Keyword: Employment Taxes

This is archived information that pertains only to the 2005 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

What can be done if an employer will not withhold income taxes, social security, and Medicare from my pay?

Generally, in situations such as this, the employer is not considering you to be an employee. Rather, you are being treated as an independent contractor (self-employed person). If you cannot resolve this matter with your employer, and if you feel that an employer-employee relationship exists, you should submit a Form SS-8 (PDF), Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding. The factors used to determine if an employer-employee relationship exists are covered in Chapter 2 of Publication 15-A (PDF), Employer's Supplemental Tax Guide.

If your status as an employee is not at issue, it may be that you are in a category of employment whose earnings are not defined as wages under U.S. federal tax and social security law. Find out from your employer the reason that social security and Medicare taxes and income taxes are not being withheld from your pay. If you have further questions, contact the IRS at 800-829-1040 or visit an IRS walk-in office for assistance.

Are partners considered employees of a partnership or are they self-employed?

Partners are considered to be self-employed. If you are a member of a partnership that carries on a trade or business, your distributive share of its income or loss from that trade or business is net earnings from self-employment. Limited partners are subject to self-employment tax only on guaranteed payments, such as salary and professional fees for services rendered.

As an employer, do I have any liability if my employees receive tips but don't report them to me?

Employees who customarily receive tips are required to report their cash tips to their employers at least monthly, if they receive $20 or more in the month. Cash tips are tips received directly in cash or by check, and charged tips. You have a liability to withhold and pay Social Security and Medicare tax on your employees' reported tips, to the extent that wages or other employee funds are available. If the employee does not report tips to you, it places you at risk of possible assessment of the employer's share of the Social Security and Medicare taxes on the unreported tips. If you are a large food or beverage establishment (more than 10 employees on a typical day and food or beverages consumed on the premises), you are required to allocate tips if the total tips reported to you are less than 8% of gross sales. Report the allocated amount on the employee's W-2 at the end of the year.

If the reported tips from employees are more than 8% of sales, must an employer still allocate tips to the employees?

No. Tip allocation is required when the amount of tips reported by employees of a large food or beverage establishment is less than 8% (or an approved lower rate) of the gross receipts, other than nonallocable receipts, for the given period. If the employees are reporting more than the 8%, there would be no allocated tip amount. However, the employer must still file Form 8027 (PDF), Employer's Annual Information Return of Tip Income and Allocated Tips.

Can an employer take out taxes if a Form W-4 was never filed?

Yes, the employer is required to withhold income taxes. Publication 15, Circular E, Employer's Tax Guide, states that if an employee does not give you a completed Form W-4 (PDF), Employee's Withholding Allowance Certificate, withhold tax as if he or she is single, with no withholding allowances.

The employer is also required to withhold social security and Medicare taxes.

If an employee claims more than 10 exemptions on their Form W-4, does the employer have to report this to the IRS?

No, this requirement has been eliminated. In the past, employers had to routinely send the IRS any Form W-4 (PDF), Employee's Withholding Allowance Certificate, claiming more than 10 allowances or claiming complete exemption from withholding if $200 or more in weekly wages was expected. However, Forms W-4 are still subject to review. Employers may be directed (in a written notice or in future published guidance) to send certain Forms W-4 to the IRS. The IRS also will be reviewing employee withholding compliance and you may be required to withhold income tax at a higher rate if notified to do so by the IRS.

We are about to hire employees and need to know how much tax to take out and where to send this money?

You will need to secure a completed Form W-4 (PDF), Employee's Withholding Allowance Certificate, from each employee. You will need Publication 15, Circular E, Employer's Tax Guide, and Publication 15-A (PDF), Employer's Supplemental Tax Guide, to determine the amount of withholding and for directions on depositing the withholding amounts and other employment taxes.

Generally, employers will quarterly file Form 941 (PDF), Employer's Quarterly Federal Tax Return, and annually file Form 940 (PDF), Employer's Annual Federal Unemployment Tax Return (FUTA), and Form W-2 (PDF), Wage and Tax Statement, with Form W-3 (PDF), Transmittal of Income and Tax Statements.

We hired a nanny to look after our baby while we work. How do we pay her social security taxes and properly report her income?

A nanny is considered a household employee. A household employer only has to pay social security and Medicare tax only for the employee(s) that receive cash wages that exceed the threshold amount for the year. If the amount paid is less than the threshold, no social security or Medicare tax is owed. If social security and Medicare tax must be paid, you will need to file Form 1040, Schedule H, Household Employment Taxes. You must withhold the employee's portion of the social security and Medicare unless the employer chooses to pay both the employee's share and the employer's share.

The taxes are 15.3% of cash wages. Your share is 7.65% and the employee's share is 7.65%. You may also be responsible for paying federal unemployment taxes. For directions on household employees, refer to Publication 926, Household Employer's Tax Guide.

Previous | FAQ Index | Next

Tax Topics Index | FAQs Index

2005 Tax Help Archives | Tax Help Archives Main | Home