Publication 15 |
2000 Tax Year |
Chapter 9 Withholding From Employees' Wages
Income Tax Withholding
To know how much income tax to withhold from
employees' wages, you should have a Form W-4,
Employee's Withholding Allowance Certificate, on file
for each employee. Ask all new employees to give you
a signed Form W-4 when they start work. Make the form
effective with the first wage payment. If a new employee
does not give you a completed Form W-4, withhold tax
as if he or she is single, with no withholding allowances.
You may establish a system to electronically receive Form W-4 from
your employees. See Regulation 31.3402(f)(5)-1 for more information.
A Form W-4 remains in effect until the employee gives you a new
one. If an employee gives you a Form W-4 that replaces an existing
Form W-4, begin withholding no later than the start of the first
payroll period ending on or after the 30th day from the date you
received the replacement Form W-4. For exceptions, see Exemption
from income tax withholding, Sending certain Forms W-4 to the IRS,
and Invalid Forms W-4 below.
The amount of income tax withholding must be based on marital
status and withholding allowances. Your employees may not base their
withholding amounts on a fixed dollar amount or percentage. However,
the employee may specify a dollar amount to be withheld in
addition to the amount of withholding based on filing status and
withholding allowances claimed on Form W-4.
Employees may claim fewer withholding allowances than
they are entitled to claim. They may wish to claim fewer allowances to
ensure that they have enough withholding or to offset other sources of
taxable income that are not subject to adequate withholding.
Note:
A Form W-4
that makes a change for the next calendar year will
not take effect in the current calendar year.
See Pub. 505, Tax Withholding and Estimated Tax, for
detailed instructions for completing Form W-4. Along with Form W-4,
you may wish to order Pub. 505 and Pub. 919, How Do I
Adjust My Withholding?
When you receive a new Form W-4, do not adjust withholding for pay
periods before the effective date of the new form. Also, do not accept
any withholding or estimated tax payments from your employees in
addition to withholding based on their Form W-4. If they require
additional withholding, they should submit a new Form W-4 and, if
necessary, pay estimated tax by filing Form 1040-ES,
Estimated Tax for Individuals.
Exemption from income tax withholding.
Generally, an employee may claim exemption from income tax
withholding because he or she had no income tax liability last year
and expects none this year. See the Form W-4 instructions for more
information. However, the wages are still subject to social security
and Medicare taxes.
A Form W-4 claiming exemption from withholding is valid for only
one calendar year. To continue to be exempt from withholding in the
next year, an employee must file a new Form W-4 by February 15 of that
year. If the employee does not give you a new Form W-4, withhold tax
as if the employee is single with zero withholding allowances.
Withholding on nonresident aliens.
In general, if you pay wages to nonresident aliens, you must
withhold income tax (unless excepted by regulations), social security,
and Medicare taxes as you would for a U.S. citizen. However, income
tax withholding from the wages of nonresident aliens is subject to the
special rules shown in Form W-4 below. You must also give a
Form W-2 to the nonresident alien and file it with the SSA. The wages
are subject to FUTA tax as well. However, see Pub. 515,
Withholding of Tax on Nonresident Aliens and Foreign
Corporations, and Pub. 519, U.S. Tax Guide for Aliens, for
exceptions to these general rules.
Form W-4.
When completing Form W-4 nonresident aliens are required to:
- Not claim exemption from income tax withholding.
- Request withholding as if they are single, regardless of
their actual marital status.
- Claim only one allowance (if the nonresident alien is a
resident of Canada, Mexico, Japan, or Korea, he or she may claim more
than one allowance).
- Request an additional income tax withholding amount,
depending on the payroll period, as follows:
nonresident
Note:
Nonresident alien students from India are not subject to the
additional income tax withholding requirement.
Nonwage withholding.
In some cases, an Internal Revenue Code section or a U.S. treaty
provision will exempt payments to a nonresident alien from wages.
These payments are not subject to regular income tax withholding. Form
W-2 is not required in these cases. Instead, the payments are subject
to withholding at a flat 30% or lower treaty rate, unless exempt from
tax because of a Code or U.S. tax treaty provision.
Report these payments and any withheld tax on Form 1042-S,
Foreign Person's U.S. Source Income Subject to Withholding. Form
1042-S is sent to the IRS with Form 1042, Annual
Withholding Tax Return for U.S. Source Income of Foreign Persons. You
may have to make deposits of the withheld income tax, using Form
8109, Federal Tax Deposit Coupon, or EFTPS (see page 20). See
Pub. 515 and the Instructions for Form 1042-S for more
information.
Sending certain Forms W-4 to the IRS.
You must send to the IRS copies of certain Forms W-4 received
during the quarter from employees still employed by you at the end of
the quarter. Send copies when the employee claims (1) more than 10
withholding allowances or (2) exemption from withholding and his or
her wages would normally be more than $200 per week. You are not
required to send any other Forms W-4 unless the IRS notifies you in
writing to do so.
Send in Forms W-4 that meet either of the above conditions each
quarter with Form 941. Complete boxes 8 and 10 on any Forms W-4 you
send in. You may use box 9 to identify the office responsible for
processing the employee's payroll information. Also send copies of any
written statements from employees in support of the claims made on
Forms W-4. Send these statements even if the Forms W-4 are not in
effect at the end of the quarter. You can send them to the IRS more
often if you like. If you do so, include a cover letter giving your
name, address, EIN, and the number of forms included. In certain
cases, the IRS may notify you in writing that you must submit
specified Forms W-4 more frequently, separate from your Form 941.
Note:
Please make sure that the copies of Form W-4 you send to the
IRS are clear and legible.
If your Forms 941 are filed on magnetic media, this Form W-4
information also should be filed with the IRS on magnetic media. (See
Filing Form W-4 on magnetic media below.) If you file Form
941 electronically or by TeleFile, send your paper Forms W-4 to the
IRS with a cover letter. Magnetic media filers of Form 941 also may
send paper Forms W-4 to the IRS with a cover letter if they are unable
to file them on magnetic media.
Note:
Any Form W-4 you send to the IRS without a Form 941 should be
mailed to the "Return without payment" address on the back of
Form 941.
Base withholding on the Forms W-4 that you send in unless the IRS
notifies you in writing to do otherwise. If the IRS notifies you about
a particular employee, base withholding on the number of withholding
allowances shown in the IRS notice. The employee will get a similar
notice directly from the IRS. If the employee later gives you a new
Form W-4, follow it only if (1) exempt status is not claimed or (2)
the number of withholding allowances is equal to or fewer than the
number in the IRS notice. Otherwise, disregard it and do not submit it
to the IRS. Continue to follow the IRS notice.
If the employee prepares a new Form W-4 explaining any
difference with the IRS notice, he or she may either submit it to
the IRS or to you. If submitted to you, send the Form W-4 and
explanation to the IRS office shown in the notice. Continue to
withhold based on the notice until the IRS tells you to follow the
new Form W-4.
Filing Form W-4 on magnetic media. Form W-4 information may be filed with the IRS on magnetic media.
If you wish to file on magnetic media, you must submit Form 4419,
Application for Filing Information Returns
Magnetically/Electronically, to request authorization. See Pub. 1245,
Specifications for Filing Form W-4, Employee's Withholding
Allowance Certificate, Magnetically or Electronically. To get more
information about magnetic media filing, call the IRS Martinsburg
Computing Center at 304-263-8700.
Invalid Forms W-4.
Any unauthorized change or addition to Form W-4 makes it invalid.
This includes taking out any language by which the employee certifies
that the form is correct. A Form W-4 is also invalid if, by the date
an employee gives it to you, he or she indicates in any way that it is
false. An employee who files a false Form W-4 may be subject to a $500
penalty.
When you get an invalid Form W-4, do not use it to figure
withholding. Tell the employee it is invalid and ask for another one.
If the employee does not give you a valid one, withhold taxes as if
the employee were single and claiming no withholding allowances.
However, if you have an earlier Form W-4 for this worker that is
valid, withhold as you did before.
Amounts exempt from levy on wages, salary, and other income.
If you receive a Notice of Levy on Wages, Salary, and Other Income
(Forms 668-W, 668-W(c), or 668-W(c)(DO), you must withhold
amounts as described in the instructions for these forms. Pub.
1494, Table for Figuring Amount Exempt From Levy on Wages,
Salary, and Other Income (Forms 668-W(c) and 668-W(c)(DO)) 2001, shows
the exempt amount.
Social Security and Medicare Taxes
The Federal Insurance Contributions Act (FICA) provides for a
Federal system of old-age, survivors, disability, and hospital
insurance. The old-age, survivors, and disability insurance part is
financed by the social security tax. The hospital insurance part is
financed by the Medicare tax. Each of these taxes is reported
separately.
Social security and Medicare taxes are levied on both you and your
employees (unless you or your employees are not subject to these
taxes; see section 15). You, as an employer, must withhold and deposit
the employee's part of the taxes, and you must pay a matching amount.
Generally, employee wages are subject to social security and Medicare
taxes regardless of the employee's age or whether he or she is
receiving social security benefits. (If the employee reported tips,
see section 6.)
Tax rates and the social security wage base limit.
These taxes have different tax rates and only social security tax
has a wage base limit. The wage base limit is the maximum wage that is
subject to the tax for the year. Determine the amount of withholding
for social security and Medicare taxes by multiplying each payment by
the employee tax rate. There are no withholding allowances for social
security and Medicare taxes.
The employee tax rate for social security is 6.2% (amount
withheld). The employer tax rate for social security is also 6.2%
(12.4% total). The 2000 wage base limit was $76,200. For 2001, the
wage base limit is $80,400.
The employee tax rate for Medicare is 1.45% (amount withheld). The
employer tax rate for Medicare tax is also 1.45% (2.9% total). There
is no wage base limit for Medicare tax; all covered wages are subject
to Medicare tax.
Successor employer.
If you received all or most of the property used in the trade or
business of another employer, or a unit of that employer's trade or
business, you may include the wages the other employer paid to your
employees when you figure the annual wage base limit for social
security. See Regulations section 31.3121(a)(1)-1(b) for more
information. Also see Rev. Proc. 96-60, 1996-2 C.B. 399, for the
procedures used in filing returns in a predecessor-successor
situation.
Example:
Early in 2000, you bought all the assets of a plumbing business
from Mr. Martin. Mr. Brown, who had been employed by Mr. Martin and
received $2,000 in wages before the date of purchase, continued to
work for you. The wages you paid Mr. Brown are subject to social
security taxes on the first $74,200 ($76,200 less $2,000). Medicare
tax is due on all wages you pay him during the calendar year.
International social security agreements.
The United States has social security agreements with many
countries that eliminate dual taxation and dual coverage. Compensation
subject to social security and Medicare taxes may be exempt under one
of these agreements. You can get more information and a list of
agreement countries from SSA at www.ssa.gov/international, or see
Pub. 15-A, Employer's Supplemental Tax Guide.
Part-Time Workers
For income tax withholding and social security, Medicare, and
Federal unemployment (FUTA) tax purposes, there are no differences
among full-time employees, part-time employees, and employees hired
for short periods. It does not matter whether the worker has another
job or has the maximum amount of social security tax withheld by
another employer. Income tax withholding may be figured the same way
as for full-time workers. Or it may be figured by the part-year
employment method explained in Pub. 15-A.
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