Withholding and Paying Taxes

 

Employees' pay and taxable fringe benefits are subject to federal income tax withholding, FICA withholding, and state income tax withholding.  Employers pay a matching share of FICA taxes; only employers pay federal unemployment taxes, or FUTA.  States collect unemployment contributions, or SUTA, from employers.  FUTA and SUTA taxes are paid quarterly.  Some states collect unemployment taxes from employees, and still others collect disability taxes from employees. 

 

Employers must withhold taxes when employees are actually or constructively paid.  Employees are constructively paid when their wages are credited to the account of, or set apart for, employees so they can draw on them at any time.  Withholding is based on pay periods.  Employers choose their pay periods, which must comport with state wage payment laws.  There are weekly, biweekly, semimonthly, monthly, quarterly, semiannual, annual, and daily/miscellaneous pay periods.  There are two basic withholding methods: the wage-bracket method and the percentage method.  Continue Withholding and Paying Taxes 

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FAQs

 

1.  An employee is claiming that his wages aren't subject to federal income tax withholding because he's a member of the clergy and has taken a vow of poverty. He also wants us to pay his gross earnings to his church, instead of him. What do I do?

2.  Can we withhold taxes if an employee never filed a Form W-4?

3.  Employees are reimbursed for the business use of their cell phones. To make it easier, management has suggested that employees receive a flat $50 a month. Would this change impact withholding? 

4.  My company collects all the frequent flyer miles for our employees' business travel. As an incentive award, the company provides a free round-trip ticket to an employee that's been "purchased" with these frequent flyer milers. Is this taxable and subject to withholding? If so, how is it valued?


5.  When and how can an employee defer a portion of his salary? Does the employee need to be an owner?


6.  The CEO has suggested that we pay employees' accrued vacation pay in two lump sums — by July 15 for amounts accrued between January 1 and June 30, and by January 15 for amounts accrued during the second half of a year. Withholding would be based on the number of weeks the accrued payments represent. In other words, this withholding method treats the lump sums as a collection of weekly payments. Employees would net more money this way. Would this get the go-ahead from the IRS?


7.  If an employee exercises incentive stock options (ISOs), he wouldn't have taxable wage income. So what does he have if we buy back his ISOs before he exercises them — capital gains or taxable income?


8.  Our board of directors has proposed establishing an employee-funded, but separate, charity that makes grants and loans to employees who experience temporary financial hardship. The charity will be funded with after-tax payroll deductions. Will the charity's payments to employees be taxable? 

 

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