Q. What are the 1997 rates for social security tax and Medicare withholding?

A. For 1997 the social security tax rate is 6.2 %, which applies to the first $65,400 of the employee's wages. The Medicare tax rate is 1.45 %, which applies to all of the employee's wages. For additional information, refer to Tax Topic 751, Social Security and Medicare Withholding Rates.

Q. I started a new business during 1996. I need information on how to file Forms W-2.

A. First of all, Forms W-2 should be furnished to your employees by January 31, 1997. It is also your responsibility as an employer to file Forms W-2 with the Social Security Administration (SSA) for your employees, showing wages paid and taxes withheld for the year. You must send Copy A to the SSA with Form W-3 by February 28, 1997. Form W-3 shows the total of all W-2's being sent. The address is listed in the W-2 instructions. Refer to Tax Topic 752, Form W-2 - Where, When and How to File, or Publication 15, Employer's Supplemental Tax Guide, and Publication 393, Federal Employment Tax Forms.

Q. One of my employees gave me a W-4 form claiming exemption from withholding. Do I have to send the W-4 to the IRS?

A. If you receive a Form W-4 on which an employee claims exemption from withholding and his or her wages would normally be expected to exceed $200 or more a week, you must send a copy of that W-4 to the IRS service center with your next Form 941 return or with a cover letter. The IRS will send you further instructions if it is determined that you should not honor the Form W-4. For additional information on Form W-4, refer to Tax Topic 753 and/or Publication 15, Employees Tax Guide.

Q. How do I figure the amount of advance earned income credit to include in an employee's pay?

A. To figure the credit amount, use either the Tables for Percentage Method or Tables for Wage Bracket Method of Advance EIC Payments which are located in Publication 15, Circular E, Employer's Tax Guide. Add the advance earned income credit payments to the employee's net pay for the pay period. Since the EIC isn't wages, you do not withhold any income, social security, or Medicare taxes from the payment. For additional information, refer to Tax Topic 754, Form W-5 - Advance Earned Income Credit and/or Publication 15, Employer's Tax Guide.

Q. How do I apply for an employer identification number (EIN)?

A. To obtain an EIN, you must complete Form SS-4. After you have completed the Form SS-4, you can get the EIN by mail, FAX, or by phone. The instructions for Form SS-4 provide both an IRS service center address and a phone number for Tele-TIN. For more information, refer to Tax Topic 755, Employer Identification Number (EIN) - How to Apply, or Publication 1635, Understanding Your EIN.

Q. I hired a baby-sitter to care for my children in my home. Do I need to withhold taxes on her wages?

A. Household employees include housekeepers, maids, baby- sitters, gardeners, and others who work in or around your private residence as your employees. If you pay a household employee cash wages of $1,000 or more in a calendar year, you generally must withhold social security and Medicare taxes from all cash wages you pay to that employee. For specific information refer to Tax Topic 756, Employment Taxes for Household Employees, or Publication 926, Household Employer's Tax Guide.

Q. What are the deposit requirements for Form 941, Employer's Quarterly Federal Tax Return?

A. The tax liability on a Form 941 return includes your employees' withheld federal income tax, social security tax, and Medicare tax, and your share of social security and Medicare tax.

If you accumulate a liability for these taxes of $500 or more per quarter, you must deposit this amount by making payment to an authorized financial institution or the Federal Reserve bank for your area. A Form 8109, Federal Tax Deposit Coupon, or FTD Coupon, must accompany your payment. You must deposit the Form 941 taxes based on either a monthly or semi-weekly deposit schedule. For specific information, refer to Tax Topic 757, Form 941 - Deposit Requirements or Publication 15, Employer's Tax Guide.

Q. What are the filing requirements for Form 941, Employer's Quarterly Federal Tax Return?

A. If you are a business employer who is not a farmer, you will file Form 941 to report wages you have paid, tips your employees have received, federal income tax withheld, social security and Medicare taxes withheld, your share of social security and Medicare taxes, and advance earned income credit (AEIC) payments. You must file for each calendar quarter, using a separate Form 941. Form 941 is due by the last day of the month following the end of the quarter. If your total taxes (line 13 of Form 941) are $500 or more for the quarter, you must deposit your tax liabilities at an authorized financial institution with Form 8109, Federal Tax Deposit Coupon, or by using the Electronic Federal Tax Payment System (EFTPS). If your total deposits of social security, Medicare, and withheld income taxes were more than $50,000 in 1995, you must make electronic deposits using EFTPS for all depository tax liabilities that occur after June 30, 1997. The due dates of your deposits are based on either a monthly or semiweekly deposit schedule. The deposit schedule you must use is determined by the amount of Form 941 taxes reported in a four-quarter lookback period. For specific information, refer to Tax Topic 758, Form 941 - Employer's Quarterly Federal Tax Return, Publication 15, Employer's Tax Guide.

Q. How do I figure the amount of deposit required for Form 940/940EZ, Employer's Annual Federal Unemployment Tax Return?

A. First figure the amount of wages you paid during the quarter that are subject to federal unemployment tax. Only the first $7,000 paid to each employee during each calendar year is subject to the tax. Next, multiply the taxable wages you have just figured by eight tenths of one percent (.8%). If $100 or less, you do not have to make a deposit. Add this amount to the tax you figure for wages subject to unemployment tax at the end of the next quarter. If more than $100, a deposit is due. For more specific information, refer to Tax Topic 759, Form 940/940EZ - Deposit Requirements.

Note: The FUTA tax rate isn't always .8%. The FUTA tax rate is 6.2% (see next FAQ) Generally, an employer can take a credit against FUTA tax for amounts paid into state unemployment funds. This credit cannot be more than 5.4% (resulting in a net .8% rate). Most employers who make timely unemployment tax payments to the state are entitled to the .8%.

Q. What is the federal unemployment tax rate for 1996?

A. The gross federal unemployment tax rate for 1996 is 6.2% and is figured on the first $7,000 of wages you paid each employee in 1996. However, if you have timely paid state unemployment contributions on the same wages, you can be eligible for a credit. For specific information, refer to Tax Topic 760, Form 940/940EZ - Employer's Annual Federal Unemployment Tax Returns.

Q. If my part-time employees receive less than $20 a month in tips, are they required to report them to me?

A. Employees who receive less than $20 per month in tips are not required to report the tips to the employer, but they must include them in gross income on their tax return. For additional information on tip withholding and reporting requirements, refer to Tax Topic 762 and/or Publication 15, Employer's Tax Guide.

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