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FAQ - Employer Tax Services

We hope to answer some of the questions you may have about our Employer Tax Services. Below are some of the most frequently asked questions. Keep in mind that if you cannot find an answer to your question, you can contact us directly and we'll be glad to help.

Do I pay taxes on all my employees' wages?

An employer pays state unemployment taxes on each employee's wages up to a set taxable wage base. The taxable wage base varies from state to state, and depending on how it is calculated, can be fairly high. For example, the 2004 taxable wage base in the state of Washington of $30,200 is based on the average weekly wage. Conversely, the taxable wage base in New York is set by law at $8,500.

What is a joint account?

Several states offer employers the option to save unemployment taxes by forming a joint account (also referred to as a common rate group ). In a joint account, two or more entities combine their experience for rating purposes. When employers form a joint account, the main goal is to achieve a lower overall tax rate for the members. In some instances, one member's tax rate might increase, but the combined experience of all members will result in a group tax savings. Most states require the entities involved in the joint account to have common ownership.

Do we need to inform the states of our internal corporate restructure/ acquisition/ divestiture?

Depending upon the circumstance, you may or may not have to inform the state. Many things need to be considered, such as did the federal identification number (FEIN) change? Was the purchase a stock or asset purchase? Was the acquisition retained as a subsidiary? When any of the above occur, it is best to contact our Tax Department directly to discuss what has transpired. Our consultants will analyze the situation and determine the best course of action. We will utilize the various state laws to maximize tax savings.

I have an independent contractors working for me. Must I pay unemployment taxes on their earnings?

If an individual can truly be viewed as an independent contractor, no unemployment taxes are paid on their earnings by the employer. However, many employers misclassify employees as independent contractors. The states normally use a variation of one of two tests to determine employment status: the "ABC Test" or the "Common Law Test." In each, the degree of control an employer has over an individual's performance, whether the individual is engaged in her own independently-established business, and the manner in which the individual's hours and pay are set, are factors in determining employment status, among others.

Explain the different local payroll taxes in Pennsylvania and where my company should be registered?

The local payroll taxes in Pennsylvania are School District , Earned Income, and Occupational Privilege taxes. The local company address, local resident address, and company policy will influence the jurisdictions where a company must register to comply with local tax law.

Are there any options to simplify the processing of payroll taxes and deposits?

The IRS allows a business with multiple Federal Employer Identification Numbers (FEINs) to designate one of the companies to act as a Common Pay Agent. This allows federal income, FUTA, and most state taxes to be consolidated and paid under the agents' FEIN, thus greatly reducing filings, deposits, and paperwork.

My company is acquiring an existing company in mid-year. Should we issue one or two Forms W2?

The agreement between the predecessor and successor companies may define how the Form W2 issue will be handled. If not, you must evaluate the flexibility of your payroll system (in-house or outsource) to create one (alternate method) or two (standard method) Forms W2. Quarterly filings and year-end reconciliation issues must be considered for each filing method.

What is a business license and why do I need one?

A business license is usually required to do business in a certain state. The licensing requirements to do business are almost entirely up to the specific state and city where one applies. There are many kinds of licenses. One kind is called a Doing Business As (DBA). It registers the name of a business so you can open a bank account under that name and cash checks made out to your business. Each state has its own laws regarding the use of trade names for businesses. Another kind of license relates to each particular type of business, such as a liquor license, hotel license, or real estate license. A business that sells or distributes food requires a county health department permit. There are other occupational and sales tax permits and licenses that may be applicable and state and local governments may establish new ones periodically. There may also be licensing requirements for your specific industry. There may be a certification program for your particular type of business that includes a cooperative relationship among federal, state, and local governments for shared information. Under such programs, those requesting a local or state license to operate must be certified by the IRS and the state to have filed and paid all appropriate taxes. These governmental agency partnerships help ensure that certain businesses have current state and federal tax accounts before they receive a license to operate their business. The agencies are also concerned that applicants pay the proper wage and withhold and deposit their employees' withholding accurately and on time. TALX UC eXpress can handle those registrations for you.

How is my unemployment tax rate computed?

Each year, the state looks at an employer's previous experience to determine the rate the employer must pay in the upcoming tax year. In "reserve ratio" states, the tax rate is based on an "account balance," the difference between the taxes paid by an employer since it became liable in the state and the benefits charged during the same time period. The account balance is divided by a payroll factor (usually an average of the three most recent years of taxable payroll) to arrive at a ratio, which is then applied to a table for the tax rate. In "benefit ratio" states, benefit charges for a specific period of time are compared to taxable payroll for the same time period to arrive at the tax rate.

What is a voluntary contribution?

A voluntary contribution is a special payment which, if made to the state during a specified period, reduces the employer's tax rate. Depending on the state, an employer's rate may be decreased by one or more rate table brackets.

Example

  • One bracket: 3.70% to 3.60%
  • Multibrackets: 3.70% to 3.20%

A voluntary contribution increases the employer's reserve balance in reserve ratio states or decreases the benefits charged against the employer in benefit ratio states. Once the state receives the voluntary contribution, the tax rate is recomputed using the new figures.

How do I determine where to report an individual's wages, particularly when that employee is working in two different states?

There are four areas to consider when determining where to report individual wages: localization, base of operations, place of direction and control, and residence.

  • Localization: If the individual performs services in only one state, those wages are subject to the unemployment regulations of that state. If services are performed in more than one state, look for a clear majority of work being performed in one state. If services in a state are of a temporary or transitory nature and consist of only isolated incidents, wages may be reported to the state in which the majority of work is performed. [NOTE: If an employee meets the localization test, no further tests are necessary.]
  • Base of Operations: If the employee works regularly in more than one state, determine if work is performed in the state where the base of operations is located. The base of operations is generally considered the place to which the employee returns for employer instructions, as well as to replenish materials, perform work related to his field functions and receive correspondence. The base of operations is not necessarily the place from which the employee receives direction.
  • Place of Direction and Control: If the employee has no identifiable base of operations or if no work is performed in the state where the base of operations is located, determine if work is performed in the state where the employee receives direction and control. The place of direction and control is the location where the individual(s) who have ultimate authority over the employee are located. This may be the home office from which the entire location is controlled, rather than the location from which a manager directly supervises the employee's performance.
  • Residence: If the employee does not meet any of the previous three criteria, his coverage is determined by his state of residence. Residence should only be used if some work is performed in the resident state.

The state has not assigned an account number. How should I file my quarterly contribution report?

Any time a return must be filed and you do not have an account number, you should contact your tax consultant. They will then determine the cause of the problem. Was the account number applied for properly? Was it completed in a timely manner? The consultant can then tell you the best way to file your return. Some states will charge a penalty if the return is filed without an account number or will return the report if an account number has not been applied for.

What is a Federal Employer Identification Number (FEIN)?

A Federal Employer Identification Number (FEIN) can be used to identify a business entity that is legally separate from yourself, such as your corporation, partnership, or retirement plan. Generally, businesses need an FEIN if they:

  • have employees;
  • operate their business as an corporation or partnership;
  • file any of these tax returns: Employment, Excise, or Alcohol, Tobacco and Firearms;
  • withhold taxes on income, other than wages, paid to a non-resident alien;
  • are involved with any of the following types of organizations:
    • Trusts, except certain grantor-owned revocable trusts, IRAs or Exempt Organization Business Income Tax Returns
    • Estates
    • Real estate mortgage investment conduits
    • Non-profit organizations
    • Farmers' cooperatives
    • Plan administrators.

Businesses may also need a new FEIN when their ownership or structure has changed. You may also be required to have a local tax number by your state. TALX UC eXpress can handle those registrations for you.

What is the Transportation Fringe Benefit Provision?

This statue allows tax savings to both employee and employer for the cost of transit passes and parking expenses. Companies who have employees with parking or commuter expenses may want to consider the potential value of such a plan.

If I have an employee who works in one state and lives in another, to which should I remit withholding tax?

Many states adhere to the policy of taxing employees in the state where they work. There are states, which have formed "reciprocal agreements" with neighboring states. This allows employers to remit withholding tax to the resident state instead of the work state.

 
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