51 10320R <HD><BIT></BIT>Circular A, Agricultural Employer's Tax Guide</HD> <STITLE>(Including 2001 Wage Withholding and Advance Earned Income Credit Payment Tables)</STITLE> Changes To Note1 Important Reminders2 2001 Calendar3 Introduction4  1. Taxpayer Identification Numbers4  2. Who Are Employees?5  3. Taxable Wages5  4. Social Security and Medicare Taxes6  5. Income Tax Withholding7  6. Advance Earned Income Credit (EIC) Payment9  7. Deposit Requirements10  8. Form 94314  9. Adjustments on Form 94314 10. Federal Unemployment (FUTA) Tax15 11. Records You Should Keep16 12. Reconciling Wage Reporting Forms16 13. Income Tax Withholding Methods17 14. Advance Earned Income Credit (EIC) Payment Methods18 15. How Do Employment Taxes Apply to Farmwork?19 Income Tax Withholding Percentage Tables 20 Income Tax Withholding Wage Bracket Tables22 Advance EIC Tables42 Index46 Form 7018-A (Order Blank)47 Tax Help and Forms48 Changes To Note Social Security and Medicare tax for 2001.

The social security wage base for 2001 is $80,400. There is no wage base limit for Medicare tax. The tax rate remains 6.2% for social security and 1.45% for Medicare tax.

Threshold for deposit requirement increased from $1,000 to $2,500.

For tax years beginning January 1, 2001, if your tax liability (line 11 for Form 943 or line 4 for Form 945) is less than $2,500, you are not required to make deposits and may pay the taxes with the return. See section 7 for a complete discussion of the deposit rules.

Important Reminders Electronic deposit requirement.

You must make electronic deposits of all depository taxes (such as employment tax, excise tax, and corporate income tax) using the Electronic Federal Tax Payment System (EFTPS) in 2001 if:

  • The total deposits of such taxes in 1999 was more than $200,000 or
  • You were required to use EFTPS in 2000.
  • If you are required to use EFTPS and fail to do so, you may be subject to a 10% penalty. If you are not required to use EFTPS, you may participate voluntarily. To get more information or to enroll in EFTPS, call 1-800-555-4477 or 1-800-945-8400.

    See section 7 for more information.

    Extended due date for electronic filers.

    The due date for filing Copy A of electronically filed 2000 Forms W-2 with the Social Security Administration, or Copy A of electronically filed Forms 1098, 1099, 8027, and W-2G with the Internal Revenue Service, is April 2, 2001. The extended due date does not apply to magnetic media or paper filing.

    Change of address.

    If you changed your business mailing address or business location, notify the IRS by filing Form 8822, Change of Address. For information on how to change your address for deposit coupons, see Making deposits with FTD coupons (section 7).

    When you hire a new employee.

    Ask each new employee to complete the 2001 Form W-4, Employee's Withholding Allowance Certificate. Also, ask the employee to show you his or her social security card so you can record the employee's name and social security number accurately. If the employee has lost the card or recently changed names, have the employee apply for a new card. If the employee does not have a card, have the employee apply for one on Form SS-5, Application for a Social Security Card. (See section 1.) Forms: I–9

    Eligibility for employment.

    You must verify that each new employee is legally eligible to work in the United States. This includes completing the Immigration and Naturalization Service (INS) Form I-9, Employment Eligibility Verification. You can get the form from INS offices. Contact the INS at 1-800-375-5283, or visit the INS Web Site at www.ins.usdoj.gov for further information.

    New hire reporting.

    You are required to report any new employee to a designated state new hire registry. Many states accept a copy of Form W-4 with employer information added. Call the Office of Child Support Enforcement at 202-401-9267 or visit its web site at www.acf.dhhs.gov/programs/cse/newhire for more information.

    When a crew leader furnishes workers to you.

    Record the crew leader's name, address, and employer identification number. (See sections 2 and 11.)

    Information returns.

    You must furnish Form W-2, Wage and Tax Statement, to each employee by January 31 for the previous year. You also may have to file information returns to report certain types of payments made during the year. For example, you must file Form 1099-MISC, Miscellaneous Income, to report payments of $600 or more to persons not treated as employees (e.g., independent contractors) for services performed for your trade or business. For general information about Forms 1099 and for information about required electronic or magnetic media filing, see the 2001 General Instructions for Forms 1099, 1098, 5498, and W-2G. Also see the separate instructions for each information return you file (e.g., 2001 Instructions for Form 1099-Misc). Do not use Form 1099 to report wages or other compensation you paid to employees; report these on Form W-2. See the separate Instructions for Forms W-2 and W-3 for details.

    Private delivery services.

    You can use certain private delivery services designated by the IRS to send tax returns or payments. If you mail by the due date using any of these services, you are considered to have filed on time. The most recent list of designated private delivery services was published in August 1999. The list includes only the following:

  • Airborne Express (Airborne): Overnight Air Express Service, Next Afternoon Service, Second Day Service.
  • DHL Worldwide Express (DHL): DHL Same Day Service, DHL USA Overnight.
  • Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2 Day.
  • United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M.
  • The private delivery service can tell you how to get written proof of the mailing date. Caution: Private delivery services cannot deliver items to P.O. boxes. You must use the U.S. Postal Service to mail any item to an IRS P.O. box address.

    Problem resolution Unresolved tax issues.

    If you have attempted to deal with an IRS problem unsuccessfully, you should contact the Taxpayer Advocate. The Taxpayer Advocate independently represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels.

    While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that your case is given a complete and impartial review.

    Your assigned personal advocate will listen to your point of view and will work with you to address your concerns. You can expect the advocate to provide:

  • A fresh look at a new or ongoing problem.
  • Timely acknowledgment.
  • The name and phone number of the individual assigned to your case.
  • Updates on progress.
  • Timeframes for action.
  • Speedy resolution.
  • Courteous service.
  • When contacting the Taxpayer Advocate, you should provide the following information:

  • Your name, address, and employer identification number.
  • The name and telephone number of an authorized contact person and the hours he or she can be reached.
  • The type of tax return and year(s) involved.
  • A detailed description of the problem.
  • Previous attempts to solve the problem and the office that had been contacted.
  • A description of the hardship you are facing (if applicable).
  • You may contact a Taxpayer Advocate by calling a toll-free number, 1-877-777-4778. Persons who have access to TTY/TDD equipment may call 1-800-829-4059 and ask for Taxpayer Advocate assistance. If you prefer, you may call, write, or fax the Taxpayer Advocate office in your area. See Pub. 1546, The Taxpayer Advocate Service of the IRS, for a list of addresses and fax numbers.

    Information reporting call site.

    The IRS operates a centralized call site to answer questions about reporting on Forms W-2, W-3, 1099, and other information returns. If you have questions related to reporting on information returns, you may call 304-263-8700.

    2001 Calendar

    The following are important dates and responsibilities. Also see Pub. 509, Tax Calendars for 2001.

    Note: If any date shown below falls on a Saturday, Sunday, or legal holiday, the due date is the next business day. For any due date, you will meet the file or furnish requirement if the form is properly addressed and mailed First-Class or sent by an IRS designated delivery service on or before the due date. (See Private delivery services earlier.)

    By January 31

  • File Form 943, Employer's Annual Tax Return for Agricultural Employees, with the Internal Revenue Service. (See section 8.) If you deposited all Form 943 taxes when due, you may file Form 943 by February 12.
  • Furnish each employee a completed Form W-2, Wage and Tax Statement.
  • Furnish each recipient a completed Form 1099 (e.g., Form 1099-MISC, Miscellaneous Income).
  • File Form 940 or Form 940-EZ, Employer's Annual Federal Unemployment (FUTA) Tax Return. (See section 10.) But if you deposited all the FUTA tax when due, you may file Form 940 or 940-EZ on or before February 12.
  • File Form 945, Annual Return of Withheld Federal Income Tax, to report any nonpayroll income tax withheld during 2000.
  • By February 15

    Ask for a new Form W-4 from each employee who claimed exemption from withholding last year.

    On February 16

    Begin withholding for any employee who previously claimed exemption from withholding but has not given you a new Form W-4 for the current year. If the employee does not give you a new Form W-4, withhold tax as if he or she is single, with zero withholding allowances. The Form W-4 previously given to you claiming exemption is now expired. (See section 5.)

    By February 28

    File Forms 1099 and 1096. File Copy A of all Forms 1099 with Form 1096, Annual Summary and Transmittal of U.S. Information Returns, with the Internal Revenue Service Center for your area. For electronically filed returns, see By April 2 below.

    Send Copy A of all Forms W-2 with Form W-3, Transmittal of Wage and Tax Statements, or your magnetic media wage report to the Social Security Administration. For electronically filed returns, see By April 2 below.

    By April 2

    File electronic Forms W-2 and 1099. File Copy A of electronic (not magnetic media or paper) Forms W-2 with the Social Security Administration and Forms 1099 with the Internal Revenue Service.

    By April 30, July 31, October 31, and January 31

    Deposit FUTA taxes. Deposit Federal unemployment (FUTA) tax due if it is more than $100.

    Before December 1

    Remind employees to submit a new Form W-4 if their withholding allowances will change for the next year.

    On December 31

    Form W-5, Earned Income Credit Advance Payment Certificate, expires. Employees who want to receive advance payments of the earned income credit for the next year must give you a new Form W-5.

    This guide is for employers of agricultural workers (farmworkers). It contains information you may need to comply with the laws for agricultural labor (farmwork) relating to social security and Medicare taxes, Federal unemployment (FUTA) tax, and withheld income tax.

    If you have nonfarm employees, see Circular E, Employer's Tax Guide (Pub. 15). If you have employees in the U.S. Virgin Islands, Guam, American Samoa, or the Commonwealth of the Northern Mariana Islands, see Circular SS (Pub. 80). Pub. 15-A, Employer's Supplemental Tax Guide, contains other employment-related information, including information about fringe benefits, sick pay, and pension income. Pub. 15-B, Employer's Tax Guide to Fringe Benefits, contains employment tax information about noncash compensation.

    Ordering publications and forms.

    See Form 7018-A, Employer's Order Blank for 2001 Forms, and Quick and Easy Access to Tax Help and Forms at the end of this publication.

    Telephone help.

    You can call the IRS with your tax questions. Check your telephone book for the local number or call 1-800-829-1040.

    Help for people with disabilities.

    Telephone help is available using TTY/TDD equipment. You can call 1-800-829-4059 with your tax question or to order forms and publications. See your tax package for the hours of operation.

    Publication 15 Circular E, Employer's Tax Guide 15-A Employer's Supplemental Tax Guide 15-B Employer's Tax Guide to Fringe Benefits 225 Farmer's Tax Guide 535 Business Expenses 583 Starting a Business and Keeping Records 1635 Understanding Your EIN
    1. Taxpayer Identification Numbers Taxpayer identification number

    If you are required to withhold any income, social security, or Medicare taxes, you will need an employer identification number for yourself, and you will need the social security number of each employee. Employer identification number

    Employer identification number (EIN).

    The EIN is a nine-digit number the IRS issues. The digits are arranged as follows: 00-0000000. It is used to identify the tax accounts of employers and certain others that have no employees. Use your EIN on all the items you send to the IRS and SSA for your business.

    If you have not asked for an EIN, request one on Form SS-4, Application for Employer Identification Number. Form SS-4 contains information on how to apply for an EIN by mail or by telephone.

    If you do not have an EIN by the time a return is due, write Applied For and the date you applied in the space shown for the number. If you took over another employer's business, do not use that employer's EIN. Make your check for any amount due on a return payable to the United States Treasury and show on it your name (as shown on Form SS-4), address, kind of tax, period covered, and date you applied for an EIN.

    You should have only one EIN. If you have more than one, notify the Internal Revenue Service Center where you file your return. List the EINs you have, the name and address to which each number was assigned, and the address of your principal place of business. The IRS will tell you which EIN to use.

    For more information, see Pub. 1635, Understanding Your EIN, or Pub. 583, Starting a Business and Keeping Records. Social security number

    Social security number.

    An employee's social security number (SSN) consists of nine digits separated as follows: 000-00-0000. You must obtain each employee's name and SSN because you must enter them on Form W-2. You may, but are not required to, photocopy the social security card if the employee provides it. If you do not provide the correct name and SSN, you may owe a penalty. Any employee without a social security card can get one by completing Form SS-5. You can get this form at SSA offices or by calling 1-800-772-1213. If your employee has applied for an SSN but does not have one when you must file Form W-2, enter Applied For on the form. When the employee receives the SSN, file Form W-2c, Corrected Wage and Tax Statement, to show the employee's SSN.

    Note:

    Record the name and number of each employee exactly as they are shown on the employee's social security card. If the employee's name is not correct as shown on the card (for example, because of marriage or divorce), the employee should request a new card from the SSA. Continue to report the employee's wages under the old name until he or she shows you an updated social security card with the new name.

    If your employee was given a new social security card to show his or her correct name and number after an adjustment to his or her alien residence status, correct your records and show the new information on Form W-2. If you filed Form W-2 for the same employee in prior years under the old name and SSN, file Form W-2c to correct the name and number. Advise the employee to contact the local SSA office about 9 months after the Form W-2c is filed to ensure that his or her records have been updated.

    IRS individual taxpayer identification numbers (ITINs) for aliens.

    A resident or nonresident alien may request an ITIN for tax purposes if he or she does not have and is not eligible to get an SSN. Possession of an ITIN does not change an individual's employment or immigration status under U.S. law. Do not accept an ITIN in place of an SSN for employee identification. An individual with an ITIN who later becomes eligible to work in the United States must obtain an SSN.

    Verification of social security numbers.

    The Social Security Administration (SSA) offers employers and authorized reporting agents two methods for verifying employee SSNs. Both methods match employee names and SSNs.

  • Telephone verification. To verify up to five names and numbers, call 1-800-772-6270. To verify up to 50 names and numbers, contact your local social security office.
  • Large volume verification. The Enumeration Verification Service (EVS) may be used to verify more than 50 employee names and SSNs. Preregistration is required for EVS and the information must be submitted on magnetic media. For more information, call the EVS Information Line at 410-965-7140 or visit SSA's Web Site for Employers at www.ssa.gov/employer.
  • Employers of farmworkers Employee defined Independent contractor Farmworker defined

    2. Who Are Employees?

    Generally, employees are defined either under common law or under special statutes for certain situations.

    Employee status under common law.

    Generally, a worker who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed. Get Pub. 15-A, Employer's Supplemental Tax Guide, for more information on how to determine whether an individual providing services is an independent contractor or an employee.

    You are responsible for withholding and paying employment taxes for your employees. You are also required to file employment tax returns. These requirements do not apply to independent contractors. The rules discussed in this publication apply only to workers who are your employees.

    In general, you are an employer of farmworkers if your employees:

  • Raise or harvest agricultural or horticultural products on a farm.
  • Work in connection with the operation, management, conservation, improvement, or maintenance of your farm and its tools and equipment.
  • Handle, process, or package any agricultural or horticultural commodity if you produced over half of the commodity (for a group of more than 20 operators, all of the commodity).
  • Do work related to cotton ginning, turpentine, or gum resin products.
  • Do housework in your private home if it is on a farm that is operated for profit. (You may report the taxes for household employees separately. See sections 3 and 8.)
  • For this purpose, the term farm includes stock, dairy, poultry, fruit, fur-bearing animal, and truck farms, as well as plantations, ranches, nurseries, ranges, greenhouses or other similar structures used primarily for the raising of agricultural or horticultural commodities, and orchards.

    Farmwork does not include reselling activities that do not involve any substantial activity of raising agricultural or horticultural commodities, such as a retail store or a greenhouse used primarily for display or storage.

    The table on page 19, How Do Employment Taxes Apply to Farmwork?, distinguishes between farm and nonfarm activities, and also addresses rules that apply in special situations. Crew leaders Farmworkers: Crew leaders

    Crew Leaders

    You are an employer of farmworkers if you are a crew leader. A crew leader is a person who furnishes and pays (either on his or her own behalf or on behalf of the farm operator) workers to do farmwork for the farm operator. If there is no written agreement between you and the farm operator stating that you are his or her employee and if you pay the workers (either for yourself or for the farm operator), then you are a crew leader.

    3. Taxable Wages

    Cash wages you pay to employees for farmwork are subject to social security and Medicare taxes. If the wages are subject to social security and Medicare taxes, they are also subject to income tax withholding. You may also be liable for Federal unemployment (FUTA) tax, which is not withheld by you or paid by the employee. FUTA tax is discussed in section 10. Cash wages include checks, money orders, etc. Do not count the value of food, lodging, and other noncash items.

    For more information on what payments are considered taxable wages, see Circular E.

    Commodity wages Noncash wages Commodity wages.

    Commodity wages are not cash and are not subject to social security and Medicare taxes or income tax withholding. However, noncash payments, including commodity wages, are treated as cash payments if the substance of the transaction is a cash payment. These payments are subject to social security and Medicare taxes and income tax withholding.

    Household employees: Employment tax withholding Family members.

    Generally, the wages you pay to family members who are your employees are subject to social security and Medicare, and income tax withholding, and FUTA tax. However, certain exemptions may apply for your child, spouse, or parent. See the table, How Do Employment Taxes Apply to Farmwork?, on page 19.

    Household employees.

    The wages of an employee who performs household services, such as a maid, babysitter, gardener, or cook, in your home are not subject to social security and Medicare taxes if you pay that employee cash wages of less than $1,200 in 2000 ($1,300 in 2001).

    Social security and Medicare taxes do not apply to cash wages for housework in your private home if it was done by your spouse or your child under age 21. Nor do the taxes apply to housework done by your parent unless:

  • You have a child living in your home who is under age 18 or has a physical or mental condition that requires care by an adult for at least 4 continuous weeks in a calendar quarter; and
  • You are a widow or widower, or divorced and not remarried, or have a spouse in the home who, because of a physical or mental condition, cannot care for your child for at least 4 continuous weeks in the quarter.
  • For more information, see Pub. 926, Household Employer's Tax Guide.

    Wages for household work may not be a deductible farm expense. See Pub. 225, Farmer's Tax Guide.

    Alien workers
    Share farmers and alien workers.

    Social security and Medicare taxes do not apply to wages paid to share farmers or to alien workers admitted under section 101(a)(15)(H)(ii)(a) of the Immigration and Nationality Act on a temporary basis to perform agricultural labor (H-2(A) workers). Social security and Medicare: Withholding

    4. Social Security and Medicare Taxes

    Generally, you must withhold social security and Medicare taxes on all cash wage payments you make to your employees.

    The $150 Test or the $2,500 Test

    All cash wages you pay to an employee during the year for farmwork are subject to social security and Medicare taxes and income tax withholding if either of the two tests below is met:

  • You pay cash wages to an employee of $150 or more in a year for farmwork (count all cash wages paid on a time, piecework, or other basis). The $150 test applies separately to each farmworker you employ. If you employ a family of workers, each member is treated separately. Do not count wages paid by other employers.
  • The total you pay for farmwork (cash and noncash) to all your employees is $2,500 or more during the year.
  • Exceptions.

    The $150 and $2,500 tests do not apply to the following situations:

  • Wages you pay to a farmworker who receives less than $150 in annual cash wages are not subject to social security and Medicare taxes, or income tax withholding, even if you pay $2,500 or more in that year to all your farmworkers, if the farmworker:
  • Is employed in agriculture as a hand-harvest laborer,
  • Is paid piece rates in an operation that is usually paid on a piece-rate basis in the region of employment,
  • Commutes daily from his or her home to the farm, and
  • Had been employed in agriculture less than 13 weeks in the preceding calendar year.
  • Amounts you pay to these seasonal farmworkers, however, count toward the $2,500-or-more test to determine whether wages you pay to other farmworkers are subject to social security and Medicare taxes.

  • Cash wages you pay a household employee are counted in the $2,500 test, but are not subject to social security and Medicare taxes unless you have paid the worker $1,200 or more in cash wages in 2000 ($1,300 in 2001). See the table, How Do Employment Taxes Apply to Farmwork?, on page 19.
  • Social Security and Medicare Tax Rates

    For wages paid in 2001, the social security tax rate is 6.2% for both the employee and employer, on the first $80,400 paid to each employee. You must withhold at this rate from each employee and pay a matching amount. The Medicare tax rate is 1.45% each for the employer and the employee on all wages. Multiply each wage payment by this percentage to figure the amount you must withhold.

    Employee share paid by employer.

    If you would rather pay the employee's share of the social security and Medicare taxes without deducting them from his or her wages, you may do so. If you do not deduct the taxes, you must still pay them. Any employee social security and Medicare taxes you pay is additional income to the employee. Include it in the employee's Form W-2, box 1, but do not count it for social security and Medicare wages, boxes 3 and 5. Do not count the additional income as wages for FUTA tax purposes.

    Social security and Medicare taxes apply to most payments of sick pay, including payments made by third parties such as insurance companies. For details, get Pub. 15-A. Withholding: Income tax Income tax withholding: Who must withhold

    5. Income Tax Withholding

    Farmers and crew leaders must withhold Federal income tax from the wages of farmworkers if the wages are subject to social security and Medicare taxes. The amount to withhold is figured on gross wages without taking out social security and Medicare taxes, union dues, insurance, etc. You may use one of several methods to determine the amount of income tax withholding. They are discussed in section 13. Forms: W-4

    Form W-4.

    To know how much income tax to withhold from employees' wages, you should have a Form W-4, Employee's Withholding Allowance Certificate, on file for each employee. Ask each new employee to give you a signed Form W-4 when starting work. Make the form effective with the first wage payment. If a new employee does not give you a completed Form W-4, withhold tax as if he or she is single, with no withholding allowances. A Form W-4 remains in effect until the employee gives you a new one. If an employee gives you a replacement Form W-4, begin withholding no later than the start of the first payroll period ending on or after the 30th day from the date you received the replacement Form W-4.

    Use Form W-4 only to determine income tax withholding. It has no effect on social security, Medicare, state income tax, or any other form of withholding.

    The amount of income tax withholding is based on marital status and withholding allowances. Your employees may not base their withholding amounts on a fixed dollar amount or percentage. However, the employee may specify a dollar amount to be withheld in addition to the amount of withholding based on filing status and withholding allowances claimed on Form W-4.

    Employees may claim fewer withholding allowances than they are entitled to claim. They may do this to ensure that they have enough withholding or to offset other sources of taxable income that are not subject to withholding.

    Note:

    A Form W-4 that makes a change for the next calendar year will not take effect in the current calendar year.

    Pub. 505, Tax Withholding and Estimated Tax, contains detailed instructions for completing Form W-4. Along with Form W-4, you may wish to order Pub. 505 and Pub. 919, How Do I Adjust My Tax Withholding?, for your employees.

    When you receive a new Form W-4, do not adjust withholding for pay periods prior to the effective date of the new form; that is, do not adjust withholding retroactively. Also, do not accept any withholding or estimated tax payments from your employees in addition to withholding based on their Form W-4. If they want additional withholding, they should submit a new Form W-4 and, if necessary, pay estimated tax by filing Form 1040-ES, Estimated Tax for Individuals. Exemption from withholding

    Exemption from income tax withholding for eligible persons.

    An employee may claim exemption from income tax withholding because he or she had no income tax liability last year and expects none this year. However, the wages are subject to social security and Medicare taxes.

    An employee must file a Form W-4 each year by February 15 to claim exemption from withholding. Employers should begin withholding after that date for each employee who previously claimed exemption from withholding but who has not submitted a new Form W-4 for the current year. Withhold tax as if the employee is single with zero withholding allowances.

    Withholding: Nonresident aliens Withholding on nonresident aliens.

    In general, if you pay wages to nonresident aliens, you must withhold income tax (unless excepted by regulations), social security, and Medicare taxes as you would for a U.S. citizen. However, income tax withholding from the wages of nonresident aliens is subject to the special rules shown in Form W-4 below. You must also give a Form W-2 to the nonresident alien and file a copy with the SSA. The wages are subject to FUTA tax as well. However, see Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign Corporations, for exceptions to these general rules.

    Form W-4.

    When completing Form W-4 nonresident aliens are required to:

  • Not claim exemption from income tax withholding.
  • Request withholding as if they are single, regardless of their actual marital status.
  • Claim only one allowance. However, if the nonresident alien is a resident of Canada, Mexico, Japan, or Korea, he or she may claim more than one allowance.
  • Request an additional income tax withholding amount, depending on the payroll period, as follows:
  • nonresident

    For more information, get Pub. 515.

    Sending certain Forms W-4 to the IRS.

    You must send the IRS copies of certain Forms W-4 received during the quarter from employees still employed by you at the end of the quarter. Send copies when the employee claims (1) more than 10 withholding allowances or (2) exemption from withholding and his or her wages would normally be more than $200 per week. You are not required to send any other Forms W-4 unless the IRS notifies you in writing to do so.

    Each quarter, send to the IRS copies of any Forms W-4 that meet either of the above conditions. Complete boxes 8 and 10 on any Forms W-4 you send in. You may use box 9 to identify the office responsible for processing the employee's payroll information. Also send copies of any written statements from employees in support of the claims made on Forms W-4. Do this even if the Forms W-4 are not in effect at the end of the quarter. You can send them to your IRS service center more often if you like. Include a cover letter giving your name, address, employer identification number, and the number of forms included. In certain cases, the IRS may notify you in writing that you must submit specified Forms W-4 more frequently to the IRS.

    Base withholding on the Forms W-4 that you send in unless the IRS notifies you in writing that you should do otherwise. If the IRS notifies you about a particular employee, base withholding on the number of withholding allowances shown in the IRS notice. You will get a copy of the notice to give to the employee. Also, the employee will get a similar notice directly from the IRS. If the employee later gives you a new Form W-4, follow it only if (1) exempt status is not claimed and (2) the number of withholding allowances is equal to or fewer than the number in the IRS notice. Otherwise, disregard it and do not submit it to the IRS. Continue to follow the IRS notice.

    If the employee prepares a new Form W-4 explaining any difference with the IRS notice, he or she may either submit it to the IRS or to you. If submitted to you, send the Form W-4 and explanation to the IRS office shown in the notice. Continue to withhold based on the notice until the IRS tells you to follow the new Form W-4. Magnetic media reporting: Form W-4

    Filing Form W-4 magnetically or electronically.

    Form W-4 information may be filed with the IRS magnetically or electronically. If you wish to file magnetically or electronically, you must submit Form 4419, Application for Filing Information Returns Magnetically/Electronically, to request authorization. See Pub. 1245, Specifications for Filing Form W-4, Employee's Withholding Allowance Certificate, Magnetically or Electronically, for information on filing Form W-4 magnetically or electronically. To get additional information about magnetic or electronic filing, call the IRS Martinsburg Computing Center at 304-263-8700.

    Note:

    Any Forms W-4 with employee supporting statements that you must submit to the IRS must be submitted on paper. They cannot be submitted on magnetic media.

    Invalid Forms W-4.

    Any unauthorized change or addition to Form W-4 makes it invalid. This includes taking out any language certifying that the form is correct. A Form W-4 is also invalid if, by the date an employee gives it to you, he or she indicates in any way that it is false.

    If you receive an invalid Form W-4, do not use it to figure withholding. Tell the employee it is invalid and ask for another one. If the employee does not give you a valid one, withhold taxes as if the employee were single and claiming no withholding allowances. However, if you have an earlier Form W-4 for this worker that is valid, withhold as you did before.

    Amounts exempt from levy on wages, salary, and other income.

    If you receive a Notice of Levy on Wages, Salary, and Other Income (Form 668-W(c) or 668-W(c)(DO)), you must withhold amounts as described in the instructions for these forms. Pub. 1494, Table for Figuring Amount Exempt From Levy on Wages, Salary, and Other Income (Forms 668-W(c) and 668-W(c)(DO)), shows the exempt amount. If a levy issued in a prior year is still in effect, use the current year Pub. 1494 to compute the exempt amount. Income tax withholding: How to figure:

    How To Figure Income Tax Withholding

    There are several ways to figure income tax withholding:

  • Percentage method (see pages 20–21).
  • Wage bracket tables (see pages 22–41). Also see section 13 for directions on how to use the tables for employees claiming more than 10 allowances.
  • Alternative formula tables for percentage method withholding (see Pub. 15-A).
  • Wage bracket percentage method withholding tables (see Pub. 15-A).
  • Other alternative methods (see Pub. 15-A).
  • Employers with automated payroll systems will find the two alternative formula tables and the two alternative wage bracket percentage method tables in Pub. 15-A useful.

    If an employee wants additional tax withheld, have the employee show the extra amount on Form W-4.

    Supplemental wages Withholding: Supplemental wages Supplemental wages.

    Supplemental wages are compensation paid to an employee in addition to the employee's regular wages. They include, but are not limited to, bonuses, commissions, overtime pay, accumulated sick leave, severance pay, awards, prizes, back pay and retroactive pay increases for current employees, and payments for nondeductible moving expenses. Other payments subject to the supplemental wage rules include taxable fringe benefits and expense allowances paid under a nonaccountable plan.

    If you pay supplemental wages with regular wages but do not specify the amount of each, withhold income tax as if the total were a single payment for a regular payroll period.

    If you pay supplemental wages separately (or combine them in a single payment and specify the amount of each), the income tax withholding method depends partly on whether you withhold income tax from your employee's regular wages:

  • If you withhold income tax from an employee's regular wages, you can use one of the following methods for the supplemental wages:
  • Withhold a flat 28% from each payment.
  • Add the supplemental and regular wages for the most recent payroll period this year. Then figure the income tax withholding as if the total were a single payment. Subtract the tax already withheld from the regular wages. Withhold the remaining tax from the supplemental wages.
  • If you did not withhold income tax from the employee's regular wages, use method 1b above. (This would occur, for example, when the dollar amount of the employee's withholding allowances claimed on Form W-4 is more than the wages.)
  • Regardless of the method you use to withhold income tax on supplemental wages, supplemental wages are subject to social security, Medicare, and FUTA taxes.

    6. Advance Earned Income Credit (EIC) Payment

    An employee who is eligible for the earned income credit (EIC) and who has a qualifying child is entitled to receive EIC payments with his or her pay during the year. To get these payments, the employee must give you a properly completed Form W-5, Earned Income Credit Advance Payment Certificate. You are required to make advance EIC payments to employees who give you a properly completed Form W-5, except that you are not required to make these payments to farmworkers paid on a daily basis.

    Certain employees who do not have a qualifying child may be able to claim the EIC on their tax return. However, they cannot get advance EIC payments.

    For 2001, the advance payment can be as much as $1,457. The tables that begin on page 42 reflect that limit.

    Form W-5.

    Form W-5 states the eligibility requirements for receiving advance EIC payments. On Form W-5, an employee states that he or she expects to be eligible to claim the EIC and shows whether he or she has another Form W-5 in effect with any other current employer.

    An employee may have only one Form W-5 in effect with an employer at one time. If an employee is married and his or her spouse also works, each spouse should file a separate Form W-5.

    For more information, see Form W-5 or Circular E.

    How to figure the advance EIC payment. Advance earned income credit: How to figure

    You must include advance EIC payments with wages you pay to eligible employees who give you a signed and completed Form W-5. Form W-5 is effective for the first payroll period ending (or the first wage payment made without regard to a payroll period) on or after the date the employee gives you the form. It remains in effect until the end of the year or until the employee revokes it or gives you a new one. Employees must give you a new Form W-5 each year.

    Figure the amount of advance EIC to include in the employee's pay by using either the wage bracket or percentage method tables that begin on page 42. There are separate tables for employees whose spouses have a Form W-5 in effect.

    Note:

    During 2001, if you pay an employee total wages of at least $28,281 you must stop making advance EIC payments to that employee for the rest of the year.

    Paying the advance EIC to employees.

    Advance EIC payments are not wages and are not subject to withholding of income, social security, or Medicare taxes. An advance EIC payment does not change the amount of income, social security, or Medicare taxes you withhold from the employee's wages. You add the advance EIC payment to the employee's net pay for the pay period. At the end of the year, you show the total advance EIC payments in box 9 on Form W-2. Do not include this amount as wages in box 1.

    Employer's returns.

    Show the total payments you made to employees on the advance EIC line (line 10) of your Form 943. Subtract this amount from your total taxes on line 9 (see the instructions for Form 943). Reduce the amounts reported on line 15 of Form 943 or on Form 943-A, Agricultural Employer's Tax Record of Federal Tax Liability, by any advance EIC paid to your employees.

    Generally, you will make the advance EIC payment from withheld income tax and employee and employer social security and Medicare taxes. For purposes of deposit due dates, advance EIC payments are considered deposited on the day you pay wages (including the advance EIC payment) to your employees. The advance EIC payment reduces first the amount of income tax withholding, then withheld employee social security and Medicare taxes, and last the employer's share of social security and Medicare taxes. For more information, see Circular E.

    Required Notice to Employees

    You must notify employees who have no income tax withheld that they may be able to claim a tax refund because of the EIC. Although you do not have to notify employees who claim exemption from withholding on Form W-4, Employee's Withholding Allowance Certificate, about the EIC, you are encouraged to notify any employees whose wages for 2000 were less than $31,152 that they may be eligible to claim the credit for 2000. This is because eligible employees may get a refund of the amount of EIC that is more than the tax they owe.

    You will meet the notification requirement if you issue the IRS Form W-2 with the EIC notice on the back of Copy B, or a substitute Form W-2 with the same statement. You may also meet the requirement by providing Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC), or your own statement that contains the same wording.

    If a substitute Form W-2 is given on time but does not have the required statement, you must notify the employee within 1 week of the date the substitute Form W-2 is given. If Form W-2 is required but is not given on time, you must give the employee Notice 797 or your written statement by the date Form W-2 is required to be given. If Form W-2 is not required, you must notify the employee by February 7, 2001.

    Deposit rules: Electronic funds transfer7. Deposit Requirements

    Generally, you must deposit both the employer and employee social security and Medicare taxes and income tax withheld (minus any advance earned income credit payments) during the year by mailing or delivering a check, money order, or cash to an authorized financial institution. However, some employers are required to deposit by electronic funds transfer (see How To Deposit later).

    Payment with return.

    Beginning in 2001, you may make payments with Form 943 instead of depositing if:

  • Your net tax liability for the year (line 11 on Form 943) is less than $2,500, or
  • You are making a payment in accordance with the Accuracy of deposits rule discussed later. This payment may be $2,500 or more. Caution: Only monthly schedule depositors, defined later, are allowed to make this payment with the return.
  • When To Deposit

    Note:

    If you employ both farm and nonfarm workers, do not combine the taxes reportable on Form 941 and Form 943 to decide whether to make a deposit. See Employers of Both Farm and Nonfarm Workers at the end of this section.

    The rules for determining when to deposit Form 943 taxes are discussed below. Under these rules, you are classified as either a monthly schedule depositor or a semiweekly schedule depositor.

    The terms monthly schedule depositor and semiweekly schedule depositor do not refer to how often your business pays its employees, or how often you are required to make deposits. The terms identify which set of rules you must follow when you incur a tax liability.

    The deposit schedule you must use for a calendar year is determined from the total taxes (not reduced by any advance EIC payments) reported on your Form 943 (line 9) for the lookback period, discussed next.

  • If you reported $50,000 or less of Form 943 taxes for the lookback period, you are a monthly schedule depositor.
  • If you reported more than $50,000 of Form 943 taxes for the lookback period, you are a semiweekly schedule depositor.
  • Deposit rules: Lookback period Lookback period

    Lookback period.

    The lookback period is the second calendar year preceding the current calendar year. For example, the lookback period for 2001 is 1999.

    Example of deposit schedule based on lookback period.

    Rose Co. reported taxes on Form 943 as follows:

  • 1999 — $48,000
  • 2000 — $60,000
  • Rose Co. is a monthly schedule depositor for 2001 because its taxes for the lookback period ($48,000 for calendar year 1999) were not more than $50,000. However, for 2002, Rose Co. is a semiweekly schedule depositor because the total taxes for its lookback period ($60,000 for calendar year 2000) exceeded $50,000.

    Adjustments to lookback period taxes.

    To determine your taxes for the lookback period, use only the tax you reported on the original return (Form 943, line 9). Do not include adjustments made on a supplemental return filed after the due date of the return. However, if you make adjustments on Form 943, the adjustments are included in the total tax for the period in which the adjustments are reported.

    Example of adjustments.

    An employer originally reported total tax of $45,000 for the lookback period in 1999. The employer discovered during March 2000 that the tax during the lookback period was understated by $10,000 and corrected this error with an adjustment on the 2000 Form 943. The total tax reported in the lookback period is $45,000. The $10,000 adjustment is treated as part of the 2000 taxes.

    Monthly Deposit Schedule

    If the total tax reported on Form 943 for the lookback period is $50,000 or less, you are a monthly schedule depositor for the current year. You must deposit Form 943 taxes on payments made during a calendar month by the 15th day of the following month.

    Monthly schedule example.

    Red Co. is a seasonal employer and a monthly schedule depositor. It pays wages each Friday. During January 2001 it paid wages but did not pay any wages during February. Red Co. must deposit the combined tax liabilities for the January paydays by February 15. Red Co. does not have a deposit requirement for February (i.e., due by March 15) because no wages were paid in February and, therefore, it did not have a tax liability for February.

    New employers.

    During the first calendar year of your business, your taxes for the lookback period are considered to be zero. Therefore, you are a monthly schedule depositor for the first calendar year of your business (but see the $100,000 Next-Day Deposit Rule later).

    Semiweekly Deposit Schedule

    If the total tax reported on Form 943 for the lookback period is more than $50,000, you are a semiweekly schedule depositor for the current year. If you are a semiweekly schedule depositor, you must deposit on Wednesday and/or Friday depending on what day of the week you make payments, as follows:

    Lookback Table

    Deposit period.

    The term deposit period refers to the period during which tax liabilities are accumulated for each required deposit due date. For monthly schedule depositors, the deposit period is a calendar month. The deposit periods for semiweekly schedule depositors are Wednesday through Friday and Saturday through Tuesday.

    The end of the calendar year always ends a semiweekly deposit period and begins a new one. For example, if the year ends on Thursday, taxes accumulated on the previous Wednesday and on Thursday are subject to one deposit obligation and taxes accumulated on Friday are subject to a separate obligation.

    Semiweekly schedule example.

    Green Inc., a semiweekly schedule depositor, pays wages on the last day of each month. Green Inc. will deposit only once a month, but the deposit will be made under the semiweekly deposit schedule as follows. Green Inc.'s tax liability for the May 31, 2001 (Thursday) wage payment must be deposited by June 6, 2001 (Wednesday).

    Deposits on Banking Days Only

    If a deposit is required to be made on a day that is not a banking day, the deposit is considered timely if it is made by the next banking day. In addition to Federal and state bank holidays, Saturdays and Sundays are treated as nonbanking days. For example, if a deposit is required to be made on Friday, but Friday is not a banking day, the deposit is considered timely if it is made by the following Monday (if Monday is a banking day).

    Semiweekly schedule depositors will always have 3 banking days to make a deposit. That is, if any of the 3 weekdays after the end of a semiweekly period is a banking holiday, you will have one additional banking day to deposit. For example, if a semiweekly schedule depositor accumulated taxes on Friday and the following Monday is not a banking day, the deposit normally due on Wednesday may be made on Thursday (allowing 3 banking days to make the deposit).

    Payment With Return

    Beginning in 2001, you may make a payment with Forms 943 or 945 instead of depositing if:

  • You accumulate less than a $2,500 tax liability during the year (line 11 of Form 943 or line 4 of Form 945). However, if you are unsure that you will accumulate less than $2,500, deposit under the rules explained in this section so that you will not be subject to failure to deposit penalties, or
  • You are a monthly schedule depositor and make a payment in accordance with the Accuracy of Deposits Rule discussed later. This payment may be $2,500 or more. Caution: Only monthly schedule depositors are allowed to make this payment with the return.
  • $100,000 Next-Day Deposit Rule

    If you accumulate $100,000 or more of net Form 943 taxes (taxes reduced by any advance EIC payments) on any day during a deposit period, you must deposit the tax by the close of the next banking day, whether you are a monthly or a semiweekly schedule depositor. For monthly schedule depositors, the deposit period is a calendar month. For semiweekly schedule depositors, the deposit periods are Wednesday through Friday and Saturday through Tuesday.

    For purposes of the $100,000 rule, do not continue accumulating taxes after the end of a deposit period. For example, if a semiweekly schedule depositor has accumulated taxes of $95,000 on Tuesday (end of a Saturday-through-Tuesday deposit period) and $10,000 on Wednesday, the $100,000 next-day deposit rule does not apply because the $10,000 is accumulated in the next deposit period. Thus, $95,000 must be deposited on Friday and $10,000 must be deposited on the following Wednesday.

    In addition, once you accumulate at least $100,000 in a deposit period, stop accumulating at the end of that day and begin to accumulate anew on the next day. For example, Fir Co. is a semiweekly schedule depositor. On Monday, Fir Co. accumulates taxes of $110,000 and must deposit the tax on Tuesday, the next banking day. On Tuesday, Fir Co. accumulates additional taxes of $30,000. Because the $30,000 is not added to the previous $110,000 and is less than $100,000, Fir Co. must deposit the $30,000 by Friday using the normal semiweekly deposit schedule.

    If you are a monthly schedule depositor and you accumulate a $100,000 tax liability on any day during a month, you become a semiweekly schedule depositor on the next day and remain so for the remainder of the calendar year and for the following calendar year.

    Example of the $100,000 next-day deposit rule.

    Elm Inc. started business on May 4, 2001. Because Elm Inc. is a new employer, the taxes for its lookback period are considered to be zero; therefore, Elm Inc. is a monthly schedule depositor. On May 11, Elm Inc. paid wages for the first time and accumulated taxes of $60,000. On May 18 (Friday), Elm Inc. paid wages and accumulated taxes of $50,000, for a total of $110,000. Because Elm Inc. accumulated $110,000 on May 18, it must deposit $110,000 by May 21 (Monday), the next banking day.

    Accuracy of Deposits Rule

    You are required to deposit 100% of your tax liability on or before the deposit due date. However, penalties will not be applied for depositing less than 100% if both of the following conditions are met:

  • Any deposit shortfall does not exceed the greater of $100 or 2% of the amount of taxes otherwise required to be deposited, and
  • The deposit shortfall is paid or deposited by the shortfall makeup date as described below.
  • Monthly Schedule Depositor—Deposit the shortfall or pay it with your return by the due date of Form 943. You may pay the shortfall with Form 943 even if the amount is $2,500 or more.
  • Semiweekly Schedule Depositor—Deposit by the earlier of (1) the first Wednesday or Friday (whichever comes first) that falls on or after the 15th of the month following the month in which the shortfall occurred or (2) the due date for Form 943. For example, if a semiweekly schedule depositor has a deposit shortfall during February 2001, the shortfall makeup date is March 16, 2001 (Friday).
  • How To Deposit

    The two methods of depositing employment taxes are discussed below. See page 10 for exceptions explaining when taxes may be paid with the tax return instead of deposited.

    Electronic deposit requirement. Electronic deposits

    You must make electronic deposits of all depository taxes (such as employment tax, excise tax, and corporate income tax) using the Electronic Federal Tax Payment System (EFTPS) in 2001 if:

  • The total deposits of such taxes in 1999 was more than $200,000 or
  • You were required to use EFTPS in 2000.
  • If you are required to use EFTPS and fail to do so, you may be subject to a 10% penalty. If you are not required to use EFTPS, you may participate voluntarily. To get more information or to enroll in EFTPS, call 1-800-555-4477 or 1-800-945-8400.

    Depositing on time.

    For deposits made by EFTPS to be on time, you must initiate the transaction at least one business day before the date the deposit is due.

    Making deposits with FTD coupons. Deposit: Coupons

    If you are not making deposits by EFTPS, use Form 8109, FTD coupons Federal Tax Deposit Coupon, to make the deposits at an authorized financial institution.

    For new employers, the IRS will send you a Federal Tax Deposit (FTD) coupon book 5 to 6 weeks after you receive an employer identification number (EIN). (Apply for an EIN on Form SS-4.) The IRS will keep track of the number of FTD coupons you use and automatically will send you additional coupons when you need them. If you do not receive your resupply of FTD coupons, call 1-800-829-1040. You can have the FTD coupon books sent to a branch office, tax preparer, or service bureau that is making your deposits by showing that address on Form 8109-C, FTD Address Change, which is in the FTD coupon book. (Filing Form 8109-C will not change your address of record; it will change only the address where the FTD coupons are mailed.) The FTD coupons will be preprinted with your name, address, and EIN. They have entry boxes for indicating the type of tax and the tax period for which the deposit is made.

    It is very important to clearly mark the correct type of tax and tax period on each FTD coupon. This information is used by the IRS to credit your account.

    If you have branch offices depositing taxes, give them FTD coupons and complete instructions so they can deposit the taxes when due.

    Please use only your FTD coupons. If you use anyone else's FTD coupon, you may be subject to the failure to deposit penalty. This is because your account will be underpaid by the amount of the deposit credited to the other person's account. See Deposit Penalties later for details.

    How to deposit with an FTD coupon.

    Mail or deliver each FTD coupon and a single payment covering the taxes to be deposited to an authorized depositary. An authorized depositary is a financial institution (e.g., a commercial bank) that is authorized to accept Federal tax deposits. Follow the instructions in the FTD coupon book. Make the check or money order payable to the depositary. To help ensure proper crediting of your account, include your EIN, the type of tax (e.g., Form 943), and tax period to which the payment applies on your check or money order.

    Authorized depositaries must accept cash, a postal money order drawn to the order of the depositary, or a check or draft drawn on and to the order of the depositary. You may deposit taxes with a check drawn on another financial institution only if the depositary is willing to accept that form of payment.

    Note:

    Be sure that the financial institution where you make deposits is an authorized depositary. Deposits made at an unauthorized institution may be subject to the failure to deposit penalty.

    Depositing on time.

    The IRS determines if deposits are on time by the date they are received by an authorized depositary. To be considered timely, the funds must be available to the depositary on the deposit due date before the institution's daily cutoff deadline. Contact your local depositary for information concerning check clearance and cutoff schedules. However, a deposit received by the authorized depositary after the due date will be considered timely if the taxpayer establishes that it was mailed in the United States at least 2 days before the due date.

    Note:

    If you are required to deposit any taxes more than once a month, any deposit of $20,000 or more must be made by its due date to be timely.

    Depositing without an EIN.

    If you have applied for an EIN but have not received it, and you must make a deposit, make the deposit with your Internal Revenue Service Center. Do not make the deposit at an authorized depositary. Make it payable to the United States Treasury and show on it your name (as shown on Form SS-4), address, kind of tax, period covered, and date you applied for an EIN. Send an explanation with the deposit. Do not use Form 8109-B, Federal Tax Deposit Coupon, in this situation.

    Depositing without Form 8109.

    If you do not have the preprinted Form 8109, you may use Form 8109-B to make deposits. Form 8109-B is an over-the-counter FTD coupon that is not preprinted with your identifying information. You may get this form by calling 1-800-829-1040. Be sure to have your EIN ready when you call. You will not be able to obtain this form by calling 1-800-TAX-FORM.

    Use Form 8109-B to make deposits only if—

  • You are a new employer and you have been assigned an EIN, but you have not received your initial supply of Forms 8109 or
  • You have not received your resupply of preprinted Forms 8109.
  • Deposit record.

    For your records, a stub is provided with each FTD coupon in the coupon book. The FTD coupon itself will not be returned. It is used to credit your account. Your check, bank receipt, or money order is your receipt.

    Deposit Penalties Deposit: Penalties Penalties

    Penalties may apply if you do not make required deposits on time, make deposits for less than the required amount, or if you do not use EFTPS when required. The penalties do not apply if any failure to make a proper and timely deposit was due to reasonable cause and not to willful neglect. For amounts not properly or timely deposited, the penalty rates are: 2% - Deposits made 1 to 5 days late. 5% - Deposits made 6 to 15 days late. 10% - Deposits made 16 or more days late. Also applies to amounts paid within 10 days of the date of the first notice the IRS sent asking for the tax due. 10% - Deposits made at an unauthorized financial institution, paid directly to the IRS, or paid with your tax return (but see Depositing without an EIN and Payment with Return earlier for exceptions). 10% - Amounts subject to electronic deposit requirements but not deposited using the Electronic Federal Tax Payment System (EFTPS). 15% - Amounts still unpaid more than 10 days after the date of the first notice the IRS sent asking for the tax due or the day on which you receive notice and demand for immediate payment, whichever is earlier.

    Order in which deposits are applied.

    Generally, tax deposits are applied first to any past due undeposited amount within the same return period, with the oldest liability satisfied first. However, you may designate the period to which a deposit applies if you receive a penalty notice. You must respond within 90 days of the date of the notice. Follow the instructions on the notice you receive. For more information, see Rev. Proc. 99-10, 1999–1 C.B. 272.

    Example:

    Cedar Inc. is required to make a deposit of $1,000 on May 15 and $1,500 on June 15. It does not make the deposit on May 15. On June 15, Cedar Inc. deposits $1,700 assuming that it has paid its June deposit in full and applied $200 to the late May deposit. However, because deposits are applied first to past due underdeposits in due date order, $1,000 of the June 15 deposit is applied to the late May deposit. The remaining $700 is applied to the June 15 deposit. Therefore, in addition to an underdeposit of $1,000 for May 15, Cedar Inc. has an underdeposit for June 15 of $800. Penalties will be applied to both underdeposits as explained above. However, Cedar may contact the IRS within 90 days of the date of the notice to request that the deposits be applied differently.

    Trust fund recovery penalty. Trust fund recovery penalty

    If income, social security, and Medicare taxes that must be withheld are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. The penalty is the full amount of the unpaid trust fund tax. This penalty may apply to you if these unpaid taxes cannot be immediately collected from the employer or business.

    The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying over these taxes, and who acted willfully in not doing so.

    A responsible person can be an officer or employee of a corporation, a partner or employee of a partnership, an accountant, a volunteer director/trustee, or an employee of a sole proprietorship. A responsible person also may include one who signs checks for the business or otherwise has authority to cause the spending of business funds.

    Willfully means voluntarily, consciously, and intentionally. A responsible person acts willfully if the person knows the required actions are not taking place.

    Employers of Both Farm and Nonfarm Workers

    If you employ both farm and nonfarm workers, you must treat employment taxes for the farmworkers (Form 943 taxes) separately from employment taxes for the nonfarm workers (Form 941 taxes). Form 943 taxes and Form 941 taxes are not combined for purposes of applying any of the deposit schedule rules.

    If a deposit is due, deposit the Form 941 taxes and the Form 943 taxes with separate FTD coupons, or by making separate EFTPS deposits. For example, if you are a monthly schedule depositor for both Forms 941 and 943 taxes and your tax liability at the end of April is $1,500 reportable on Form 941 and $1,200 reportable on Form 943, deposit both amounts by May 15. Use one FTD coupon to deposit the $1,500 of Form 941 taxes and another FTD coupon to deposit the $1,200 of Form 943 taxes. Forms: 943

    8. Form 943

    You must file Form 943 for each calendar year beginning with the first year you pay $2,500 or more for farmwork or you employ a farmworker who meets the $150 test explained in section 4. Do not report these wages on Form 941.

    After you file your first return, each year the IRS will send you a Form 943 preaddressed with your name, address, and EIN. If you do not receive the preaddressed form, request a blank form from the IRS. If you use a blank form, show your name and EIN exactly as they appeared on previous returns.

    Household employees.

    If you file Form 943 and pay wages to household workers who work on your for-profit farm, you may include the wages and taxes of these workers on Form 943. If you choose not to report these wages and taxes on Form 943, or if your household worker does not work on your for-profit farm, report the wages of these workers separately on Schedule H (Form 1040), Household Employment Taxes. If you report the wages on Form 943, include the taxes when you figure deposit requirements or make deposits. If you include household employee wages and taxes on Schedule H (Form 1040), do not include the household employee taxes when you figure deposit requirements or make Form 943 deposits. See Pub. 926, Household Employer's Tax Guide, for more information about household workers.

    When to file.

    Send Form 943, with payment of any taxes due that are not required to be deposited, to the IRS by January 31 following the year for which the return is filed (or February 12 if the tax was timely deposited in full). Please note that there may be different addresses for filing returns, depending on whether you file with or without a payment.

    Penalties.

    For each month or part of a month a return is not filed when required (disregarding any extensions of the filing deadline), there is a penalty of 5% of the unpaid tax due with that return. The maximum penalty is 25% of the tax due. Also, for each month or part of a month the tax is paid late (disregarding any extensions of the payment deadline), a penalty of 0.5% of the amount of unpaid tax may apply. The maximum amount of this penalty is also 25% of the tax due. The penalties will not be charged if you have reasonable cause for failing to file or pay. If you file or pay late, attach an explanation to your Form 943. In addition, interest accrues from the due date of the tax on any unpaid balance.

    If income, social security, and Medicare taxes that must be withheld are not withheld or are not paid, you may be personally liable for the trust fund recovery penalty. See section 7.

    9. Adjustments on Form 943

    There are two types of adjustments: current year adjustments and prior year adjustments. See the instructions for Form 943 for more information on how to report these adjustments.

    Current Year Adjustments

    In certain cases, amounts reported as social security and Medicare taxes on lines 3 and 5 of Form 943 must be adjusted to arrive at your correct tax liability. The most common situation involves differences in cents totals due to rounding. Other situations when current year adjustments may be necessary include third-party sick pay, group-term life insurance for former employees, and the uncollected employee share of tax on tips. See Circular E for more information on these adjustments.

    If you withhold an incorrect amount of income tax from an employee, you may adjust the amount withheld in later pay periods during the same year to compensate for the error.

    Prior Year Adjustments

    Generally, you can correct social security and Medicare errors on prior year Forms 943 by making an adjustment on the Form 943 for the year during which the error is discovered. The adjustment increases or decreases your tax liability for the year in which it is reported (the year the error is discovered) and is interest free. The net adjustments reported on Form 943 may include any number of corrections for one or more previous years, including both overpayments and underpayments.

    You are required to provide background information and certifications supporting prior year adjustments. File with Form 943 a Form 941c, Supporting Statement To Correct Information, or attach a statement that shows all of the following:

  • What the error was,
  • The year in which each error was made and the amount of each error,
  • The date you found each error,
  • That you repaid the employee tax or received from each affected employee written consent to this refund or credit, if the entry corrects an overcollection, and
  • If the entry corrects social security and Medicare taxes overcollected in an earlier year, that you received from the employee a written statement that he or she will not claim a refund or credit for the amount.
  • Do not file Form 941c or the written statement separately. The IRS will not be able to process your adjustments without this supporting information. See the instructions for Form 941c for more information.

    Income tax withholding adjustments.

    You cannot adjust the amount reported as income tax withheld for a prior year return, even if you withheld the wrong amount. However, you may adjust prior year income tax withholding to correct an administrative error. An administrative error occurs if the amount you entered on Form 943 is not the amount you actually withheld. Examples include mathematical or transposition errors. In these cases, you should adjust the return to show the amount actually withheld.

    The administrative error adjustment corrects only the amount reported on Form 943 to agree with the actual amount withheld from wages in that year.

    You may also need to correct Forms W-2 for the prior year if they do not show the actual withholding by filing Form W-2c, Corrected Wage and Tax Statement, and Form W-3c, Transmittal of Corrected Wage and Tax Statements.

    Social security and Medicare tax adjustments.

    Correct prior year social security and Medicare tax errors by making an adjustment on line 8 of Form 943 for the year during which the error was discovered.

    If you withheld no tax or less than the correct amount, you may correct the mistake by withholding the tax from a later payment to the same employee.

    If you withheld employee tax when no tax is due or if you withheld more than the correct amount, you should repay the employee.

    Filing a claim for overreported prior year liabilities.

    If you discover an error on a prior year return resulting in a tax overpayment, you may file Form 843, Claim for Refund and Request for Abatement, for a refund. This form also can be used to request an abatement of an overassessment of employment taxes, interest, and/or penalties. You must file Form 941c, or an equivalent statement, with Form 843. See the separate Instructions for Form 843.

    Note:

    For purposes of filing Form 843, a timely filed Form 943 is considered to be filed on April 15 of the year after the close of the tax year. Generally, a claim may be filed within 3 years from that date.

    Refunding amounts incorrectly withheld from employees.

    If you withheld more than the right amount of income, social security, or Medicare taxes from wages paid, give the employee the excess. Any excess income tax withholding must be reimbursed to the employee prior to the end of the calendar year. Keep in your records the employee's written receipt showing the date and amount of the repayment. If you do not have a receipt, you must report and pay each excess amount when you file Form 943 for the year in which you withheld too much tax.

    Filing corrections to Form W-2 and W-3 statements.

    When adjustments are made to correct social security and Medicare taxes because of a change in the wage totals reported for a previous year, you also may need to file Forms W-2c and Form W-3c. Forms: W-2

    Magnetic media reporting: Information returns 10. Federal Unemployment (FUTA) Tax

    The Federal Unemployment Tax Act (FUTA), with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a Federal and a state unemployment tax. Only the employer pays FUTA tax; it is not deducted from the employees' wages. For information, see the Instructions for Form 940.

    For 2000, you must file Form 940 or 940-EZ, Employer's Annual Federal Unemployment (FUTA) Tax Return, if you:

  • Paid cash wages of $20,000 or more to farmworkers in any calendar quarter in 1999 or 2000 or
  • Employed 10 or more farmworkers during at least some part of a day (whether or not at the same time) during any 20 or more different weeks in 1999 or 20 or more different weeks in 2000.
  • To determine whether you meet either test above, you must count wages paid to aliens admitted on a temporary basis to the United States to perform farmwork, also known as H–2(A) visa workers. However, wages paid to H–2(A) workers are not subject to the FUTA tax.

    Generally, farmworkers supplied by a crew leader are considered employees of the farm operator for purposes of the FUTA tax unless (1) the crew leader is registered under the Migrant and Seasonal Agricultural Worker Protection Act or (2) substantially all the workers supplied by the crew leader operate or maintain tractors, harvesting or cropdusting machines, or other machines provided by the crew leader. Therefore, if (1) or (2) applies, the farmworkers are generally employees of the crew leader.

    You must deposit FUTA tax with an authorized financial institution. (If you are subject to the electronic deposit requirements, you must use the EFTPS system. See section 7.) The deposit rules for FUTA tax are different from those for income, social security, and Medicare taxes. See Deposit rules for FUTA tax below.

    FUTA tax rate.

    For 2000 and 2001, the FUTA tax rate is 6.2% on the first $7,000 of cash wages you pay each employee. You may receive a credit of up to 5.4% of FUTA wages for the state unemployment tax you pay. If your state tax rate (experience rate) is less than 5.4%, you are still allowed the full 5.4% credit. Therefore, your net FUTA tax rate may be as low as 0.8% (.008). FUTA tax applies, however, even if you are exempt from state unemployment tax or your employees are ineligible for unemployment compensation benefits. Forms 940 and 940-EZ take state credits into account.

    Deposit rules for FUTA tax.

    Generally, deposit FUTA tax quarterly. To figure your FUTA tax, multiply .008 times the amount of wages paid to each employee during the quarter. When an employee's wages reach $7,000, do not figure any additional FUTA tax for that employee. If the FUTA tax for the quarter (plus any undeposited FUTA tax from prior quarters) is more than $100, deposit the FUTA tax with an authorized financial institution, or by using EFTPS, explained in section 7, by the last day of the month following the close of the quarter. If the amount is $100 or less, you do not have to deposit it, but you must add it to the amount subject to deposit for the next quarter. To help ensure proper crediting to your account, write your employer identification number, Form 940, and the tax period the deposit applies to on your check or money order.

    Form 940 or 940-EZ.

    By January 31, file Form 940 or 940-EZ. If you make deposits on time in full payment of the tax due for the year, you may file Form 940 or 940-EZ by February 12.

    Form 940-EZ is a simpler version of Form 940. You can generally use Form 940-EZ if:

  • You pay state unemployment taxes (contributions) to only one state;
  • You make the payments to the state by the due date of Form 940 or 940-EZ; and
  • All wages subject to FUTA tax are also subject to state unemployment tax.
  • If you do not meet these conditions, file Form 940 instead.

    If the FUTA tax reported on Form 940 or 940-EZ minus the amounts deposited for the first three quarters is more than $100, deposit the whole amount by January 31. If the tax (minus any deposits) is $100 or less, you may either deposit the tax or pay it with the return by January 31.

    Once you have filed a Form 940 or 940-EZ, you will receive a preaddressed form near the end of each calendar year. If you do not receive a form, request one by calling 1-800-TAX-FORM in time to receive it and file when due.

    Note:

    If you have acquired a business from someone else, you may be able to claim a special credit as a successor employer. See the Instructions for Form 940.

    Magnetic tape filing of Form 940.

    Reporting agents filing Forms 940 for groups of taxpayers can file them on magnetic tape. See Rev. Proc. 96-18, 1996-1 C.B. 637. Recordkeeping

    11. Records You Should Keep

    Every employer subject to employment taxes must keep all related records available for inspection for at least 4 years after the due date for the return period to which the records relate, or the date the taxes are paid, whichever is later. You may keep the records in whatever form you choose.

    Keep a record of:

  • Your EIN.
  • Names, addresses, social security numbers, and occupations of employees.
  • Dates of employees' employment.
  • Amounts and dates of all cash wages, noncash payments, annuity, and pension payments.
  • Periods for which employees 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.
  • Advance EIC payments.
  • Dates and amounts of tax deposits you made and acknowledgment numbers for deposits made by EFTPS.
  • Any amount deducted as employee social security and Medicare taxes.
  • The amount of income tax withheld.
  • Fringe benefits provided, including substantiation required under Code section 274 and related regulations.
  • Keep copies of:

  • Forms W-4.
  • Forms W-5.
  • Forms W-2.
  • Returns you filed.
  • If a crew leader furnished you with farmworkers, you must keep a record of the name, permanent mailing address, and EIN of the crew leader. If the crew leader has no permanent mailing address, record his or her present address.

    12. Reconciling Wage Reporting Forms Reconciling Forms W-2, W-3, and 943 Reconciling wage reporting forms

    When there are discrepancies between amounts reported on Form 943 filed with the IRS and Forms W-2 and W-3 filed with the SSA, the IRS must contact you to resolve the discrepancies. This costs time and money for the Government and for you.

    To help reduce discrepancies—

  • Report bonuses as wages and as social security and Medicare wages on Forms W-2 and 943.
  • Report social security and Medicare wages and taxes separately on Forms W-2, W-3, and 943.
  • Report social security taxes on Form W-2 in the box for social security tax withheld, not as social security wages.
  • Report Medicare taxes on Form W-2 in the box for Medicare tax withheld, not as Medicare wages.
  • Make sure social security wages for each employee do not exceed the annual social security wage base.
  • Do not report noncash wages not subject to social security or Medicare taxes as social security or Medicare wages.
  • To reduce the discrepancies between amounts reported on Forms W-2, W-3, and 943:

  • Be sure the amounts on Form W-3 are the total amounts from Forms W-2.
  • Reconcile Form W-3 with your Form 943 by comparing amounts reported for—
  • Income tax withholding, social security wages, social security tips, and Medicare wages and tips.
  • Social security and Medicare taxes. The amounts shown on Form 943, including current year adjustments, should be approximately twice the amounts shown on Form W-3.
  • Advance eamed income credit.
  • Amounts reported on Forms W-2, W-3, and 943 may not match for valid reasons. If they do not match, you should determine that the reasons are valid. Keep your reconciliation so you will have a record of why amounts did not match in case there are inquiries from the IRS or the SSA.

    13. Income Tax Withholding Methods Income tax withholding: Wage bracket method Income tax withholding: Percentage method

    There are several methods to figure the income tax withholding for employees. The most common are the wage bracket method and the percentage method.

    Wage Bracket Method

    Under the wage bracket method, find the proper table (on pages 22 through 41) for your payroll period and the employee's marital status as shown on his or her Form W-4. Then, based on the number of withholding allowances claimed on the Form W-4 and the amount of wages, find the amount of tax to withhold. If your employee is claiming more than 10 withholding allowances, see below.

    Note:

    If you cannot use the wage bracket tables because wages exceed the amount shown in the last bracket of the table, use the percentage method of withholding described below. Be sure to reduce wages by the amount of total withholding allowances (shown in the table on this page) before using the percentage method tables on pages 20 and 21.

    Adjusting for employees claiming over 10 withholding allowances.

    To adapt the wage bracket tables for employees who are claiming over 10 allowances:

  • Multiply the number of withholding allowances that is over 10 by the allowance value for the payroll period. (The allowance values are in the Percentage Method—2001 Amount for One Withholding Allowance table on this page.)
  • Subtract the result from the employee's wages.
  • On this amount, find and withhold the tax in the column for 10 allowances.
  • This is a voluntary method. If you use the wage bracket tables, you may continue to withhold the amount in the 10 column when your employee has more than 10 allowances, using the method above. You can also use the other methods described below.

    Percentage Method

    If you do not want to use the wage bracket tables on pages 22 through 41 to figure how much income tax to withhold, you can use the percentage method based on the table on this page and the appropriate rate table. This method works for any number of withholding allowances the employee claims and any amount of wages.

    Use these steps to figure the income tax to withhold under the percentage method:

  • Multiply one withholding allowance (see table on this page) by the number of allowances the employee claims.
  • Subtract that amount from the employee's wages.
  • Determine the amount to withhold from the appropriate table on page 20 or 21.
  • 1999 percentage method table

    Example.

    An unmarried employee is paid $600 weekly. This employee has a Form W-4 in effect claiming two withholding allowances. Using the percentage method, figure the income tax withholding as follows: 1. Total wage payment $600.00 2. One allowance $55.77 3. Allowances claimed on Form W-4 2 4. Line 2 times line 3 111.54 5. Amount subject to withholding (subtract line 4 from line 1) $488.46 6. Tax to be withheld on $488.46 from Table 1— single person, page 20 65.62

    To figure the income tax to withhold, you may reduce the last digit of the wages to zero, or figure the wages to the nearest dollar.

    Annual income tax withholding.

    Figure the income tax to withhold on annual wages under the Percentage Method for an annual payroll period. Then prorate the tax back to the payroll period.

    Example.

    A married person claims four withholding allowances. She is paid $1,000 a week. Multiply the weekly wages by 52 weeks to figure the annual wage of $52,000. Subtract $11,600 (the value of four withholding allowances annually) for a balance of $40,400. Using Table 7—Annual Payroll Period, the annual withholding is $5,092.50. Divide the annual amount by 52. The weekly withholding is $97.93.

    Alternative Methods of Income Tax Withholding

    Rather than the Percentage or Wage Bracket Methods described above, you can use an alternative method to withhold income tax. Pub. 15-A, Employer's Supplemental Tax Guide, describes these alternative methods. Advance earned income credit: Payment methods

    Rounding.

    If you use the percentage method or alternative methods for income tax withholding, you may round the tax for the pay period to the nearest dollar. The wage bracket tables are already rounded for you.

    If rounding is used, it must be used consistently. Round withheld tax amounts to the nearest whole dollar by (1) dropping amounts under 50 cents and (2) increasing amounts from 50 to 99 cents to the next higher dollar. For example, $2.30 becomes $2, and $2.80 becomes $3.

    14. Advance Earned Income Credit (EIC) Payment Methods

    To figure the advance EIC payment, you may use either the Wage Bracket Method or the Percentage Method explained below. With either method, the number of withholding allowances an employee claims on Form W-4 is not used in figuring the advance EIC payment. Nor does it matter that the employee has claimed exemption from income tax withholding on Form W-4. See section 6 for an explanation of the advance EIC.

    Advance earned income credit: Wage bracket method Wage Bracket Method

    If you use the wage bracket tables on page 44 through 45, figure the advance EIC payment as follows.

    Find the employee's gross wages before any deductions using the appropriate table. There are different tables for (a) single or married employees without spouse filing a certificate and (b) married employees with both spouses filing certificates. Find the amount of the advance EIC payment shown in the appropriate table for the amount of wages paid.

    Advance earned income credit: Percentage method Percentage Method

    If you do not want to use the wage bracket tables to figure how much to include in an employee's wages for the advance EIC payment, you can use the percentage computation based on the appropriate rate table.

    Find the employee's gross wages before any deductions in the appropriate table on pages 42 through 43. There are different tables for (a) single or married employees without spouse filing a certificate and (b) married employees with both spouses filing certificates. Find the amount of the advance EIC payment shown in the appropriate table for the amount of wages paid.

    Rounding.

    The wage bracket tables for advance EIC payments have been rounded to whole dollar amounts.

    If you use the percentage method for advance EIC payments, the payments may be rounded to the nearest dollar. The rules for rounding discussed in section 13 apply to advance EIC payments. hurricane wh01 wh02 wh03 wh04 wh05 wh06 wh07 wh08 wh09 wh10 wh11 wh12 wh13 wh14 wh15 wh16 wh17 wh18 wh19 wh20 wh21 wh22 wh24 wh25 wh26 wh27

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