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/
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
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
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
- 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,
- 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
- 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
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
- withhold taxes on income, other than wages, paid to a non-resident
- 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
- 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.