If it’s OPTIONAL, there is no need to comply. Compliance costs both your time and your money.
The latest rules released by the IRS explained here: http://www.irs.gov/newsroom/article/0,,id=237870,00.html require that small employers (less than 250 W-2’s per year) do not have to report health insurance benefits paid on behalf of their employees. Others will have to comply in 2013 when reporting 2012 W-2’s.
http://www.irs.gov/pub/irs-dft/f940–dft.pdf
Above is the latest draft release of Form 940 for 2011, which requires that you separate FUTA taxable wages for the first six months of the year from the last six months of the year.
On the IRS website, there is now a January 2011 version of Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, and the Form 941-X instructions. The form was last revised in September 2010.
The January 2011 version of Form 941-X can be viewed on the IRS website at http://www.irs.gov/pub/irs-pdf/f941x.pdf. The January 2011 version of the Form 941-X instructions can be viewed at http://www.irs.gov/pub/irs-pdf/i941x.pdf.
Unreported tips. A new line has been added to Form 941-X (Part 3, line 11) to report any corrections to the amounts reported on Form 941, line 7c (for quarters ending before 2011), or line 5e (for quarters ending after 2010), to the FICA tax due from an IRS “Section 3121(q) Notice and Demand” letter.
Daniel Lauer, Program Manager for the IRS National Tip Compliance Program, discussed the “Section 3121(q) Notice and Demand” letter during the May 12 payroll industry conference call. He pointed out that an employer will not have to report anything on this line of Form 941 (or Form 941-X) unless the employer has been contacted by the IRS about unreported tip income. Lauer said that this usually happens in three situations: (1) The IRS has conducted an audit of the employer and found that the employer failed to report some tips. (2) The IRS has uncovered some unreported tips using a new tip compliance program that it launched last year. (3) An IRS audit of an employee uncovered some unreported tips that the employer also failed to report.
A “Section 3121(q) Notice and Demand” letter instructs the employer to include the FICA taxes shown in the notice and demand letter on the employer’s next Form 941. Lauer said that an employer will not be subject to any interest charges or deposit penalties if it properly reports the taxes as instructed in the notice and demand letter, and remits the tax due with its Form 941, or if it timely makes a deposit in accordance with the instructions in the letter. The letter will be issued well before the end of the quarter. The deposit needs to be made before the end of the quarter to avoid penalties, Corrections to the amounts reported on Form 941 are reported on Form 941-X.
Payroll tax exemption in the HIRE Act. The new version of Form 941-X notes that the lines for the payroll tax exemption in the HIRE Act (Part 3, lines 12a-12c) should only be completed for corrections to quarters ending after March 31, 2010, and before Jan. 1 , 2011, since the payroll tax exemption in the HIRE Act can no longer be claimed after Dec. 31, 2010.
IRS no longer behind in processing HIRE Act amended returns: On the February 3 IRS payroll industry conference call, Debera Salam, Director of Payroll Information and Process Services for Ernst & Young LLP, informed the IRS that several of her clients who recently filed Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, to claim the payroll tax exemption in the Hiring Incentives to Restore Employment Act (HIRE Act, P.L. 111-147) had received letters from the IRS stating that there was a backlog in processing these returns and that the returns may not be processed for several months. The payroll tax exemption relieves employers from their share of OASDI taxes (6.2% rate) on wages paid to certain new hires from March 19, 2010 to Dec. 31, 2010. The exemption could not be claimed on Form 941 until the second quarter of 2010. Some employers amended their returns using Form 941-X rather than claiming the exemption on an original Form 941.
The IRS delay in processing the returns was a concern for employers because they have reduced their payroll tax deposits to take into account the credit. Employers were worried that they could receive an IRS notice proposing a federal tax deposit penalty if the amended return was not taken into account. On the March 3 IRS payroll industry conference call, Shelley Dockstader, National Account Manager in IRS Electronic Tax Administration, informed participants that the IRS is now up to date in processing these returns.
IRS official provides some insights on HIRE Act audits: On the March 3 IRS payroll industry conference call, John Tuzynski, Chief of Employment Tax Operations for the IRS’s Small Business/Self-Employed Division, provided some details on IRS audits of employers who claimed the payroll tax exemption in the Hiring Incentives to Restore Employment Act (HIRE Act, P.L. 111-147). The HIRE Act encouraged companies to hire unemployed workers from Feb. 4, 2010 to Dec. 31, 2010, by exempting certain wages received by the workers from the employer’s 6.2% share of Social Security taxes (payroll tax exemption). A new hire must have been employed for a total of 40 hours or less during the 60-day period ending on the date that the employment began. For employers to claim the exemption, they must have received a statement from the new hire certifying, under penalties of perjury, that he or she was either unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for anyone during the 60-day period. Employers could use Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, or a statement similar to Form W-11, to meet this requirement.
Tuzynski said that the IRS has been asking employers to provide a list of the employees for whom they claimed the payroll tax exemption on Form 941. Employers must provide documentation to support the wages that were paid to the workers and the date that the workers were hired. The audit is centered around Form W-11. The IRS will ask for copies of these forms. If there are only a few workers on Form 941, the IRS is likely to review all of their information. If there are many workers on the return, the IRS is likely to review some of the workers’ information. The IRS may ask if the worker was hired to replace another worker. If so, the IRS may ask why the worker was replaced. The examinations are not random. A return is selected for audit based on something on the return that was of interest to the IRS. Tuzynski said that roughly 1,000 exams are currently being conducted. He has been impressed with the level of compliance by employers. There haven’t been many irregularities on the returns.
From the IRS website:
“Before July 1, 2011, the FUTA tax rate is 6.2%. After June 30, 2011, the FUTA tax rate is scheduled to decrease to 6.0%. The tax applies to the first $7,000 you pay to each employee as wages during the year. The $7,000 is the federal wage base. Your state wage base may be different.”
This is just another change to figure into payroll tax reporting for 2011. Most full time employees will have been paid the first $7,000 of their wages by July 1st, so most employers won’t see this savings until 2012. This was a clever little tax cut….it encourages hiring new employees in the latter half of 2011.
NEW INFORMATION: On February 14, 2011, the President proposed keeping the rate at 6.2%, ignoring the cut that was to have taken place on July 1, 2011, and changing the wage base up to $14,000 beginning January 1, 2014. Stay tuned for updates.
AS OF MAY 9, 2011:
A proposal in the President’s FY 2012 budget would keep the 0.2% FUTA surtax in effect on a permanent basis. Another budget proposal would raise the FUTA wage base to $15,000 per worker paid annually in 2014, index the wage base to wage growth for subsequent years, and reduce the net federal unemployment insurance tax from 0.8% (after the proposed permanent extension of the FUTA surtax) to 0.38%. States with wage bases below $15,000 would need to conform to the new FUTA base, but would maintain the ability to set their own tax rates, as under current law.
AS OF MAY 12, 2011:
On the May 12 payroll industry conference call, IRS was asked about the surtax. Sherry Saucerman, IRS Tax Analyst, noted that IRS has no control over whether Congress enacts legislation to extend the surtax. She pointed out that the federal unemployment tax return (Form 940) is filed on an annual basis (due January 31 of each year). So it is possible that even if legislation is not enacted before July 1 to extend the surtax, it could be enacted prior to January 31 of next year, and be effective retroactively to July 1.
IRS was then asked how an employer would compute its upcoming quarterly FUTA tax deposits, which must be paid by all employers whose FUTA tax is more than $500 for the calendar year, if the legislation was to be applied retroactively. Shelley Dockstader, National Account Manager in IRS Electronic Tax Administration, replied that IRS would have some mechanism in place under which an employer would not be assessed deposit penalties if it computed its third and fourth quarter unemployment tax deposits at a 6.0% rate, and legislation was enacted after the fourth quarter of this year that retroactively reinstated the surtax.
As of Thursday June 2nd:
Employers may need to track pre- and post 6-30-2011 FUTA taxable wages: The 0.2% federal unemployment tax (FUTA) surtax is scheduled to expire on June 30. On the June 2 payroll industry conference call, Sherry Saucerman, IRS Tax Analyst, noted that employers will need to separately track FUTA taxable wages paid before July 1, and FUTA taxable wages paid after June 30, if legislation is not enacted to extend the surtax. Anita Bartels, Senior Program Analyst, IRS SB/SE Employment Tax Operations, said that the IRS will need to revise Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, if the surtax is not extended. She said that the revision would probably be handled in a similar fashion to the way that Form 941 for the 2011 tax year was revised to reflect the reduction in the employee Social Security tax rate from 6.2% to 4.2%. That is, an additional line would be added to Form 940 to compute FUTA taxable wages earned from July 1 to December 31 that would not take into account the surtax. The IRS is working on making this change just in case the surtax is not extended, but they noted that there is considerable speculation that the surtax will be extended. Bartels believed that Form 940 would not be revised to reflect this change if the surtax was reinstated anytime before the end of the year. She was less certain how the IRS would handle the federal unemployment tax computation if the surtax was to be reinstated after Dec. 31, 2011. On the last conference call, Shelley Dockstader, National Account Manager in IRS Electronic Tax Administration, said that employers will not be penalized for making unemployment tax deposits for the third and fourth quarters of 2011 that didn’t take into account the surtax, if the surtax was retroactively reinstated after the end of the fourth quarter.
UPDATE JULY 1, 2011 – IT IS STILL A MAYBE
It’s official. Today on July 1st, the 0.2% federal unemployment tax (FUTA) surtax is no longer in effect. Congress has been unable to make up their minds about whether to reinstate the surtax and it could still happen before the calendar year 2011 is over.
So now what? As the IRS noted on its June 2 payroll industry conference call above, you need to separately track FUTA taxable wages paid before July 1, and FUTA taxable wages paid after June 30, since the FUTA tax rates are different during those two periods.
Employers whose FUTA tax is more than $500 for the calendar year need to make quarterly FUTA deposits. The next quarterly payment is due on July 31, but that payment is based on taxable wages earned through June 30, so it will be computed using the 6.2% FUTA tax rate.
The next quarterly payment is due on Oct. 31, 2011, and it may be computed using the 6.0% FUTA tax rate if legislation is not enacted to retroactively reinstate the FUTA surtax beginning July 1, 2011.
The IRS is working on revising Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, to take into account the elimination of the surtax. That return must be filed in January 2012.
Update November 30th, 2011:
It is definite; here’s the Form 940 for 2011, due January 31, 2012: http://www.irs.gov/pub/irs-pdf/f940.pdf
Update December 29th, 2011
New this year on Form 940 is a surprise amount due on line 11 from the Schedule A for Form 940. Schedule A is located here on the IRS website: http://www.irs.gov/pub/irs-pdf/f940sa.pdf
Each state that has not paid back the Federal government unemployment insurance fund is listed on Schedule A with a “credit reduction” which effectively is a tax passed on to every employer in those states. Wisconsin and 20 more states have just increased Federal unemployment taxes for business with employees in their states, on the Form 940.
Wisconsin employers have to pay the Federal government an extra $21 per employee (.003 X $7,000) on the 2011 Form 940. This extra payment is due January 31, 2012.
Wisconsin previously billed every Wisconsin employer a $26.99 “assessment” per employee to help the State to pay just the $42.3 million on interest alone on these outstanding Federal loans, back on September 30, 2011. The next “assessment” will be due in August 2012 for about $23.40 per employee.
So, both the Federal and State governments are taxing employers MORE to pay towards all of the unemployment compensation being collected by the unemployed. Next year is scheduled to be worse. The Federal Form 940 “credit reduction” will be $42 per employee in Wisconsin for 2012, payable January 31, 2013, and then in 2013 it will be $63 per employee in Wisconsin, payable on January 31, 2014, according to the memo I received from the Wisconsin Department of Workforce Development dated November 14, 2011.
Phone: 608-833-1200
Fax: 608-829-2729
3221 Parmenter St.
Middleton, WI 53562-1670
Toll Free: 877-738-1200