Form 941 is a crucial tool for ensuring your payroll data is accurately reported to the government and for balancing payroll in general. Get insight into reconciling Form 941 with your payroll on a quarterly and a year-end basis.
Most employers must report employees’ wages paid and taxes withheld plus their own share of certain payroll taxes quarterly to the IRS. Additionally, employers must report each employee’s wages and taxes annually, on Form W-2, to the Social Security Administration. Employers use Form 941, Employer’s Quarterly Federal Tax Return, to report income taxes, Social Security tax or Medicare tax withheld from employees’ paychecks and to pay their portion of Social Security or Medicare tax.
In the end, the information on your quarterly 941s must match your submitted Form W-2s. By reconciling your 941 forms with your payroll, you can verify the accuracy of these filings. For best results, reconciliation should be done on a quarterly and a year-end basis.
Quarterly 941 Reconciliation
Step 1: Run a payroll register for the quarter. The register should show wages and deductions for each employee during that quarter.
Step 2: Compare the data on the payroll register with your 941 for the quarterly period.
Areas to check are:
- Number of employees who received wages, tips or other compensation.
- Total compensation paid to employees.
- Federal income tax withheld from employees’ wages.
- Taxable Social Security wages and tips.
- Taxable Medicare wages and tips.
- Total tax payments made for the quarter, including federal income tax, Social Security tax and Medicare tax withheld from employees’ wages plus your own share of Social Security and Medicare taxes.
Step 3: Fix discrepancies as soon as you find them. For example, you might need to correct the employee’s wages and taxes in your payroll system and file an amended Form 941 for the quarter with the IRS.
Year-End 941 Reconciliation
Step 1: Run a report that shows annual payroll amounts. Compare those figures with the totals reported on all four 941s for the year.
Step 2: Make sure the amounts reported on all the 941s for the year match the respective data fields for your W-2 forms.
- For compensation, compare Line 2 of all your 941s with Box 1 of your W-2s.
- For federal income tax withheld, compare Line 3 of all your 941s with Box 2 of your W-2s.
- For Social Security wages, compare Line 5a Column 1 of all your 941s with Box 3 of your W-2s.
- For Social Security tips, compare Line 5b Column 1 of your 941s with Box 7 of your W-2s.
- For Medicare wages, compare Line 5c Column 1 of your 941s with Box 5 of your W-2s. Also, make sure your total Social Security and Medicare taxes for the year are correct.
Step 3: Perform the necessary adjustments. For example, you may need to file a corrected W-2 form with the SSA and/or an amended 941 with the IRS.
As you can see, this form can get complicated, so it’s a good idea to get professional help with it.
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The Social Security Administration has released new numbers for those paying Social Security and those collecting it. Check out the new maximum taxable earnings amount as well as COLA and other key adjustments.
Every year, the Social Security Administration takes a fresh look at its numbers and typically makes adjustments. Here are the basics for 2020 — what has changed, and what hasn’t.
First, the basic percentages have not changed:
- Employees and employers continue to pay 7.65% each, with the self-employed paying both halves.
- The Medicare portion remains 1.45% on all earnings, with high earners continuing to pay an additional 0.9% in Medicare taxes.
- The Social Security portion (OASDI) remains 6.20% on earnings up to the applicable taxable maximum amount — and that’s what’s changing:
Starting in 2020, the maximum taxable amount is $137,700, up from the 2019 maximum of $132,900. This actually affects relatively few workers; the Society for Human Resource Management notes in an article that only about 6% of employees earn more than the current taxable maximum.
Also changing is the retirement earnings test exempt amount. Those who have not yet reached normal retirement age but are collecting benefits will find the SSA withholds $1 in benefits for every $2 in earnings above a certain limit. That limit is $17,640 per year for 2019 and will be $18,240 for 2020. (See the SSA for additional information on how this works.)
Those collecting Social Security will see a slight increase in their checks: Social Security and Supplemental Security Income beneficiaries will receive a 1.6% COLA for 2020. This is based on the increase in the consumer price index from the third quarter of 2018 through the third quarter of 2019, according to the SSA.
A detailed fact sheet about the changes is available on the SSA site.
Any business with employees must withhold money from its employees’ paychecks for income and employment taxes, including Social Security and Medicare taxes (known as Federal Insurance Contributions Act taxes, or FICA), and forward that money to the government. A business that knowingly or unknowingly fails to remit these withheld taxes in a timely manner will find itself in trouble with the IRS.
The IRS may levy a penalty, known as the trust fund recovery penalty, on individuals classified as “responsible persons.” The penalty is equal to 100% of the unpaid federal income and FICA taxes withheld from employees’ pay.
Who’s a Responsible Person?
Any person who is responsible for collecting, accounting for, and paying over withheld taxes and who willfully fails to remit those taxes to the IRS is a responsible person who can be liable for the trust fund recovery penalty. A company’s officers and employees in charge of accounting functions could fall into this category. However, the IRS will take the facts and circumstances of each individual case into consideration.
The IRS states that a responsible person may be:
- An officer or an employee of a corporation
- A member or employee of a partnership
- A corporate director or shareholder
- Another person with authority and control over funds to direct their disbursement
- Another corporation or third-party payer
- Payroll service providers
The IRS will target any person who has significant influence over whether certain bills or creditors should be paid or is responsible for day-to-day financial management.
Working With the IRS
If your responsibilities make you a “responsible person,” then you must make certain that all payroll taxes are being correctly withheld and remitted in a timely manner. Talk to a tax advisor if you need to know more about the requirements.
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It isn’t easy deciding whether a worker should be treated as an employee or an independent contractor. But the IRS auditors will look at the distinction closely.
For an employee, a business generally must withhold income and FICA (Social Security and Medicare) taxes from the employee’s pay and remit those taxes to the government. Additionally, the employer must pay FICA taxes for the employee (currently 7.65% of earnings up to $137,700).*
The business must also pay unemployment taxes for the worker. In contrast, for an independent contractor, a business is not required to withhold income or FICA taxes. The contractor is fully liable for his or her own self-employment taxes, and FICA and federal unemployment taxes do not apply.
Employees Versus Independent Contractors
To determine whether a worker is an independent contractor or employee, the IRS examines factors in three categories:
- Behavioral control — the extent to which the business controls how the work is done, whether through instructions, training, or otherwise.
- Financial control — the extent to which the worker has the ability to control the economic aspects of the job. Factors considered include the worker’s investment and whether he or she may realize a profit or loss.
- Type of relationship — whether the worker’s services are essential to the business, the expected length of the relationship, and whether the business provides the worker with employee-type benefits, such as insurance, vacation pay, or sick pay, etc.
In certain cases where a taxpayer has a reasonable basis for treating an individual as a non-employee (such as a prior IRS ruling), non-employee treatment may be allowed regardless of the three-prong test.
If the proper classification is unclear, the business or the worker may obtain an official IRS determination by filing Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.
Generally, if a business has made payments of $600 or more to an independent contractor, it must file an information return (Form 1099-MISC) with the IRS and send a corresponding statement to the independent contractor.
Consequences of Misclassification
Where the employer misclassifies the employee as an independent contractor, the IRS may impose penalties for failure to deduct and withhold the employee’s income and/or FICA taxes. Penalties may be doubled if the employer also failed to file a Form 1099-MISC, though the lower penalty will apply if the failure was due to reasonable cause and not willful neglect.
Employers with misclassified workers may be able to correct their mistakes through the IRS’s Voluntary Classification Settlement Program (VCSP). For employers that meet the program’s eligibility requirements, the VCSP provides the following benefits:
- Workers improperly classified as independent contractors are treated as employees going forward.
- The employer pays 10% of the most recent tax year’s employment tax liability for the identified workers, determined under reduced rates (but no interest or penalties).
- The government agrees not to raise the issue of the workers’ classification for prior years in an employment-tax audit.
Your tax advisor can help you sort through the IRS rules and fulfill your tax reporting obligations. *Internal Revenue Service. For 2020, the Social Security tax rate is 6.2% and is applied to earnings up to $137,700. The Medicare tax rate is 1.45% on the first $200,000 and 2.35% above $200,000.
…from the Team of Professional at RE-MMAP We are just a click or call away. www.re-mmap.com and phone # (561-623-0241).
The SBA recently released the Paycheck Protection Program (PPP) Loan Forgiveness Application along with some key clarifications in completing the application process. The Forgiveness application is intended for small business owners who received a PPP loan as part of the CARES Act.
The PPP Forgiveness application is comprised of 11 lines used to calculate the amount of forgiveness a small business owner is eligible for. You can confirm from the Minlaw’s list of licensed money lender Singapore all or part of the PPP loan may be forgiven as long as the small business used the funds for payroll, business mortgage interest, rent, or utilities.
The newly-released application essentially asks for the payroll and qualifying non-payroll costs that the business spent over the eight-week period since receiving PPP funds. The amount of forgiveness may be reduced depending on whether a business reduced pay for their employees greater than 25 percent, or if the business owner failed to bring back the same number of full-time employees.
The final step in the application process is verification that the business owner allocated at least 75 percent of the PPP funds for payroll costs, and the remaining 25 percent for mortgage interest, rent, or utilities, if you want the find more articles like this one we recommend the Money Talks News website.
To learn more about completing the Paycheck Protection Program Loan Forgiveness application, please contact us.
Keep a constant watch on your accounts receivable to improve cash flow.
Quick: How many of your invoices are unpaid? Have any of your customers gone over 30 days past due? Did you bill all of the time and expenses for that project you just completed for a customer?
If you’re doing your accounting manually, there’s simply no way to get that information quickly. Depending on your bookkeeping system, you may not be able to get it at all.
QuickBooks Online has more than one solution to this problem. You see the first one every time you log in. The Dashboard contains a graphic in the upper left corner that tells you how many invoices are overdue and unpaid. Click on the colored bar labeled OVERDUE, and you’ll see a list of invoices with the unpaid ones right at the top.
You can tell at a glance how much of your money is tied up in unpaid invoices.
While this is important information for you to have as you start your workday, it doesn’t tell the whole story. To get that, you’ll need to access some of QuickBooks Online’s reports – five of them in particular. Click Reports in the left vertical pane, and then scroll down to the heading labeled Who owes you.
These reports are listed in two columns. Each has the outline of a star next to it. Click on the star, and the report will be added to the Favorites list at the top of the page. Click on the three vertical dots next to it, and you’ll be able to Customize the report. And as you hover over the title, you’ll see a small, circled question mark. Click on this to get a brief description of the report.
There are several reports on this list that can provide insight into where your outstanding revenue is. We recommend you run five of them at least once a week – more frequently if your business sells large quantities of products and/or services. The suggested are:
Accounts receivable aging detail
This report provides a list of invoices that are overdue, along with aging information. There are several columns in the report, but you’ll want to pay special attention to the last one: OPEN BALANCE.
Tip: If you have many customers or simply a high volume of unpaid invoices, you might consider running the Accounts receivable aging summary instead.
Changing the Content
Before you run the report, you should explore the customization tools provided for it. They won’t be the same for every report, but you can start to get an idea of what can be done. Hover over the report title and click Customize. A panel like the one pictured below will slide out of the right side of the screen.
QuickBooks Online provides deep customization tools for reports.
You can see some of your customization options in the image above. Beyond these, you can also work with filters and headers/footers. When you’re satisfied with your changes, click Run report.
If you want to run a report with its default settings, just click on the report title in the list to display it. You’ll have access to limited customization from there.
Four other reports you should be generating regularly are:
- Customer Balance Summary: Shows you how much each customer owes your business
- Open Invoices: Lists invoices for which there has been no payment
- Unbilled Charges: Just what it sounds like: tells you who hasn’t been invoiced yet for billable charges
- Unbilled Time: Lists all billable time not yet invoiced
We don’t expect you’ll have any trouble understanding reports like these; they’re fairly self-explanatory. QuickBooks Online offers many other reports, the standard financial reports that need to be generated monthly or quarterly, like Balance Sheet, Profit and Loss, and Statement of Cash Flows. You’ll absolutely need these should you apply for a loan or need to supply in-depth financials for any other reason. We can help you analyze them to get a comprehensive, detailed picture of your company’s fiscal health.
Like many business owners, you may have structured your business as an S corporation because of the tax benefits it offers. An S corporation provides the same limited liability as a traditional C corporation, but it generally avoids the double taxation associated with a C corporation. You and the other shareholders (if any) pay income taxes on corporate income directly.
Once you have an S election in place, it’s important to make sure you avoid taking any action that would put the election in jeopardy. Your corporation’s failure to meet certain tax law requirements on an ongoing basis could result in the IRS’s termination of its S corporation status.
- Ownership. An S corporation generally may not have a corporate shareholder. (Exception: An S corporation may be wholly owned by another S corporation.) All shareholders generally must be individuals, estates, certain trusts, or tax-exempt 501(c)(3) charitable organizations. However, a partnership may hold S corporation stock as a nominee for an eligible shareholder. Nonresident aliens may not be shareholders.
- Number of shareholders. An S corporation may not have more than 100 shareholders. For purposes of this limit, a husband and wife are treated as one shareholder, as are certain other related individuals.
- Stock. An S corporation may have only one class of stock. Generally, a corporation is treated as having only one class of stock if all outstanding shares of the corporation’s stock confer identical rights to distribution and liquidation proceeds.
Our hearts go out to everyone who has been impacted by the virus. To those who are sick, we send our thoughts and best wishes for a speedy recovery. For those businesses and employees who have been negatively impacted, we are sorry. We hope this message finds you and your loved ones safe.
Given the current environment and need to operate with best practices, we have elected to take action to protect your physical health as well starting with avoiding the use of cash and credit cards, you can easily Buy Digital Currency Coins online to use from your cell phone or any smartphone.
In-person meetings with clients – While our firm is still working during tax season, our physical office is closed. We must limit in-person interaction for your benefit and ours. In lieu of in-person meetings, contact us and we can talk on the phone or schedule a video meeting.
Remote staffing – To practice safely, some of our team is working from home and using technology to work securely and online.
Secure electronic document exchange – We are using Protected Xchange to securely and safely exchange electronic documents without physically touching paper. Protected Xchange provides encryption and is safer than email. The COVID-19 virus can live on paper documents and checks so we prefer to work electronically. If you have work papers, please scan and send electronically using Protected Xchange. If you mail or drop off documents, please understand that we will need to quarantine paper documents and this will slow things up.
Payments – To operate safely, we are using BizPayO to accept electronic payments. BizPayO accepts electronic checks, credit card, and debit card payments. We want to avoid physical checks and cash.
Legislation Changes – There will be a series of legislation changes and clarifications coming for 2020 (federal and state). At the moment, we are focused on completing tax filings for 2019 so please provide your information promptly.
Thank you for choosing us as your trusted advisor.
The world has forever changed, and a cloud of economic uncertainty is looming. One thing for certain – the traditional payment ecosystem exposes the general public to health risk. Antiquated payment methods, such as cash, checks, credit cards, touchscreens, and terminals, harbor germs and place the payer and payee at risk to exposure. Millions of transactions, each and every day, are creating millions of opportunities to spread illness and infection.
Thanks to the ongoing evolution in the payments industry, there are cleaner, healthier options, such as digital payment systems for business. Billing your customers is vital – but even more critical is getting paid in a safe, secure manner. Digital payment platforms, such as BizPayo, provide a safe, contactless payment gateway via a business’s website. Besides safety, digital payment methods facilitate a faster, simpler, and more secure way of getting paid.
The quest for contactless payments is showing immediate signs of ramping up in the wake of COVID-19, and the tipping point for contactless payments for professional services may arrive faster than originally projected. It’s inevitable – – enterprising businesses across the U.S. have already made the migration to digital payment methods, and more are sure to follow.
President Trump signed the Families First Coronavirus Response Act H.R. 6201into law on March 18, 2020. In the coming days and weeks, there will be additional bills that will expand, modify, and clarify H.R. 6201. The following Frequently Asked Questions surrounding H.R. 6201 was devised to help answer questions you may have. Updates will be posted as new information is made available.
FAQ – What businesses are affected by the new bill?
If you have fewer than 500 employees, then this bill covers your business
FAQ – When does this bill go int effect?
The bill was signed into law on March 18, 2020 and goes into effect 15 days later and will remain into effect until the end of 2020.
FAQ – Can I opt out of the new bill?
Companies with fewer than 50 employees will be allowed to opt out of the bill provisions if it would jeopardize the viability of the business.
Companies between 50 and 500 employees cannot opt out of the bill’s provisions.
FAQ – How can I opt out if the viability of my business would be affected by this bill?
The Secretary of Labor has the authority to exempt small businesses with fewer than 50 employees from the bill’s paid leave. The Department of Labor will establish guidelines and procedures on how small businesses will be able to apply for this exemption.
FAQ – I’m a healthcare provider. Can I exclude the leave provisions of this bill?
Exception for Health Care Providers and Emergency Responders. Employers who are health care providers or emergency responders may elect to exclude their employees from the public health emergency leave provisions of the bill.
FAQ – What paid leave can my employees claim?
- They have been exposed to coronavirus or exhibit symptoms
- They are recommended to quarantine by a healthcare provider and cannot work from home
- They need to care for a family member who has been exposed to coronavirus or exhibits symptoms of coronavirus
- They need to care for a child younger than 18 years old because their school or day care is closed, or their childcare provider is unavailable.
FAQ – How much paid leave can my employees claim?
Employees under the bill are entitled to 10 weeks of paid leave (a provision of the bill has any extension beyond 10 weeks to be granted only to parents taking care of children with shuttered schools and day care centers).
The first 14 days of leave: under the bill, the first 14 days in which an employee takes emergency leave may be unpaid. An employee may elect, or an employer may require the employee, to substitute any accrued paid vacation leave, personal leave, or sick leave for unpaid leave.
Paid Leave Rate for Subsequent Days:After 14 days of unpaid leave, an employer is required to provide paid leave at an amount not less than two-thirds of an employee’s regular rate of pay up to $200 per day or $10,000 in the aggregate.
The bill also addresses hourly employees whose schedules vary to the extent than an employer cannot determine the exact number of hours the employee would have worked. For those employees, the employee’s paid leave rate should equal the average number of hours that the employee was scheduled per day over the six-month period prior to the leave. If the employee did not work in the preceding six-month period, the paid leave rate should equal the “reasonable expectation” of the employee at the time of hiring with respect to the average number of hours per day that the employee would be scheduled to work.
The following are further details:
Paid Sick Time: Full-time employees are entitled to 80 hours of paid sick leave. Part-time employees are entitled to the number of hours that the employee works, on average, over a two-week period.
For hourly employees whose schedules vary, the employee’s paid leave rate should equal the average number of hours that the employee was scheduled per day over the six-month period prior to the leave. If the employee did not work in the preceding six-month period, the paid leave rate should equal the “reasonable expectation” of the employee at the time of hiring with respect to the average number of hours per day that the employee would be scheduled to work.
Once an employee’s coronavirus-related need for using the emergency paid sick leave ends, then the employer may terminate the paid sick time. Further, paid sick time provided under H.R. 6201 shall not carry over from one year to the next.
Paid Leave Rate: Employees who take paid sick leave because they are subject to a quarantine or isolation order, have been advised by a health care provider to self-quarantine, or are experiencing coronavirus symptoms and seeking medical diagnosis are entitled to be paid at their regular pay rate or at the federal, state or local minimum wage, whichever is greater. In these circumstances, the paid sick leave rate may not exceed $511 per day, or $5,110 in aggregate.
Employees who take paid sick leave to care for another individual or child or because they are experiencing another substantially similar illness (as specified by HHS) are entitled to be paid at two-thirds their regular rate. In these circumstances, the paid sick leave rate may not exceed $200 per day, or $2,000 in aggregate.
The bill requires the Secretary of Labor to issue guidelines to assist employers in calculating paid sick time within 15 days of the bill’s enactment.
FAQ – Can I discourage my employees from taking this leave?
Employers cannot discourage or prevent eligible employers from claiming paid sick leave. If they do, it could be considered discriminatory or an obstruction of their legal rights.
Employer Notice Requirement:Employers shall post and keep posted, in conspicuous places, notice of the emergency paid sick leave requirements made available under H.R. 6201. Within seven days of the enactment of the bill, the Secretary of Labor will provide a model notice for use by employers.
FAQ – Will my business get reimbursed
Employers initially pay for the sick leave and are reimbursed by the federal government within three months through refundable tax credits that count against employers’ payroll tax.
FAQ – How does the reimbursement work?
EMPLOYER TAX CREDITS
H.R. 6201 provides for employer tax credits to offset the costs associated with the paid public health emergency leave and sick leave required for employees under Divisions C and E of the bill.
Payroll Tax Credit: The bill provides a refundable tax credit worth 100 percent of qualified public health emergency leave wages (as provided by Division C) and qualified paid sick leave wages (as provided by Division E) paid by an employer for each calendar quarter through the end of 2020. The tax credit is allowed against the tax imposed under the employer portion of Social Security and Railroad Retirement payroll taxes.
Credit Amount: The bill allows employers to take tax credits for qualified public health emergency leave wages and qualified sick leave wages:
Credit Amount for Public Health Emergency Leave Wages. The amount of qualified public health leave wages taken into account for each employee is capped at $200 per day and $10,000 for all calendar quarters.
Credit Amount for Sick Leave Wages. In instances when an employee receives paid sick leave because they are subject to a quarantine or isolation order, have been advised by a health care provider to self-quarantine, or are experiencing coronavirus symptoms and seeking medical diagnosis, the amount of qualified sick leave wages taken into account for each employee is capped at $511 per day.
n instances when an employee receives paid sick leave because they are caring for another individual or child or because they are experiencing another substantially similar illness (as specified by HHS) the amount of qualified sick leave wages taken into account for each employee is capped at $200 per day.
In determining the total amount of an employer’s qualified sick leave wages paid for a calendar quarter, the total number of days that the employer can take into account with respect to a particular employee for that quarter may not exceed 10 days minus the number of days taken into account for that employee for all previous quarters.
Credit for Health Plan Expenses. Under the bill, the public health emergency leave and paid sick leave credits would be increased to include amounts employers pay for the employee’s health plan coverage while they are on leave. Specifically, the bill allows for the credit amounts to be increased by the amount of the employer’s group health plan expenses that are “properly allocated” to the qualified emergency leave and sick leave wages. Health plan expenses are “properly allocated” to qualified wages if made on a pro rata basis (among covered employees and periods of coverage).
FAQ – If an employee goes on leave, then what happens when they come back to work?
Generally, eligible employees who take emergency paid leave are entitled to be restored to the position they held when the leave commenced or to obtain an equivalent position with their employer. H.R. 6201 limits this rule for employers with fewer than 25 employees. In such circumstances, if an employee takes emergency leave, then the employer does not need to return the employee to their position if:
- The position does not exist due to changes in the employer’s economic or operating condition that affect employment and were caused by the coronavirus emergency;
- The employer makes “reasonable efforts” to restore the employee to an equivalent position; and
- If these efforts fail, the employer makes an additional reasonable effort to contact the employee if an equivalent position becomes available. The “contact period” is the one-year window beginning on the earlier of (a) the date on which the employee no longer needs to take leave to care for the child or (b) 12 weeks after the employee’s paid leave commences.
Refundability of Excess Credit: The amount of the paid sick leave credit that is allowed for any calendar quarter cannot exceed the total employer payroll tax obligations on all wages for all employees. If the amount of the credit that would otherwise be allowed is so limited, the amount of the limitation is refundable to the employer.
Limitation on Tax Credits:Employers may not receive the tax credit if they are also receiving a credit for paid family and medical leave under the 2017 Tax Cuts and Jobs Act (P.L. 115-97). Employers would instead have to include the credit in their gross income.
FAQ – My business was shut down and I had to layoff my employees. Are they eligible for unemployment?
Unemployment Insurance: The bill provides for the Secretary of Labor to make emergency administration grants to states in the Unemployment Trust Fund. States are directed to demonstrate steps toward easing eligibility requirements and expand access to unemployment compensation for claimants directly impacted by COVID-19. The legislation also appropriates funds for states that aim to establish work-sharing programs that permit employers to reduce employee hours rather than laying them off. Under such programs, employees would receive partial unemployment benefits to offset the wage loss.
FAQ – Will this bill change?
Many new bills are being worked on that can and likely will make changes to this bill and/or clarify many of it’s provisions.