3. Employee's Social Security Number (SSN)
An employee's social security number (SSN) consists of
nine digits separated as follows: 000-00-0000. You must get each
employee's name and SSN because you must enter them on the employee's
wage and tax statement, Form W-2VI, W-2GU, W-2AS, or W-2CM. If you do
not provide the correct name and SSN, you may owe a penalty. You
should ask the employee to show you his or her social security card.
The employee is required to show it to you if it is available. You
may, but you are not required to, photocopy the social security card
if the employee provides it.
If an employee does not have a social security card or needs a new
one, the employee should apply for one on Form SS-5,
Application for a Social Security Card. See the back cover of
this circular for information on how to get and where to send the
form. If your employee has applied for an SSN but does not have one
when you file his or her Form W-2, enter Applied For on the
form. When the employee receives the SSN, file Form W-2c,
Corrected Wage and Tax Statement, to show the employee's SSN.
Note: Record the name and number of each employee exactly as they appear on his or her social security card. If the employee's name is not correct as shown on the card (for example, because of marriage or divorce), the employee should request a new card from the SSA. Continue to use the old name until the employee shows you the new social security card with the new name.
Employees who apply for social security cards must supply proof of
age, identity, and citizenship. If they are not citizens of the United
States, they must submit evidence of their alien status.
If your employee was given a new social security card to show his
or her correct name and number after an adjustment to his or her alien
residence status, correct your records and show the new information on
Form W-2VI, W-2GU, W-2AS, or W-2CM. If you filed a form for the same
employee in prior years under the old name and SSN, file Form W-2c to
correct the name and number. Advise the employee to contact the local
SSA office no earlier than 9 months after Form W-2c is filed to ensure
his or her records were updated.
4. Taxable Wages
Generally, all wages are subject to social security and Medicare
tax (and FUTA tax for U.S. Virgin Islands employers). However, wages
subject to social security tax and FUTA tax are limited by a wage base
amount you pay to each employee for the year. After you pay $80,400 to
an employee in 2001, including tips, do not withhold social security
tax on any amount you later pay the employee for the year. The wage
base for FUTA tax is $7,000 for 2001. All wages are subject to
Medicare tax. The wages may be in cash or in other forms, such as an
automobile for personal use. Wages include salaries, vacation
allowances, bonuses, commissions, and fringe benefits. It does not
matter how payments are measured or paid.
See the table on pages 15 through 19 for exceptions to taxes on
wages. See sections 5 and 6 for a discussion of how the rules apply to
tips and farmworkers.
Social security and Medicare taxes apply to most payments of sick
pay, including payments by third parties such as insurance companies.
Special rules apply to the reporting of third-party sick pay. For
details, see Pub. 15-A.
Determine the value of noncash pay (such as goods, lodging, and
meals) by its fair market value. However, see Fringe Benefits
later. Except for farmworkers and household employees, this kind
of pay may be subject to social security, Medicare, and FUTA taxes.
Back pay, including retroactive wage increases (but not amounts
paid as liquidated damages), is taxed as ordinary wages in the year
paid. For information on back pay, see Pub. 957, Reporting
Back Pay and Special Wage Payments to the Social Security
Travel and business expenses.
Payments to your employee for travel and other necessary expenses
of your business generally are included in taxable wages if (1) your
employee is not required to or does not substantiate timely
those expenses to you with receipts or other documentation or (2) you
advance an amount to your employee for business expenses and your
employee is not required to or does not return timely any
amount he or she does not use for business expenses.
In general, sick pay is any amount you pay, under a plan you take
part in, to an employee because of sickness or injury. These amounts
are sometimes paid by a third party, such as an insurance company or
employees' trust. In either case, these payments are subject to social
security, Medicare, and Federal unemployment (FUTA) taxes (U.S. Virgin
Islands only). Sick pay becomes exempt from these taxes after the end
of 6 calendar months after the calendar month the employee last worked
for the employer. Pub. 15-A explains the employment tax rules that
apply to sick pay, disability benefits, and similar payments to
Unless the law says otherwise, fringe benefits are includible in
the gross income of the employee and are subject to employment taxes.
Examples of fringe benefits include automobiles or aircraft flights
you provide, free or discounted commercial airline flights, vacations,
discounts on property or services, memberships in country clubs or
other social clubs, and tickets to entertainment or sporting events.
In general, the amount included in the employee's income is the excess
of the fair market value of the benefit over the sum of any amount
paid for it by the employee plus any amount excludable by law. If a
timely notice is given to the employees, there are optional special
valuation rules that may be used by employers and employees to value
certain fringe benefits. Certain fringe benefits are specifically
excludable by law. For details on fringe benefits, see Pub. 15-A and
Pub. 15-B, Employer's Tax Guide for Fringe Benefits.
When fringe benefits are treated as paid.
You can elect to treat taxable noncash fringe benefits (including
personal use of an automobile provided by you) as paid by the pay
period, quarter, or on any other basis you choose, but they must be
treated as paid at least annually. You do not have to make a formal
election of payment dates or notify the IRS. You do not have to make
this election for all employees, and the election can be changed as
often as desired, as long as all benefits provided in a calendar year
are treated as paid no later than December 31 of the calendar year.
However, see Special accounting rule for fringe benefits provided
during November and December later.
You can treat the value of a single taxable noncash fringe benefit
as paid on one or more dates in the same calendar year, even if the
employee gets the entire benefit at one time. However, once you elect
the payment dates, you must report the taxes on your return in the
same tax period in which you treated them as paid. This election does
not apply to a fringe benefit where real property or investment
personal property is transferred.
Withholding social security and Medicare taxes on fringe benefits.
You add the value of fringe benefits to regular wages for a payroll
period and figure social security and Medicare taxes on the total.
If you withhold less than the required amount of social security
and Medicare taxes from the employee in a calendar year but report the
proper amount, you may recover the taxes from the employee.
Depositing taxes on fringe benefits.
Once payment dates for taxable noncash fringe benefits are elected,
taxes are deposited under the general deposit rules (discussed in
section 8), including those for timeliness of deposit. You may make a
reasonable estimate of the value of the fringe benefits deemed to be
paid on the date(s) elected, for purposes of meeting the timely
deposit requirements. In general, the value of taxable noncash fringe
benefits provided in a calendar year must be determined by January 31
of the following year.
You may claim a refund of overpayments or elect to have any
overpayment applied to the next employment tax return. If deposits are
underpaid, see Deposit Penalties in section 8.
Valuation of vehicles provided to employees.
If you provide a vehicle to your employees, you may either
determine the actual value of the benefit for the entire calendar
year, taking into account the business use of the vehicle, or consider
the entire use for the calendar year as personal and include 100% of
the value of the vehicle in the employee's income. For reporting
information to employees, see section 10.
Special accounting rule for fringe benefits provided during November and December.
You may choose to treat the value of taxable noncash fringe
benefits provided during November and December as paid in the next
year. However, this applies only to those benefits you actually
provided during November and December, not to those you merely treated
as paid during those months.
If you use this rule, you must notify each affected employee
between the time of the employee's last paycheck of the calendar year
and at or near the time you give the employee Form W-2VI, W-2GU,
W-2AS, or W-2CM. If you use the special accounting rule, your employee
must also use it for the same period that you use it. You cannot use
this rule for a fringe benefit of real property or tangible or
intangible real property of a kind normally held for investment that
is a transfer to your employee.
5. Taxable Tips
Tips your employee receives are generally subject to withholding.
Your employee must report cash tips to you by the 10th of the month
after the month the tips are received. The report should include tips
you paid to the employee from charge receipts. Also include tips the
employee received directly from customers and other employees, and
indirectly (e.g., tip splitting). The report should not include tips
the employee paid out to other employees. No report is required for
months when tips are less than $20. Your employees report tips on
Form 4070, Employee's Report of Tips to Employer, or on a
similar statement. They may also use Form 4070-A,
Employee's Daily Record of Tips, to keep a record of their tips.
Both forms are printed in Pub. 1244, Employee's Daily
Record of Tips and Report to Employer, available from the IRS.
The statement must be signed by the employee and must show the following:
- The employee's name, address, and SSN.
- The employer's name and address.
- The month or period the report covers.
- The total tips.
You must collect the employee social security and Medicare taxes on
the employee's tips. You can collect these taxes from the employee's
wages or from other funds he or she makes available. Stop collecting
the employee social security tax when his or her total wages and tips
for 2001 reach $80,400. Collect the employee Medicare tax for the
whole year on all wages and tips.
You are responsible for the employer social security tax on wages
and tips until the wages (including tips) reach the wage base limit.
You are responsible for the employer Medicare tax for the whole year
on all wages and tips. File Form 941-SS to report withholding on tips.
If, by the 10th of the month after the month you received an
employee's report on tips, you do not have enough employee funds
available to deduct the employee tax, you no longer have to collect
it. Show these tips and any uncollected social security and Medicare
taxes on Forms W-2VI, W-2GU, W-2AS, or W-2CM and on lines 6c, 6d, 7a,
and 7b of Form 941-SS. Report an adjustment on line 9 of Form 941-SS
for the uncollected social security and Medicare taxes.
You are permitted to establish a system for electronic tip
reporting by employees. See Regulations section 31.6053-1.
The table on page 19 shows how tips are treated for FUTA tax
6. Social Security and Medicare Taxes for Farmworkers
The tests described below apply only to services that are defined
as agricultural labor (farmwork). Farmworkers are your employees if
- Raise or harvest agricultural or horticultural products on
- Work in connection with the operation, management,
conservation, improvement, or maintenance of your farm and its tools
- Handle, process, or package any agricultural or
horticultural commodity if you produced over half of the commodity
(for a group of more than 20 operators, all of the commodity).
- Do work for you related to cotton ginning, turpentine, or
gum resin products.
- Do housework in your private home if it is on a farm that is
operated for profit.
A share farmer working for you is not your employee. However, the
share farmer may be subject to self-employment tax. In general, share
farming is an arrangement in which certain commodity products are
shared between the farmer and the owner (or tenant) of the land. For
details, see Regulations section 31.3121(b)(16)-1.
The $150 Test or the $2,500 Test
All cash wages you pay for farmwork are subject to social security
and Medicare taxes if either of the two tests below is met:
- You pay cash wages to the employee of $150 or more in a
year for farmwork (count all cash wages paid on a time, piecework, or
other basis) for farmwork. The $150 test applies separately to each
farmworker you employ. If you employ a family of workers, each member
is treated separately. Do not count wages paid by other
- The total you pay for farmwork (cash and noncash) to all of
your employees is $2,500 or more.
The $150 and $2,500 tests do not apply to the following:
- Wages you pay to a farmworker who receives less than $150 in
annual cash wages are not subject to social security or Medicare taxes
even if you pay $2,500 or more in that year to all your farmworkers if
- Is employed in agriculture as a hand-harvest laborer,
- Is paid piece rates in an operation that is usually paid on
a piece-rate basis in the region of employment,
- Commutes daily from his or her home to the farm, and
- Was employed in agriculture less than 13 weeks in the
preceding calendar year.
Amounts you pay to these seasonal farmworkers, however, count
toward the $2,500-or-more test to determine whether wages you pay to
other farmworkers are subject to social security and Medicare taxes.
- Cash wages you pay a household employee are counted in the
$2,500 test but are not subject to social security and Medicare taxes
unless you have paid the worker $1,200 or more in cash wages in 2000
($1,300 in 2001). See the table on page 17 showing liability for
social security, Medicare, and FUTA taxes.
7. How To Figure Social Security and Medicare Taxes
For wages paid in 2001, the social security tax rate is 6.2% and
the Medicare tax rate is 1.45% for both the employer and the employee.
Multiply each wage payment by these percentages to figure the tax. For
example, the social security tax on a wage payment of $355 would be
$22.01 ($355 × .062) each. The Medicare tax would be $5.15 ($355
× .0145) each. (See section 5 for information on tips.)
Note: Deduct the employee tax from each wage payment.
If you are not sure that the wages you pay to a farmworker during the
year will be taxable, you may either deduct the tax when you make the
payments or wait until the $2,500 test or the $150 test explained in
section 6 has been met.
Employee's portion of taxes paid by employer.
If you pay your employee's social security and Medicare taxes
without deducting them from the employee's pay, you must include the
amount of the payments in the employee's wages for social security and
Medicare taxes. This increase in the employee's wage payment for your
payment of the employee's social security and Medicare taxes is also
subject to employee social security and Medicare taxes. This again
increases the amount of the additional taxes you must pay.
Note: This discussion does not apply to household
and agricultural employers. If you pay a household or agricultural
employee's social security and Medicare taxes, these payments must be
included in the employee's wages. However, this wage increase due to
the tax payments is not subject to social security or Medicare taxes
as discussed in this section. See Publication 15-A for details.
Sick pay payments. Social security and Medicare taxes
apply to most payments of sick pay, including payments made by third
parties such as insurance companies. For details on third-party payers
of sick pay, see Pub. 15-A.
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