How long do I need to keep certain records?

Records such as receipts, canceled checks, and other documents that prove an item of income or a deduction appearing on your return should be kept at least until the statute of limitations expires for that return. Usually this is three years from the date the return was due or filed, or two years from the date the tax was paid, whichever is later. There is no period of limitations when a return is false or fraudulent or when no return is filed. You should keep some records indefinitely, such as property records, since you may need them to determine the basis of the property if it to prove the amount of gain or loss if the property is sold. For more details, refer to Publication 552 Recordkeeping for Individuals, or Tax Topic 305 on Recordkeeping.

If you are an employer, you must keep all your employment tax records for at least four years after the tax is due or paid, whichever is later. For additional information, refer to Publication 583, Starting a Business and Keeping Records. People in business often have expenses for travel, entertainment, and gifts. The documentation you should keep for each of these expenses can be found in Publication 463, Travel, Entertainment, Gift and Car Expenses.

References:

• Publication 463, Travel, Entertainment, Gift and Car Expenses
• Publication 552, Recordkeeping for Individuals
• Publication 583, Starting a Business and Keeping Records
• Tax Topic 305, Recordkeeping

I am looking for a Form I-9. Is it available online?

No. Form I-9 is available from the Bureau of Citizenship and Immigration Services, or call (800) 870-3676.

References:

• Bureau of Citizenship and Immigration Services

I received an IRS Notice titled, "We Corrected Your Return - Amount Due IRS." It appears I did not get credit for one of my federal tax deposits. What should I do?

If your account has not been credited with all of your deposits, call the toll-free number on your notice to discuss the matter. Please have the notice and a list of your deposits when you call.

What can be done if an employer will not withhold income taxes, social security, and Medicare from my pay?

Generally, in situations such as this, the employer is not considering you to be an employee. Rather, you are being treated as an independent contractor (self-employed person). If you cannot resolve this matter with your employer, and if you feel that an employer-employee relationship exists, you should submit a Form SS-8 (PDF), Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding. The factors used to determine if an employer-employee relationship exists are covered in Chapter 2 of Publication 15-A (PDF), Employer's Supplemental Tax Guide.

If your status as an employee is not at issue, it may be that you are in a category of employment whose earnings are not defined as wages under U.S. social security law. Find out from your employer the reason that social security and Medicare taxes are not being withheld from your pay. If you have further questions, contact the IRS at 800-829-1040 or visit an IRS walk-in office for assistance.

References:

• Form SS-8 (PDF) , Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding
• Publication 15-A (PDF) , Employer's Supplemental Tax Guide
• Publication 1779 (PDF) , Independent Contractor or Employee

Can an employer take out taxes if a W-4 was never filed?

Yes, an employer can. Employers should ask all employees to submit a signed Form W-4 (PDF), Employee's Withholding Allowance Certificate, when they start work. It should be effective the first pay period. If the employee does not submit a Form W-4, the employer should withhold as if the employee were single claiming no allowances.

An employee may submit a Form W-4 at any time. The employer should base the employee's income tax withholding on the most recently submitted Form W-4, unless the IRS has notified the employer to withhold based on a different number of allowances, or unless the W-4 is invalid. If an employee submits a new Form W-4, the employer should start withholding based on that W-4 no later than the start of the first payroll period ending on or after the 30th day from the day the new W-4 is submitted.

References:

• Publication 505, Tax Withholding and Estimated Tax
• Publication 15, Circular E, Employer's Tax Guide
• Form W-4 (PDF), Employee's Withholding Allowance Certificate
• Tax Topic 753, Form W-4 employee's withholding allowance certificate

Are partners considered employees of a partnership or are they self-employed?

Partners are considered to be self-employed. If you are a member of a partnership that carries on a trade or business, your distributive share of its income or loss from that trade or business is net earnings from self-employment. Limited partners are subject to self-employment tax only on guaranteed payments, such as salary and professional fees for services rendered.

References:

• Instructions for Form 1065, U.S. Partnership Return of Income
• Publication 533, Self-Employment Tax
• Revenue Ruling 69-184
• Publication 541 , Partnerships

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

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 761 , Tips - withholding and reporting and/or Publication 15, Circular E, Employer's Tax Guide.

References:

• Publication 15, Circular E, Employer's Tax Guide
• Publication 1872 (PDF), Tips on Tips - A Guide to Tip Income Reporting for Employees in the Food and Beverage Industry
• Tax Topic 761, Tips - withholding and reporting

As an employer, do I have any liability if my employees receive tips but don't report them to me?

Employees who customarily receive tips are required to report their cash tips to their employers at least monthly, if they receive $20 or more in the month. Cash tips are tips received directly in cash or by check, and charged tips. You have a liability to withhold and pay Social Security and Medicare tax on your employees' reported tips, to the extent that wages or other employee funds are available. If the employee does not report tips to you, it places you at risk of possible assessment of the employer's share of the Social Security and Medicare taxes on the unreported tips. If you are a large food or beverage establishment (more than 10 employees on a typical day and food or beverages consumed on the premises), you are required to allocate tips if the total tips reported to you are less than 8% of gross sales. Report the allocated amount on the employee's w-2 at the end of the year.

References:

• Publication 15, Circular E, Employer's Tax Guide
• Publication 531, Reporting Tip Income
• Publication 1872 (PDF), Tips on Tips - A Guide to Tip Income Reporting for Employees in the Food and Beverage Industry

If the reported tips from employees are more than 8% of sales, must an employer still allocate tips to the employees?

No. Tip allocation is required when the amount of tips reported by employees of a large food or beverage establishment is less than 8% (or an approved lower rate) of the gross receipts, other than nonallocable receipts, for the given period. If the employees are reporting more than the 8%, there would be no allocated tip amount. However, the employer must still file Form 8027 (PDF), Employer's Annual Information Return of Tip Income and Allocated Tips.

References:

• Form 8027 (PDF), Employer's Annual Information Return of Tip Income and Allocated Tips
• Instructions for Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips
• Publication 15, Circular E, Employer's Tax Guide
• Publication 1872 (PDF), Tips on Tips - A Guide to Tip Income Reporting for Employees in the Food and Beverage Industry
• Tax Topic 402, Tips

Can the 8% - normally used for allocated tips - be a matter agreed upon as reported tips between the employer and employees, so that the employees do not have to report the exact amount of their tips?

No. The law requires that the employee who receives tips must report the actual tip amount to his or her employer if the amount is $20 or more for that calendar month. The 8% figure is not a simplified reporting method.

The employee should keep a record of his or her daily tips. A daily tip record can relieve the employee from having to include allocated tips in income by documenting that the amount of tips the employee reported was the actual amount received.

References:

• Instructions for Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips
• Publication 3148 (PDF), Tips on Tips, A Guide to Tip Income Reporting (Employees)
• Publication 3144 (PDF), Tips on Tips, A Guide to Tip Income Reporting (Employers)
• Publication 1244 (PDF), Employee's Daily Record of Tips and Report to Employer
• Publication 1872 (PDF), Tips on Tips - A Guide to Tip Income Reporting for Employees in the Food and Beverage Industry

Can an employer add the reported tips to just one payroll a month, even a special payment separate from the regular wage payment, and pay only the wage amount on the other payroll dates?

An employer can report an employee's tip income and withhold taxes once a month or more often than once a month. The two items of practical consideration, besides the sophistication of your payroll system, are the employees' tip reports and the charged tips.

The employees are required by law to report their cash tips only once a month, by the 10th day of the month following the month for which they are reporting. The employer may require the employees to report their tips more often. This would facilitate withholding on tips and the reporting of the tips as income on the employees' pay stubs.

When an employer makes the charged tips available to the employee may depend on the employer's policy. The employee monthly tip report should include information about charged tips that the employer has paid to the employee during the reporting period, as well as tips paid directly to the employee.

It would be most practical for withholding purposes for the employer to report the tip income for each employee when all the tip information is available and the payments for charged items are available. If, when the employee is paid, there is not enough money available to withhold all taxes owed on wages and tips, the employer can withhold the remaining amount from the next paycheck or the employee can give money to the employer to cover the withholding.

For more information, refer to Publication 15, Circular E, Employer's Tax Guide and Publication 1872 (PDF), Tips on Tips - A Guide to Tip Income Reporting for Employees in the Food and Beverage Industry.

References:

• Publication 15, Circular E, Employer's Tax Guide
• Publication 1872 (PDF), Tips on Tips - A Guide to Tip Income Reporting for Employees in the Food and Beverage Industry

Does a household employer have to pay social security and Medicare for all household employees if only one employee makes more than $1,400 in the year?

No. The employer only has to pay social security and Medicare tax for the employee(s) who receive $1,400 or more in wages for the year. If the amount paid to any employee in a calendar year is less than $1,400, no social security or Medicare tax is owed for that employee. If social security and Medicare tax must be paid, the employee's portion of the social security and Medicare tax should be withheld also, unless the employer chooses to pay both the employer's share and the employee's share.

References:

• Publication 926, Household Employer's Tax Guide; Do You Need to Pay Employment Taxes?
• Tax Topic 756, Employment Taxes for Household Employees

If we give an employee a monthly car allowance, must it be included in the employee's taxable wages on their Form W-2?

Generally yes, unless paid under an accountable plan.

To be an accountable plan, your reimbursement or expense allowance arrangement must meet the qualifying requirements, explained later. A reimbursement or expense allowance arrangement is a system by which you substantiate and pay the advances, reimbursements, and charges for your employees' business expenses. If you make a single payment to your employees and it includes both wages and an expense reimbursement, you must specify the amount of the reimbursement.

Qualifying requirements. To qualify as an accountable plan, your reimbursement or expense allowance arrangement must require your employees to meet all of the following rules:

They must have paid or incurred deductible expenses while performing services as your employees,

They must adequately account to you for these expenses within a reasonable period of time, and

They must return any excess reimbursement or allowance within a reasonable period of time.

Please refer to Publication 535, Business Expenses, for additional information about accountable and nonaccountable plans.

References:

• Publication 535, Business Expenses
• Publication 463 , Travel, Entertainment, Gift and Car Expense

If our business pays for an employee's airfare on a business trip, but the employee does not submit an expense form relating to the travel, do we need to issue a Form 1099-MISC?

No, you should report the amounts as wages on Form W-2. Generally, Form 1099-MISC is not issued to employees. Payments to your employee for travel and other necessary expenses of your business under a nonaccountable plan are wages and subject to income tax withholding and payment of social security, Medicare, and FUTA taxes. Your payments are treated as paid under a nonaccountable plan if:

Your employee is not required to or does not substantiate timely those expenses to you with receipts or other documentation, or

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.

The amount of the airfare should be included on the employee's Form W-2.

References:

• Publication 15, Circular E, Employer's Tax Guide
• Publication 15-A (PDF) , Employer's Supplemental Tax Guide

How should a tuition reimbursement program for employees be reported as income to an employee? Should the employee be taxed at the 27%, 25% rate for payments made after May 28, 2003, rate for supplemental payments on the next pay check after successful completion of the course or is this something that we just include on the W-2?

If the tuition reimbursements do not qualify as a tax free fringe benefit under the rules for Educational Assistance Programs or as a Working Condition Fringe Benefit, the tuition reimbursement is wages for Federal Income Tax, Social Security, and Medicare Tax purposes.

For employment tax and withholding purposes, you can treat fringe benefits as paid on a pay period, a quarter, a semiannual, annual, or other basis as long as the benefits are treated as paid no less frequently than annually. You do not have to choose the same period for all employees.

You can change the period as often as you like as long as you treat all the benefits provided in a calendar year as paid no later than December 31. You can also treat the value of a single fringe benefit as paid on one or more dates in the same calendar year, even if the employee receives the entire benefit at one time.

You can add the value of fringe benefits to regular wages for a payroll period and figure income tax withholding on the total, or you can withhold Federal income tax on the value of fringe benefits at the flat 27% (25% rate for payments made after May 28, 2003) applicable to supplemental wages. You must withhold the applicable income, social security, and Medicare taxes on the date or dates you chose to treat the benefits as paid. Deposit the amounts withheld as discussed in section 11 of Publication 15, Circular E, Employer's Tax Guide .

References:

• Publication 15, Circular E, Employer's Tax Guide
• Publication 15-A (PDF) , Employer's Supplemental Tax Guide
• Publication 15-T (PDF) , New Withholding Tables (For wages paid through December 2004)

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

To figure the amount of the advance EIC payment to include with the employee's pay, you must consider:

Wages, including reported tips, for the same period. Generally, figure advance EIC payments using the amount of wages subject to income tax withholding. If an employee's wages are not subject to income tax withholding, use the amount of wages subject to withholding for social security and Medicare taxes.

Whether the employee is married or single.

Whether a married employee's spouse has a Form W-5 in effect with an employer.

To figure the advance EIC payment, you may use either the Wage Bracket Method or the Percentage Method explained in Publication 15, Circular E, Employer's Tax Guide . You may use other methods for figuring advance EIC payments if the amount of the payment is about the same as it would be using tables in Publication 15. See the tolerance allowed in the chart in section 9 of Publication 15-A (PDF) , Supplemental Employer's Tax Guide. See section 10 in Publication 15 for an explanation of the advance payment of the EIC.

Add the advance earned income credit payments to the employee's net pay for the pay period. Since this amount isn't wages, you do not withhold any income, social security, or Medicare taxes from the payment.

References:

• Publication 15, Circular E, Employer's Tax Guide
• Publication 15-A (PDF) , Employer's Supplemental Tax Guide
• Form W-5 (PDF), Advance Earned Income Credit
• Tax Topic 754, Advance earned income credit

Can an employer take out taxes if a Form W-4 was never filed?

Yes, the employer is required to withhold income taxes. Publication 15, Circular E, Employer's Tax Guide, states that if an employee does not give you a completed Form W-4 (PDF), Employee's Withholding Allowance Certificate, withhold tax as if he or she is single, with no withholding allowances.

The employer is also required to withhold social security and Medicare taxes.

References:

• Publication 15, Circular E, Employer's Tax Guide
• Form W-4 (PDF), Employee's Withholding Allowance Certificate
• Tax Topic 753, Form W-4 - employee's withholding allowance certificate

If an employee claims more than 10 exemptions on their Form W-4, does the employer have to report this to the IRS?

Yes, if you receive a Form W-4 (PDF), Employee's Withholding Allowance Certificate, on which the employee claims more than 10 withholding allowances, you must send a copy of that Form W-4 to the IRS service center with your next employment tax return.

Also, if an employee claims exemption from withholding and his or her wages would normally be expected to exceed $200 or more a week, you must also send a copy of that Form W-4 to the service center with your next employment tax return.

If you want to submit the Form W-4 earlier, you can send a copy of the Form W-4 to the IRS with a cover letter, including your name, address, employer identification number, and the number of forms included. The service center will send you further instructions if it determines that you should not honor the Form W-4.

References:

• Form W-4 (PDF), Employee's Withholding Allowance Certificate
• Tax Topic 753, Form W-4 - employee's withholding allowance certificate

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?

If you receive a Form W-4 (PDF) on which an employee claims:

exemption from withholding and his or her wages would normally be expected to exceed $200 or more a week, or

more than 10 withholding allowances,

you must send a copy of that W-4 to the IRS service center with your next Form 941 (PDF) return or with a cover letter that includes yours name, address, EIN, and number of forms included. 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, Circular E, Employer's Tax Guide.

References:

• Publication 15, Circular E, Employer's Tax Guide
• Form W-4 (PDF), Employee's Withholding Allowance Certificate
• Form 941 (PDF), Employer's Quarterly Federal Tax Return
• Tax Topic 753, Form W-4 - employee's withholding allowance certificate

If we received a Form W-4 with a blank in the number of withholding exemptions. How should we handle this?

This should be treated as claiming zero withholding allowances. If the employee has completed the remainder of and signed the Form W-4 (PDF), Employee's Withholding Allowance Certificate, and indicated that he or she is single or married, withhold from the single or married table as indicated on the employee's form with zero withholding allowances. If the employee has not indicated that he or she is single or married, or if the employee has not signed the Form W-4 and otherwise completed the Form W-4, withhold as if he or she is single with zero withholding allowances.

References:

• Publication 15, Circular E, Employer's Tax Guide
• Form W-4 (PDF), Employee's Withholding Allowance Certificate
• Tax Topic 753, Form W-4 - employee's withholding allowance certificate

I hired a babysitter to care for my children in my home. Do I need to withhold taxes on her wages?

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 $1,400 or more in 2003, 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 .

References:

• Publication 926, Household Employer's Tax Guide (For Wages Paid in 2002)
• Tax Topic 756, Employment taxes for household employees

If you do not have any employees for a particular quarter, do you have to file an Employer's Quarterly Federal Tax Return Form 941?

Seasonal employers are not required to file for quarters when they regularly have no tax liability because they have paid no wages. To alert the IRS that you will not have to file a return for one or more quarters during the year, check the seasonal employer box above line 1 on Form 941. The IRS will mail two Forms 941 to you once a year after March 1. The preprinted name and address information will not include the date the quarter ended. You must enter the date the quarter ended when you file the return. The IRS generally will not inquire about unfiled returns if at least one return showing tax due is filed each year. However, you must check the seasonal employer box on each quarterly return you file. Otherwise, the IRS will expect a return to be filed for each quarter.

For any employer, who no longer has employees, a final return should be filed for the last quarter during which you had employees.

References:

• Instructions for Form 941, Employer's Quarterly Federal Tax Return

All of the Forms 941 that I can find ask for the number of employees on record as of March 12th. Is there a similar form for the second quarter?

The Form 941 is the same for all 4 quarters. Only on the January-March calendar quarter Form 941 should you enter the number of employees on your payroll during the pay period that includes March 12. You do not need to answer this question on the Forms 941 for the other 3 quarters.

References:

• Instructions for Form 941, Employer's Quarterly Federal Tax Return

We are about to hire employees and need to know how much tax to take out and where to send this money?

You will need to secure a completed Form W-4 (PDF), Employee's Withholding Allowance Certificate, from each employee. You will need Publication 15, Circular E, Employer's Tax Guide, and Publication 15-A (PDF), Employer's Supplemental Tax Guide, to determine the amount of withholding and for directions on depositing the withholding amounts and other employment taxes. Publication 15T, New Withholding Tables contains the revised withholding tables. The change is a result of the Jobs and Growth Tax Relief Reconciliation Act of 2003. This publication is a supplement to Publication 15.

Generally, employers will quarterly file Form 941 (PDF), Employer's Quarterly Federal Tax Return, and annually file Form 940 (PDF), Employer's Annual Federal Unemployment Tax Return (FUTA), and Form W-2 (PDF), Wage and Tax Statement, with Form W-3 (PDF), Transmittal of Income and Tax Statements.

References:

• Publication 15, Circular E, Employer's Tax Guide
• Publication 15-A (PDF), Employer's Supplemental Tax Guide
• Form 940 (PDF), Employer's Annual Federal Unemployment Tax Return
• Form 941 (PDF), Employer's Quarterly Federal Tax Return
• Form W-2 (PDF), Wage and Tax Statement
• Form W-3 (PDF), Transmittal of Income and Tax Statements
• Form W-4 (PDF), Employee's Withholding Allowance Certificate
• Publication 15-T (PDF) , New Withholding Tables (For wages Paid Through December 2004)

What is the federal unemployment tax rate for 2003?

The federal unemployment tax rate for 2003 remains at 6.2% and is still figured on the first $7,000 of wages you paid each employee in 2003. 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 (PDF) or Form 940EZ (PDF) - Employer's Annual Federal Unemployment Tax Returns , or Publication 15, Circular E, Employer's Tax Guide .

References:

• Form 940 (PDF), Employer's Annual Federal Unemployment Tax Return
• Form 940EZ (PDF), Employer's Annual Federal Unemployment Tax Return
• Tax Topic 760, Form 940/940-EZ - Employer's annual federal unemployment tax return
• Publication 15, Circular E, Employer's Tax Guide

We have an employee who has reached the limit for social security tax. We understand that this limits withholding requirements on the employee's portion of social security tax. However, is the employer still required to contribute their portion of the social security tax for this employee?

The employer is subject to the same social security tax rate and wage base limits as the employee. When the employee reaches their limitation, the employer also reaches the limitation and no longer has to pay social security taxes for that employee.

References:

• Publication 15, Circular E, Employer's Tax Guide
• Publication 15-A (PDF), Employer's Supplemental Tax Guide

If an employee is collecting social security benefits, is the employer required to take out social security and medicare taxes?

Yes, the employer is required to follow the withholding requirements for social security and medicare taxes even if an employee is collecting social security benefits. Per Chapter 9 of Publication 15, Circular E, Employer's Tax Guide, 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.

References:

• Publication 15, Circular E, Employer's Tax Guide

What are the maximum wages subject to social security and the maximum social security tax to be withheld for 2003?

The maximum wages subject to social security is $87,000 for 2003 resulting in a maximum for the employee portion of social security tax of $5,394.00 (of course, there is no limit on wages subject to medicare tax). Additional information can be found at the Social Security Administration web site.

References:

• Social Security Administration
• Publication 15, Circular E, Employer's Tax Guide

Are housing allowances for ministers subject to social security and Medicare taxes?

Yes, housing allowances for ministers are subject to social security and Medicare taxes, under the Self-Employment Contributions Act. However, if you are a duly ordained, commissioned, or licensed minister of a church, a member of a religious order not under a vow of poverty, or a Christian Science practitioner who elected and was approved for exemption from social security coverage and self-employment tax, your housing allowance would not be subject to social security or Medicare taxes. Refer to Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers, for additional information.

References:

• Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers
• Form 4361 (PDF), Application for Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders, and Christian Science Practitioners

We hired a nanny to look after our baby while we work. We would like to make it all legal, i.e. pay her social security taxes and so forth. How do we do this?

A nanny is considered a household employee. A household employer only has to pay social security and Medicare tax for the employee(s) that receive $1,400 or more in cash wages for the year 2003. If the amount paid is less than $1,400, no social security or Medicare tax is owed. The taxes are 15.3% of cash wages. Your share is 7.65% and the employee's share is 7.65%. You can choose to pay the employee's share yourself and not withhold it. You may also be responsible for paying federal unemployment taxes. For directions on household employees, refer to Publication 926, Household Employer's Tax Guide.

References:

• Publication 926, Household Employer's Tax Guide
• Form 1040, Schedule H (PDF), Household Employment Taxes
• Tax Topic 756, Employment taxes for household employees