Cream of the Crop 1/Cream of the Crop 1.iso/BUSINESS/SBA62.ARJ/FSBA.EXE/F247.SBE

Text File | 1992-04-30 | 10KB | 213 lines

@144 CHAP 5

             ┌───────────────────────────────────────────┐
             │         WITHHOLDING OF INCOME TAXES       │
             └───────────────────────────────────────────┘

         "If you want a picture of the future, imagine a boot
          stamping on a human face forever." -- George Orwell
          (in an eerily prescient reference to IRS SWAT teams
           of today)

Once you go into business and become an employer, the government
automatically appoints you as an agent to collect federal taxes from
your employees, by withholding taxes from their wages.  You don't get
paid for doing this; in fact, you will be hit with heavy penalties if
you DON'T properly calculate, withhold from your employees' wages, and
pay over federal income and FICA taxes.  One of the very first things
you should do when starting a new business, unless you will be a sole
proprietor with no employees, is to file a Form SS-4 with the I.R.S.,
requesting an "Employer Identification Number" and a set of pre-printed
Federal Tax Deposit forms.  You will need these coupons to pay over the
withheld taxes and the employer portion of the FICA (Social Security)
tax to a depository bank.  Note that you can't generally make these
payments directly to the I.R.S. -- you must instead deposit them with
a bank that is an authorized tax depository, along with the pre-coded
tax deposit coupon.

As a general rule, the more withheld income tax and FICA taxes you have
to deposit, the more promptly you have to deposit the taxes.  The rules
for when you must make federal tax deposits can be briefly summarized
as follows:

     _______________________________________________________________

     AMOUNT OF UNDEPOSITED TAXES           DEPOSIT WITH BANK BY
     _______________________________________________________________

     Less than $500 at the end of       Last day of the following
     a calendar quarter                 month (or can mail in the
                                        payment with Form 941 return)

     $500 or more, but less than        15th day of the following
     $3,000 undeposited at end of       month
     any eighth-monthly period (a
     period ending on the 3rd, 7th,
     11th, 15th, 19th, 22nd, 25th,
     or last day of any month)

     $3,000 or more undeposited at      3rd banking day after the
     the end of an eighth-monthly       end of the eighth-monthly
     period                             period in which undeposited
                                        taxes reach $3,000

     $100,000 undeposited (any time)    1st banking day following
     _______________________________________________________________

At least 95% of the tax due must be deposited when required each month,
for an employer making eighth-monthly deposits, to avoid penalty.  For
a more detailed explanation of federal tax deposits, obtain a copy of
IRS's "Notice 109."

Penalties may be imposed by the IRS on late deposits at the rates of:

 .  2% for deposits less than 5 days late;

 .  5% for deposits 5 to 15 days late;

 .  10% for over 15 days

 .  15% in case of failure to correct under-deposit
    within 10 days after date of first delinquency notice.

By the end of the month following each calendar quarter, you must
also file a payroll tax return, reconciling all the tax deposits you
made during the quarter with wages paid, and paying up if you made an
underpayment.  Most employers file Form 941 for this purpose.

When a new employee is hired, you must furnish to the employee a
federal Form W-4 which he or she must complete (filling in Social
Security number and the number of "withholding exemptions" claimed)
and return it to you.  You retain the W-4 in your files, and use it
to determine how much income tax to withhold, based on the employee's
income and number of withholding exemptions claimed.

By the end of January af the end of each year, you must furnish each
employee with a copy of Form W-2, Annual Wage and Tax Statement, which
shows the amount of compensation you paid the employee for the year and
the amount of various taxes (including state income tax, if any) that
was withheld from wages.  By the last day of February, you must file an
original of the W-2's and a summary Form W-3 with the IRS.  Note that
if you file 250 or more W-2's and other information returns, they MUST
be filed with the IRS in proper format on "magnetic media" rather than
filing the paper forms.

@CODE: CA HI LS
@CODE:NF

                  @STATE WITHHOLDING REQUIREMENTS

@STATE has withholding requirements that are fairly similar to
the federal rules for withholding federal income and FICA taxes.
@CODE:OF
@CODE: CA
The California rules apply to withheld California personal income tax
and SDI (State Disability Insurance) withheld from employees' wages.
Employers in California are required to register with the Employment
Development Department (on Form DE 1, a copy of which is included in
"STARTING & OPERATING A BUSINESS IN CALIFORNIA," if you have the book)
in order to obtain a state employer identification number or account
number that must appear on your state payroll tax returns.

The state provides withholding tables for regular wage withholding.
Employers are required to withhold a flat 3% of bonuses or other
supplemental wages (6%, starting January 1, 1992).

California withholding tax requirements are considerably more complex
than the federal rules, but can generally be summarized as follows:

     _______________________________________________________________

          PAYMENT RULE                        WHEN PAYMENT IS DUE
     _______________________________________________________________

          EIGHTH-MONTHLY PAYMENTS
               (FORM DE 88)

     Notwithstanding the rules listed       Within 3 banking days
     below, all withheld state income       after the end of the
     tax (SIT) and SDI must be paid         eighth-monthly period if
     over at the same time as any re-       the amount of state tax
     quired federal tax deposit by an       to be withheld exceeds
     employer making eighth-monthly         $75.
     deposits of federal withholding
     and FICA taxes.

       MONTHLY PAYMENTS (FORM DE 3M)

     If withheld SIT for first month        Make payment by 16th day
     of quarter exceeds $350, remit         of second month in a
     SIT and SDI withholdings.              quarter.

     If withheld SIT for second month       Make payment within three
     of quarter exceeds $350, remit         banking days after the
     SIT and SDI withholdings.              19th day of third month in
                                            a quarter.*

     If withheld SIT for 19 days of         Ditto *
     third month of quarter exceeds
     $222, remit SIT and SDI withheld.

                                            (* Use one deposit form for
                                            the second & third month.)
       QUARTERLY PAYMENTS (FORM DE 3)

     Remit all undeposited taxes            File and make payment on or
     with your quarterly report.            before the last day of the
                                            month following the close
                                            of the calendar quarter.

     _______________________________________________________________

     NOTE:  California SIT withholding limitations apply to each
            month separately and are NOT cumulative.
     _______________________________________________________________

Payments of California employment taxes go directly to the Employment
Development Department and, unlike federal payroll taxes, are not made
via bank deposits.  An annual "Reconciliation of Income Tax Withheld"
(Form DE 43) is due by February 28, after the end of each year, along
with copies of W-2 forms for all employees.

CALIFORNIA PARTNERSHIPS.  In addition to wage withholding, partnerships
doing business in California are now generally required to withhold
state income tax, at a rate of 7%, on distributions made to partners
who are not California residents, which started in 1990.  THIS IS A NEW
REQUIREMENT, WITH SIGNIFICANT PENALTIES FOR FAILURE TO WITHHOLD!

@CODE:OF
@CODE: HI
The Hawaii state income tax withholding is computed in accordance with
tables and schedules provided by the state Department of Taxation, in
"Booklet A, Employer's Tax Guide."

Employers subject to withholding tax requirements must register with
the Department of Taxation by filing Form GEW-TA-3 (which also serves
as registration for the General Excise Tax and the Transient Accommo-
dations Tax).  A state withholding tax ID number is assigned upon
filing such registration.

Withheld taxes are generally paid to the state monthly, on the 15th day
of the month following the month being reported.  An employer may file
on a quarterly basis if total tax withheld does not exceed $1,000 a
year.  Income tax withholding is reported on a quarterly/monthly re-
porting form, Form HW-14.  Employers should obtain a filled out Form
HW-4 (similar to federal W-4) from each employee on or before the date
employment commences.

At the end of each calendar year, on or before January 31, an employer
must give each employee a Form HW-2 (similar to federal Form W-2, which
can be given in lieu of the HW-2, if desired), showing the amount of
state income tax withheld and the total compensation paid the employee
for the preceding year.  By the last day of February, the employer must
file Form HW-3, Annual Reconciliation Report, together with copies of
all Forms HW-2 (or federal Forms W-2) plus a list or adding machine
tape of the tax withheld as shown by the withholding statements.

@CODE:OF

@CODE: LS
In @STATE, employers who fail to pay over withheld wages are
likely to receive suspended sentences -- suspended from a gibbet.

@CODE:OF