payroll records is critical for both you and your employees. Keep all records of employment taxes for at least 4 years. They should be available for IRS review. The following is a list of some of the records you should keep:

  • Your employer identification number (EIN).

  • Amounts and dates of all wage, annuity, and pension payments.

  • Amounts of tips reported to you by your employees. Records of allocated tips.

  • Names, addresses, social security numbers, and occupations of employees and recipients.

  • Any employee copies of Forms W-2 and W-2c returned to you as undeliverable.

  • Dates of employment for each employee.

  • Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments you or third-party payers made to them.

  • Copies of employees' and recipients' income tax withholding allowance certificates

  • Copies of employees' Earned Income Credit Advance Payment Certificates

  • Copies of returns filed and confirmation numbers.

  • Records of fringe benefits and expense reimbursements provided to your employees, including substantiation.

Important Employer Tax Forms

Form I-9, Employment Eligibility Verification, must be completed for each newly hired employee to demonstrate the employer’s compliance with the law and the employee’s work authorization.

Form W-2, Wage and Tax Statement, is the annual statement you give to employees showing their earnings and withholdings for the year.

Form W-4, Employee’s Withholding Allowance Certificate. Ask each new employee to complete and return Form W-4 showing filing status and withholding allowances.

Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit. Use Form W-11 to confirm that an employee is a qualified employee under the HIRE Act.

Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return. Generally,federal unemployment tax is computed on the first $7,000 of each employee’s earnings. If the FUTA tax liability is more than $500, you must deposit at least one quarterly payment.

Form 941, Employer’s Quarterly Federal Tax Return. This is your quarterly report of wages paid, tip income received by employees, income tax withheld, and both the employer’s and the employee’s share of Social Security and Medicare taxes.

Form 944, Employer’s Annual Federal Tax Return (a variation of Form 941). This is an annual wage report for employers whose total annual liability for income tax withheld, Social Security, and Medicare taxes is $1,000 or less. If you qualify to file Form 944, the IRS will notify you.

Independent Contractor or Employee

It is critical that you, the employer, correctly determine whether the individuals providing services are employees or independent contractors. Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on employee wages. You do not generally have to withhold or pay any taxes on payments to independent contractors.

Generally, whether a worker is an employee or an independent contractor depends upon how much control you have as a business owner. The IRS uses three broad categories to determine this: behavioral control, financial control, and the type of relationship. Publication 1779,

Independent Contractor or Employee, provides guidance. If, after reviewing these categories, the determination remains unclear, you may file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding and the IRS will determine the worker’s status.

If you have an independent contractor, you may be required to issue Form 1099-MISC for payments totaling $600 or more in a calendar year.  Learn more about independent contractor or employee.

For more information, see Publication 15 Circular E, Employer’s Tax Guide.

Stay tuned for other helpful tools and tips by visiting our website, www.mbda.gov and following our twitter account @usmbda.

Content taken from the Internal Revenue Service [IRS] 2012 Tax Calendar.

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