FAQ 12.6 - Small Business, Self-Employed, Other Business: Forms 941, 940, Employment Taxes

This is archived information that pertains only to the 2005 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

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.

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.

If a new employee has reached the limit for social security wage base with a previous employer in the same year, does the new employer need to withhold FICA taxes on wages paid for both the company and employee?

Yes, the social security wages base limit is applied to each separate employer. The individual employee is subject to social security taxes up to the maximum amount from each employer. As a result of an employee working for two or more employers in the same year, social security tax in excess of the maximum wage base may be withheld from his or her pay. An employee can claim the excess of social security tax withheld from pay resulting from working for two or more employers as a credit against the employee's income tax when filing Form 1040 (PDF), U.S. Individual Income Tax Return. However, there is no provision for an employer to get a credit for the employer portion of social security tax paid in this situation. There is no wage limit on the Hospital Insurance tax.

We hired a nanny to look after our baby while we work. How do we pay her social security taxes and properly report her income?

A nanny is considered a household employee. A household employer only has to pay social security and Medicare tax only for the employee(s) that receive cash wages that exceed the threshold amount for the year. If the amount paid is less than the threshold, no social security or Medicare tax is owed. If social security and Medicare tax must be paid, you will need to file Form 1040, Schedule H, Household Employment Taxes. You must withhold the employee's portion of the social security and Medicare unless the employer chooses to pay both the employee's share and the employer's share.

The taxes are 15.3% of cash wages. Your share is 7.65% and the employee's share is 7.65%. You may also be responsible for paying federal unemployment taxes. For directions on household employees, refer to Publication 926, Household Employer's Tax Guide.

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