Fulfilling the proper payroll tax filing and depositing requirements for household or domestic employees can be confusing, but here's how the process usually works...
Household, or domestic, employees are prevalent enough that the IRS issues a how-to guide with compliance requirements called Publication 926.
Its important to note that household employees are not reserved for high net worth individuals; Caretakers for the elderly and Nanny's for children of working parents are just two of the more common classifications for household employees.
For all employers with employees, payroll taxes are due at the Federal (IRS) and State level (and sometimes at the county, city, and local level).
For Federal taxes, most household employers are not required to file a quarterly form 941 as do most other employers with employees. Instead, household employers report their Federal Payroll Tax liability on a form Schedule H with their 1040 tax filing completed at the end of the year. Federal Tax deposits can be made with the Estimated Tax deposit schedule throughout the year (Estimated tax payments for 2013 are due April 15, June 17,
and September 16, 2013, and January 15, 2014 - note this is a different deposit schedule than Employers who file form 941).
State Tax Filings and Deposit schedules and requirements may vary per state. Here in Washington, we file and deposit Employment Securities (WA State Unemployment Tax) on a quarterly basis for domestic employees earning more than $1,000 in a calendar quarter. Some states, for example, Texas, may allow filings and deposits to be performed annually, so check with your state departments of Revenue and Unemployment.
As challenging as some of this may seem. It is important to note that the individual employee will still need their proper payroll taxes deducted and paid for them as they would have under any other employer. They will also still require a W2 from you at the end of the year.
If this becomes overwhelming, there are payroll services companies that can help. Just be sure to work with someone at the company with a history of setting up these kinds of payrolls, as a lack of experience may cause some added challenges.
Feel free to contact me at Randy.Harris@adp.com if you would like more information on our payroll services options in this area.
Wednesday, January 26, 2011
Sunday, January 9, 2011
2011 Form W-4, important dates and regulations
The following are a list of dates and regulations accompanying the 2011 Form W-4. (Information taken from IRS Publication 15 - 2011)
By February 15
Request a new Form W-4 from exempt employees. Ask for a new Form W-4, Employee’s Withholding Allowance Certificate, from each employee who claimed exemption from income tax withholding last year.
On February 16
Forms W-4 claiming exemption from withholding expire. Any Form W-4 claiming exemption from withholding for the previous year has now expired. Begin withholding for any employee who previously claimed exemption from withholding but has not given you a new Form W-4 for the current year. If the employee does not give you a new Form W-4, withhold tax based on the last valid Form W-4 you have for the employee that does not claim exemption from withholding or, if one does not exist, as if he or she is single with zero withholding allowances. If the employee furnishes a new Form W-4 claiming exemption from withholding after February15, you may apply the exemption to future wages, but do not refund taxes withheld while the exempt status was not in place.
Before December 1
New Forms W-4. Remind employees to submit a new Form W-4 if their marital status or withholding allowances have changed or will change for the next year.
Using Form W-4 to figure withholding. To know how much federal income tax to withhold from employees’ wages, you should have a Form W-4, Employee’s Withholding Allowance Certificate, on file for each employee. Encourage your employees to file an updated Form W-4 for 2011, especially if they owed taxes or received a large refund when filing their 2010 tax return. Advise your employees to use the Withholding Calculator on the IRS website at www.irs.gov/individuals for help in determining
how many withholding allowances to claim on their Forms W-4.
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 income tax as if he or she is single, with no withholding allowances.
Electronic system to receive Form W-4. You may establish a system to electronically receive Forms W-4 from your employees. See Regulations section 31.3402(f)(5)-1(c) for more information.
Effective date of Form W-4. A Form W-4 remains in effect until the employee gives you a new one. When you receive a new Form W-4 from an employee, do not adjust withholding for pay periods before the effective date of the new form. 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 when you received the replacement Form W-4. For exceptions, see Exemption from federal income tax withholding, IRS review of requested Forms W-4, and Invalid Forms W-4, later.
Sunday, January 2, 2011
Why Automated Payroll Check Signing Makes Your Life Better
I had a client, a small business owner, who told me he chose to sign each one of his employees paychecks because he liked to 'confirm the amounts of the paychecks he was issuing.'
He had 15 employees and paid them every other Friday.
Believe it or not, this is a very common practice.
Because of this practice, this business owner was tied to his office every two weeks. Come rain or shine, wedding or childbirth, every other week he had to be there or his employees didn't get paid.
It doesn't have to be this way.
Most outsourced payroll services have a Payroll Check Signing service. They can have the business owner's signature (or multiple signatures) pre-printed on the checks when they are issued. The owner can be miles away, on vacation, with family, or conducting revenue generating business, and the payroll checks can arrive pre-signed and sealed in envelopes ready for handout.
But what about a signature stamp safe-guarded by a trusted office employee? Won't that work too?
A good point. A signature stamp does solve the problem of having to be in the office to sign checks. But then it potentially creates another problem - Check Fraud.
Phantom employees can easily be created by in-house bookkeepers or other office staff. And signature stamps can be used to authorize those checks without owner notice. Trusted staff member or not, most check fraud perpetrators are first-time offenders.
See the attached article from the Association of Certified Fraud Examiners on Ghost Employees and in-house payroll fraud. http://www.acfe.com/resources/view.asp?ArticleID=21
Not only can most Payroll Outsourcing Services pre-sign and seal paychecks, but most can produce electronic payroll registers that can be viewed by the business owner from any remote location. They can then verify the pay amounts before the checks are even sent from the payroll company.
This also makes it very difficult for in-house employees to hide ghost employees on the payroll.
This way, the owner:
1. has the same piece of mind of verifying their employees pay
2. drives down the chances of check fraud, and...
3. gains the personal satisfaction and empowerment of being a business owner who comes and goes as they please
...the way it was meant to be.
He had 15 employees and paid them every other Friday.
Believe it or not, this is a very common practice.
Because of this practice, this business owner was tied to his office every two weeks. Come rain or shine, wedding or childbirth, every other week he had to be there or his employees didn't get paid.
It doesn't have to be this way.
Most outsourced payroll services have a Payroll Check Signing service. They can have the business owner's signature (or multiple signatures) pre-printed on the checks when they are issued. The owner can be miles away, on vacation, with family, or conducting revenue generating business, and the payroll checks can arrive pre-signed and sealed in envelopes ready for handout.
But what about a signature stamp safe-guarded by a trusted office employee? Won't that work too?
A good point. A signature stamp does solve the problem of having to be in the office to sign checks. But then it potentially creates another problem - Check Fraud.
Phantom employees can easily be created by in-house bookkeepers or other office staff. And signature stamps can be used to authorize those checks without owner notice. Trusted staff member or not, most check fraud perpetrators are first-time offenders.
See the attached article from the Association of Certified Fraud Examiners on Ghost Employees and in-house payroll fraud. http://www.acfe.com/resources/view.asp?ArticleID=21
Not only can most Payroll Outsourcing Services pre-sign and seal paychecks, but most can produce electronic payroll registers that can be viewed by the business owner from any remote location. They can then verify the pay amounts before the checks are even sent from the payroll company.
This also makes it very difficult for in-house employees to hide ghost employees on the payroll.
This way, the owner:
1. has the same piece of mind of verifying their employees pay
2. drives down the chances of check fraud, and...
3. gains the personal satisfaction and empowerment of being a business owner who comes and goes as they please
...the way it was meant to be.
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