In this article, we take you through what SDI stands for, how it is taxed, and how individuals can file a claim for SDI online.

What Does SDI Stand For?

State Disability Insurance (SDI) is a state initiative that provides financial benefits to Californians and New Yorkers who have non-work-related short-term disabilities. 

What Is SDI Tax?

An SDI tax is levied to contribute to a State Disability Insurance. It is a payroll tax that a few states have made mandatory. SDI tax proceeds like NY SDI and CA SDI tax fall under a state disability insurance system (SDI disability). It offers financial support to workers who cannot work due to a physiological or psychological impairment unrelated to their job.

California and New York are some of the states with a tax officially called an SDI tax. However, numerous states offer temporary disability insurance (TDI) that operates identically.

Workers’ compensation insurance is a type of insurance that businesses provide. 

Where Is SDI Applicable?

Six jurisdictions maintain state disability insurance (SDI tax) systems:

• California
• Hawaii
• New Jersey
• New York
• Puerto Rico, and
• Rhode Island

Additionally, nine states have or will shortly have paid family and medical leave (PFML) insurance plans in place. These include California, Connecticut, the District of Columbia, Massachusetts, New Jersey, New York, Oregon, Rhode Island, and Washington.

According to the region, the individual can pay full SDI and/or PFML payments through wage withholding. For example, the CA SDI withholding rate is different from the NY SDI withholding rate. Additionally, management and the staff may split the cost of the insurance. These jurisdictions often let companies utilize private insurance/self-insured plans instead of contributing to the SDI tax’s public insurance fund. The State Controller’s Office evaluates and holds back the payments.

Is SDI Taxable?

SDI is the state of California’s disability insurance. It is a compulsory tax. Whenever individuals use SDI benefits to replace UI compensation, the federal government taxes the SDI, but not from California. When filling out your W2, place your CA SDI number in box 14 instead of 19 (if applicable). In this way, it will accumulate as part of the state or local taxable income.

What Is the SDI Tax Rate?

Because temporary disability insurance schemes differ by region, each state has its taxation rate. The following are the tax rates for each state with a short term disability program as of 2021: 

• The SDI tax rate in California is 1.20% of SDI taxable wages per individual annually. The total tax per employee per year is USD 1,229.09.
• The Temporary Disability Insurance levy in Rhode Island is 1.3% of the worker’s income.
• Companies in Hawaii have the option of covering the cost of temporary disability insurance for their employees. They can also withhold up to 0.5% of a staff’s weekly pay, limited to a total of USD 5.60.
• The individual participation rate for temporary disability in NJ SDI is 0.26% of the taxable pay baseline. It is USD 134,900. Employees can contribute up to USD 350.74 each year.
• Businesses in New York have the option of bearing the cost of state disability insurance for all personnel. They can also withhold up to USD 0.60 for the NY SDI from qualified employees’ income per week.

Application Process for a Non-work-related Injury or Illness

Employees can apply for State Disability Insurance payments if they cannot work due to a non-job-related accident or sickness.

• The EDD offers basic guidelines and a video about how to make an SDI disability claim electronically.
• For applying a claim by paper, the individual can collect the form from the SDI Office. The other option is getting it from the employer, the medical consultant’s office. Additionally, one can also purchase a physical form online via EDD’s website and publications. The portal will mail the form to you, and EDD outlines how to ship an SDI claim.

Users can enter their application as early as nine days following the disability. That refers to the time after which they were unable to work. However, they must apply before 49 days of becoming disabled or be denied payments. Further, they must attach a letter detailing why they are submitting late if registering after 49 days.

An employee completes part A of the application, and a general practitioner completes the Part B of the form. A general practitioner is a person who provides medical verification of the impairment. Any claim is unacceptable unless an applicant fills both Parts A and B.

State Disability Insurance and the Benefits of a Paid Family Leave 

Short-term Disability Insurance (DI) and Paid Family Leave (PFL) compensation substitution incentives are available under the State Disability Insurance plan. In particular, they are available to qualifying individuals who are employed or actively looking for employment.

Individuals who cannot work due to a non-job-related sickness or injury, pregnancy, or childbirth may receive State Disability Insurance benefits. Anyone will be eligible for PFL if they are,

• Providing facility and care to a critically sick relative
• Making a connection with a new child 
• Enrolling in a qualified activity if a family member is serving in the military services of another country

Log into the State Disability Insurance Online account to claim the benefits. Read all EDD communications, complete online forms, or update your profile.

Information Required to File a State Disability Insurance Claim Online

To make an SDI claim, individuals must supply the following details.

• A valid federal ID 
• The complete legal name, as it stands in the driver’s license or identification card
• Birthdate as it appears on the CDL or ID
• Identification of Social Security
• Recent employer’s business identity, contact information, and postal address, as seen on the W2 or paystub
• The details of the last day of work for typical or usual responsibilities 
• Alternatively, the day the individual started working for less than the complete or modified duty

Which Individuals Does the SDI Scheme Not Cover?

• Most administrative employees, whether federal, regional, municipal or local 
• Non-industrial Disability Insurance covers some government employees (NDI)
• Several domestic help and staff
• Employees of the Interstate Railroad
• Some members of non-profit organizations’ staff
• Self-employed individuals and small company owners that do not spend on Elective Coverage

Why is the State Disability Insurance Important? 

Employees briefly incapable of working due to a non-job-related condition can receive assistance payments under the state’s disability tax scheme. The State Disability Insurance tax also funds Paid Family Leave (PFL) benefits.

Furthermore, other employees who cannot work are also eligible for the PFL program. Their eligibility includes caring for a critically ill family member or bonding with a new infant.

Soon, State Disability Insurance disability schemes and SDI tax will make their way in many other states.

The post What Is SDI? appeared first on AttendanceBot Blog.

In this article, we’ll take you through the definition of CA SI, who pays for it, the eligibility criteria, and if employers are allowed to opt-out.

What is CA SDI?

CA SDI or the California State Disability Insurance program provides benefits in case of temporary disability to eligible employees. Employees who cannot work due to a short-term illness or injury can take advantage of CA SDI. The California SDI provides wage replacement to the employees who qualify for the Employee Development Department or EDD Disability.

Under this program, the employees may collect weekly pay till they recover from their temporary, non-work-related illness. The compensation is tax-free in the hands of the employees. Employees can avail of these short-term disability benefits for a maximum of one year. The benefits under CA disability tax max out at around 60-70% of the employee’s salary in a quarter.

Who Is Accountable for CA SDI: Employer or Employee?

Employees who have a short-term disability in California can claim CA SDI benefits. Employees pay for California Disability Insurance from their monthly salary each month. Employers can deduct CA SUI SDI tax from their employees during payroll. In online portals, employers deduct employees’ contributions toward short-term disability insurance automatically. 

Employees should enter the details of CA SDI tax when they file their W2 form. Further, they can find details of CA SDI on the W2 form in Box 14. Note that the deduction makes provision for financial assistance under the CA disability tax. After that, it lowers the annual income of the employees and reduces their tax liability.

Employees can get California State Disability forms from the website of the EDD and fill them to avail of the benefit. They are available under the heading EDD disability forms on the website.

What Is the Rate of CA SDI?

The rate of CA SDI is the percentage of tax withheld from the employee’s paycheck to contribute to the CA SDI program. California disability pay cover provides financial aid to the employees who are unable to perform their duties. The reason could be physical or mental illnesses not related to their job.

Historically, the CA SDI rate has ranged from 0.9 to 1%. But the CA SDI rate for 2021 is 1.2%. The taxable wage limit is $128,298 annual pay and the maximum amount that can be withheld for CA SDI is $1,539.58.

What Is the Base Period Determination for CA SDI

It is essential to understand the base period for calculating the SDI benefits. California SDI provides financial assistance for up to one year. The benefits under this scheme equal 55% of the employee’s average gross income in the base period.

For California SDI, the base period is four quarters preceding the current and the previous quarter. The amount of benefit an employee will receive depends on their average pay.

What Are the Eligibility Criteria For CA SDI?

It is paramount to know which employees are eligible for California Disability Insurance. All the employees working in California can avail of this benefit irrespective of their citizenship or immigration status. If an employee cannot work because of a temporary illness, they must receive this compensation. The employees must meet the following eligibility criteria:

• Should be unable to carry out their office duties for a minimum of eight days continuously.
• Must have earned a minimum of $300 as wages in the last 12 months.
• Employers must have made a deduction for CA SDI from their salary in the previous 12 months.
• Must be unable to earn their wages due to their disability and not for any other reason.
• Should be working or seeking work while applying for disability payments in California.
• Must consult a licensed physician or practitioner for the first eight days of the illness or disability. They should be under medical supervision and care.
• Should claim the EDD disability cover within 49 days from the start of the disability. They cannot claim the benefit before nine days of the disability.
• Must ensure that their physician or practitioner has completed a medical certification of disability.

Employees can log in to the EDD disability portal to claim short-term disability insurance. People who are self-employed or are working as independent contractors can take advantage of the California State Disability program. They can make individual contributions to the EDD Disability Insurance Elective Coverage scheme. If an employee is not eligible for the California SDI program, they can opt for the DIEC program. However, they need to pay quarterly premiums for cover under the Paid Family Leave and Disability Insurance programs.

Is CA SDI Taxable?

Employers and employees must know whether CA SDI is taxable or not. No, the government of California has not made California SDI taxable. If an employee leaves their job temporarily due to disability, they are entitled to receive disability benefits. These EDD disability benefits are exempt from taxes in the hands of the employees.

It is significant to note here that disability benefits paid as a substitute for unemployment benefits are taxable. If an employee is unemployed, they receive unemployment benefits. While receiving unemployment benefits, if they fall ill or become disabled, they receive disability benefits. These disability benefits are taxable.

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Types of Claims under California SDI

There are several kinds of claims under CA SDI.

Disability Insurance Claim

Employees in California can apply for disability insurance to get short-term monetary assistance. People who cannot work because of a temporary disability or illness unrelated to their job can get wage replacement benefits.

Pregnancy

If an employee cannot do their job because of pregnancy, they can get a pregnancy claim. During pregnancy, the disability period starts four weeks before the delivery and continues to six weeks after delivery. Furthermore, in Cesarean delivery, the period extends to eight weeks after the delivery. Some employees may have a lengthier disability period owing to medical complications.

Paid Family Leave Bonding Claim

Employees can avail of the Paid Family Leave (PFA) Bonding claim to establish a bond with a new child. They might take time off to take care of the newborn or adopted child.

Paid Family Leave Care Claim

Employees can also seek help under the Paid Family Leave Care claim. The claim is advantageous if they have to take care of a family member. To specify, the family member could be the parents, child, spouse, grandparents, grandchild, sibling, or parent-in-law. However, the family member must be seriously ill and require constant care and support.

Paid Family Leave Military Assist Claim

PFL also gives benefits to employees who take temporary leave to be a part of a qualifying event. A qualifying event could be a military event or an urgent need arising from a family member’s deployment call.

Part-time Worker Disability Insurance and PFL

Part-time workers can also apply for Disability Insurance and Paid Family Leave. EDD assesses the eligibility of their claim before they receive the disability benefits.

Reduced Wages Disability Insurance and PFL

If an employee has suffered a wage loss and is working at a lesser pay due to disability, they can apply for these benefits.

State Disability Insurance and Non-Industrial Disability Insurance for State Employees

The Non-Industrial Disability Insurance covers state employees. Here, the employees receive partial wage replacement if they cannot perform their duties due to non-work-related disability, illness, or injury.

Benefits of SDI Online

Employees can submit their Disability Insurance and Paid Family Leave claim forms online too. It is convenient and safe to submit claims online. To do so, employees and employers can log in to the EDD website to submit the forms. Online form submission has the following merits:

Time-saving

The online process of form submission is time-saving. It takes less time to process the claim online.

Confirmation

Once an employee submits the claim, the portal or website confirms it immediately. 

Access to Information 

Employees and employers can access the information by logging into the portal. The portal saves the data. Therefore, employees can access it and check the status of the claim anytime.

Secure

The online process of claim submission is secure and safe. It has the required security safeguards to trace and mitigate fraud.

Employer Responsibilities Regarding Making CA SDI Information Available

Employers must understand and shoulder their responsibilities regarding CA SDI.

In the case of this social security program, employers don’t need to contribute funds towards this insurance. But they need to be meticulous with the contributions of employees toward California SDI. 

Employers need to tell their employees about the employment laws and guidelines, working conditions, and employee benefits. Additionally, an employer should post these posters containing relevant information about EDD disability programs.

Notice Regarding Paid Family Leave/ Disability Insurance/Unemployment Insurance (DE 1857A)

The poster contains crucial information regarding an employee’s right to claim Unemployment Insurance, Disability Insurance, and Paid Family Leave benefits. However, the employer should file Notice DE 1858 for the employees if the Unemployment Insurance does not cover them.

Notice Regarding Provisions of Disability Insurance (DE 2515)

Employers must give this brochure to new hires. The new hires can then go through the brochure and learn their rights. Further, employers should also duly inform their employees who want to take a leave because of temporary disability. 

Notice Regarding Paid Family Leave Benefits (DE 2511)

Employers should give the brochure containing this notice to all the recruits. They should also provide this information to employees who take leave to take care of a newborn baby. Moreover, employees taking time off to take care of a critically ill family member should read this information.

Employer Duties Regarding Disseminating Information About CA SDI

The employers are responsible for disseminating information regarding the provisions of CA SDI to employees. In addition to this, when an employee files a claim for California SDI, an employer must respond accordingly.

Disability Insurance Claim Filed (DE 2503)

The employer receives the form for Disability Insurance Claim after the employee has claimed it. Therefore, employers should complete the form and submit it to the Employment Development Department within two days. You can submit it online and verify the employee’s claim.

Paid Family Leave Claim Filed (DE 2503F)

The employer receives the form once an employee files a Paid Family Leave Claim. After that, they should complete the form and submit the hard copy to the EDD. Finally, they should ensure to submit the form within two working days after verifying the claim information.

Opting Out of CA SDI

Organizations can opt out of California SDI if they want. However, they should have a private plan for providing voluntary disability insurance to their employees. Additionally, the voluntary one must meet the following requirements:

• It should provide and include all the benefits given by CA SDI.
• The voluntary plan must have one extra benefit not included in California SDI. It should be better than the EDD Disability cover.
• The cost of the voluntary plan should not be more than CA SDI.
• The employees of the organization should approve the voluntary plan before employers implement it.

A voluntary plan is beneficial as it allows employers to give better coverage to the employees. Employers can provide more benefits without any additional cost. If the claim rate is low, employers can use the contribution to give extra advantages. Moreover, employers should get the voluntary plan approved by EDD. They need to create a security deposit with the EDD to ensure that it meets all the conditions.

The Bottom Line on California SDI 

CA SDI is advantageous for both employers and employees. Employees benefit because they continue to get monetary assistance during the disability. Simultaneously, employers also benefit as they do not have to pay for the disability benefits. They must only make deductions from the employees’ salaries to provide for disability benefits. 

The post The Comprehensive Guide to CA SDI appeared first on AttendanceBot Blog.

What Is a W2 Form?

A W2 form refers to salary and tax-related annual statements. W2s contain the employee’s paycheck details and the tax withheld for a specific fiscal year.

Employers use the W2s to report FICA, Social Security, and Medicare taxes to the International Revenue System IRS). Full-time employees use W2 forms to file tax returns. The IRS requires W2 tax forms for individuals’ tax obligations.

Who Should File a W2 Tax Form?

An employer is legally bound to send a W2 tax form to every full-time employee. However, part-time employees and self-employed individuals don’t require a W2. They need to fill out a 1099 form for their tax return.

Employers need to issue W2 tax forms to every employee who earns more than USD 600 in a financial year. Besides, they can also use it for social security or health payment details. Furthermore, it is valid even if an employee’s wages are less than USD 600.

What Is a W2 Form Used for?

Employers use IRS W2 forms to report Federal Insurance Contribution Act (FICA) taxes for their employees throughout the year. Moreover, they use the W2s to prepare W3 forms. W2 is for individual employees, while W3 contains details of all the full-time employees in an organization. Most crucially, the usual deadline to file W2 information to the Social Security Administration (SSA) is January 31.

Employers withhold tax amounts to pay for SSA, Medicare, and applicable state taxes. Hence, they are required to provide this detail to employees to file their tax returns. Further, employers usually get this information by December 31.

SSA uses the W2 details to check an individual’s Social Security benefits and Medicare eligibility.

Source

Below are a few common questions around the W2 Tax form.

Is the Deadline for W2 Form Submission Always Fixed?

No, the IRS may give an extension if the situation arises. For example, there was a severe storm situation in some states. Therefore, individuals in affected places got extensions until May 17 to file their 2020 W2 form.

Where Can I Find the W2 Form 2021 Template?

You can get the current year W2 form online and at the IRS official website. The website also houses all prior-year sample W2 forms and instructions.

How to Get a W2 From a Former Employer?

One of the common questions among individuals who have switched jobs – How to get the old W2 form? You may reach out to the HR or payroll department of your former employer. They must have all tax-related details available. Further, you may ask them to send a copy of the employee W2 form via email or mail. However, you can only do so if the former employer is no longer in business. In that case, you can fill out Form 4852, a W2 substitute for filing tax returns.

What Is the Unemployment W2 Form?

W2 is your wage and tax summary. However, some people also refer to it as the unemployment W2 form. Form 1099-G is mandatory for claiming unemployment benefits.

Do Employers Have to Mail W2 Forms?

Employees must file the wage and tax statement for their employees. They can do it electronically (e-filing) or mail it to the Social Security Administration (SSA).

Do I Get a W2 if I Only Make USD 500?

You need to earn a minimum of USD 600 to be eligible for a W2 statement. Moreover, you may get W2 based on the tax amount withheld from your paycheck, including non-cash benefits. Please note that W2 is only applicable for full-time employees, part-time employees, or self-employed individuals who receive form 1099.

Are you an employer who is unsure about tax-related obligations? If so, you may get assistance from experts who can guide you and simplify your job. But first, what does a W2 form look like? Read on to know how to read W2 forms and how to file W2 forms.

How to Fill Out a W2 Form?

Employers are responsible for filling out and sending the forms to SSA on behalf of their employees. It is a crucial exercise for the HR and payroll departments. Employers produce six copies. Of these, three go-to employees, two to the government, and employers keep one copy with themselves for recordkeeping.

The form contains boxes divided into three sections. Moreover, the first section contains employer and employee details. It includes the Employer Identification Number, employee Social Security Number, address details, and control number.

The other sections are for annual earnings and details of the amount withheld for paying taxes.

Step Wise Instruction to Filling out a W2

Employers need to follow specific steps to fill out the W2 tax form.

Step 1: In Box A, the employer should fill out the employee’s Social Security Number (SSN).

Step 2: In Box B and C, the employer should provide their Employer Identification Number (EIN), name, and address.

Step 3: In Box D, fill out the control number, a unique number assigned to each employee.

Step 4: In Box E, provide the employee’s name and address.

Step 5: Box 1 contains employees’ total earnings for the plan year.

Step 6: Boxes 3, 5, and 7 state how much earning applies for SSA and medicare contribution purposes.

Step 7: Boxes 2, 4, and 6 contain details of the sum of money set aside for Social Security, federal tax, and Medicare payments.

Step 8: Box 8 contains any tips to report, while Box 10 notes the money spent on dependent care services.

Step 9: Box 11 and 12 may not apply to every employer; you must check official IRS instructions.

Step 10: Fill out Boxes 15 to 20 with applicable federal state taxes, local wages, locality name, and address.

Ensure you provide the forms to respective stakeholders: your employees, state government, and Social Security Administration.

Always Double Check the W2 Tax Form

As employers, you must ensure 100% accuracy while filing the W2 form. The employee Social Security Number (SSN) is used to identify and track the information by the IRS. A minor mistake can create hassles for your employees when they do their tax returns or claim Medicare benefits.

Employees must also review the form carefully and return it to their employers for correction immediately. Moreover, the IRS uses the W2 documents submitted by employees to cross-check the corporate tax amount for employers. Hence, both employees and employers must review the information carefully.

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Other Forms Related to W2

Businesses provide a 1099 form to report out non-employment-related income. Importantly, any employee who earns a minimum of USD 600 during the tax year must receive this form. The form contains the details of earnings and deductions.

• The 1098-E statement provides details of the interest amount paid for a federal student loan. Here, individuals may deduct the interest amount from the taxable income if they are eligible as per government rules.
• Form W2G is related to the amount won in gambling. Therefore, if you win while gambling, the casino withholds the tax amount to pay the federal government. The requirements and eligibility decide the deduction amount. Hence, the casinos need to send W2G to all the winners or prior plan years.
• Form 1040 is a US individual tax return. Employees need to disclose their earning and taxable income for the fiscal year. The form contains details of tax liabilities and applicable refunds. Individuals must attach the W2 tax form while filing their year-end returns through the 1040 form.
• If an employee doesn’t have a W2 form for the tax return. Form 4852 is the W2 replacement form.

W2 Form vs. W4?

A newly hired employee fills out a W4 form to provide crucial information. It includes the tax ID number or SSN, marital status, dependent details, and applicable allowances. Further, employees also state the amount of tax they wish to withhold from their paycheck. Employers use the W4 to calculate the taxable salary and set aside money to submit federal and state taxes.

Employers pay the withheld amount at regular intervals throughout the year. Simultaneously, employees learn their tax obligations at the end of the plan year after receiving the W2 from employers.

Wrapping Up

Understanding the W-2 form is essential for a smooth tax season, especially if you’re trying to make sense of those small boxes and complex terms. The W-2 tax form reports your annual wages and taxes withheld by your employer, giving a clear picture of your W2 income for the year. Many people wonder what a W-2 looks like or how to read a W-2 form—it includes important details like your earnings, federal and state taxes withheld, and Social Security and Medicare contributions.

For instance, Box D on a W-2 contains a control number used by some employers for payroll purposes, while Box 12 may include codes for various deductions and contributions. Looking at a W-2 example or sample of a W-2 form can help clarify where to find key information, such as the EIN number or the income tax withheld. By learning how to read a W-2, you’ll understand what a W-2 form shows and be better prepared for filing.

The post W2 Forms: Everything You Need to Know for Stress-Free Tax Season! appeared first on AttendanceBot Blog.

• Individual Taxpayer Identification Number (ITIN)
• Social Security Number (SSN)
• Employer Identification Number (EIN)
• Preparer Tax Identification Number (PTIN)
• Taxpayer Identification Number for Pending US Adoptions (ATIN)

In this article, our focus will be mainly on ITIN, SSN, and EIN. We will take a deeper dive into each one of these for your understanding.

What Is an ITIN Number?

ITIN stands for Individual Taxpayer Identification Number, which is a tax processing number issued by the IRS. It applies to certain non-residents and foreign nationals, their spouses, and dependants who are not eligible to get a Social Security Number. ITIN is a nine-digit number starting with the digit 9 and written as NNN-NN-NNNN.

It is because of the IRS that the federal government is able to collect billions of tax dollars from within the country. The ITIN helps IRS in doing so.

The IRS established ITIN in July 1996 to ensure that foreign nationals and other individuals who don’t have an SSN comply with US tax laws.

How to Apply for an ITIN Number?

It is fairly easy to apply for an ITIN number with the steps below:

• Applicants have to fill out a W-7 form that goes to the IRS.
• Next, applicants have to submit all relevant documents that clearly specify their foreign status and identity.
• Once the W-7 form and all the documents are ready, it is now time to submit them for approval. You can do it in three ways:
  • Mail the form and the documents to the address given on the form
  • Submit the documents physically in one of the walk-in IRS offices
  • Process your application through an IRS authorized Acceptance Agent

For context, Acceptance Agents include entities such as accounting firms, colleges, or financial institutions authorized by the IRS. They ensure that all the documentation and W-7 forms are complete before sending them to the IRS for further processing.

Who Is Eligible for an ITIN Number?

In general, people who do not have lawful status in the country have to obtain an ITIN. But in addition to that, the following regardless of their lawful status may obtain an ITIN as they can not get SSN:

• Foreign entities who conduct business in the US such as corporations, partnerships, estates, and trusts. They come under the category of foreign non-residents because although they operate their business in the US, they don’t live there.
• A foreign national student who eventually becomes a resident based on the number of days present in the US.
• Dependent or a spouse of a foreign national.
• Spouse or a dependent of a US citizen or someone with a lawful permanent residence.

What Does an ITIN Not Permit?

The ITIN number does not take care of the following:

• An ITIN holder cannot use it to seek a legal immigration status in the US or prove their legal presence.
• ITIN neither provides authorization to work nor can it be used to prove work authorization.

Benefits of Obtaining an ITIN

An ITIN fulfills several purposes and provides benefits to the ITIN holder as well. Let’s have a look at a few of them.

• ITIN strengthens the tax system of the country by bringing in more people to pay taxes.
• Holding an ITIN does not qualify one to receive tax and public benefits such as Social Security benefits or the Earned Income Tax Credit. However, once an ITIN holder is able to get an SSN, they become eligible to receive the aforementioned benefits. For that, they have to become a lawful US permanent resident.
• Some ITIN holders can receive Child Tax Credit (CTC). According to the legislation, CTC amounts to $2000 per qualifying child depending on the applicant’s income. The child only qualifies if they have an SSN.
• An individual with an ITIN can open an interest-bearing bank account in the US.
• According to the laws in some states, ITIN holders can get a driver’s license, a state identification card, or a driver’s permit. In this case, not having an SSN does not matter.
• Foreign nationals and resident aliens can use ITIN to file their tax returns in order to provide proof of residency.
• In March 2020, Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed to provide relief to people during the pandemic. ITIN holders with one spouse in the Armed Forces are eligible to receive stimulus payments under the CARES Act. This is a mandatory condition for ITIN holders and they will not receive the payment otherwise.

How Long Does It Take To Get an ITIN Number?

If an applicant has submitted all the relevant documents and W-7 form, then the IRS assigns the ITIN within seven weeks. In case the applicant hasn’t received an ITIN seven weeks after submission, they can check their application’s status at the given numbers.

Do ITIN Numbers Expire?

Yes, they do. In case an applicant wants to renew their existing ITIN number they must fill the W-7 form without filing a tax return. In case an applicant files a tax return with an expired ITIN and forgets to renew, the IRS will delay processing the tax returns. To renew an ITIN, applicants can do it in the same three ways as they did when obtaining an ITIN.

SSN vs ITIN

ITIN and SSN serve the same purpose to some extent. Therefore, it is common to have non-residents get confused and use these terms interchangeably. However, an individual can not have both numbers at the same time. More importantly, the IRS issues these numbers differently and to different individuals.

Therefore, it is important to understand the distinction between the two.

What Is an SSN?

An SSN stands for Social Security Number that is issued to US citizens and authorized non-citizen residents. Authorized residents include students on F1 visas and green cardholders. Both of these categories can legally work in the US.

People refer to an SSN as a personal ID for Americans. It is issued by the Social Security Administration (SSA).

Like the ITIN, it is a nine-digit number with the format XXX-XX-XXXX. The first three letters are called ‘area number’, the next two are called ‘group number’, and the last set is called the ‘serial number’.

All individuals who work and earn wages must have an SSN number must apply for one in case they don’t. All employers must request an employee’s SSN as soon as they are hired. Employers report employees’ wages using the SSN number. Parents should also get an SSN number for the children they claim on an income tax return.

Difference Between SSN And ITIN

The key difference between the two is that while SSN is issued to US citizens and authorized non-citizens, ITIN is issued to people with foreign status or immigrants who are not documented within the system. The latter cannot be given an SSN hence they have to use ITIN for tax purposes.

Another difference is that SSN doesn’t expire. Once issued, it is the receiver’s identity forever. ITIN, on the other hand, expires if not used for five consecutive years. This means, that if an individual does not file taxes for five years in a row, they will have to new their existing ITIN.

An important point to note here is that once a person gets an SSN, their ITIN will automatically become invalid. In that case, the person will now use SSN for all tax purposes.

Importance of SSN

SSN is the most important identification number one can have while living in the US. One should aim to get this number as it offers a variety of benefits that are not possible to claim with an ITIN. Examples include child care credit, Social Security disability income (SSDI), pensions, and other social services. SSN is also used for a wide range of financial and medical services.

With an SSN, it is simple to open a bank account which can also be done online. Moreover, SSN also makes it easy for people to apply for a student loan and file medical forms.

Furthermore, an SSN holder is also eligible to receive retirement benefits. Although it is possible to get a credit card without an SSN, having one makes the process seamless.

What is an EIN?

An EIN is an Employer Identification Number. It is again a nine-digit number but formatted differently than SSN and ITIN. It is written as XX-XXXXXXX. The following entities must have an EIN:

• Employers
• Sole proprietors
• Corporations
• Partnerships
• Non-profit associations
• Trusts
• Estates of decedents
• Government agencies
• Certain individuals, and other business entities

All the businesses and entities that have employees working under them or those that have to file tax returns must have an EIN. An EIN is only issued for tax administration purposes and not for any other activities such as sales, lotteries, or tax lien auctions.

Why Do You Need an EIN?

If you are operating a business, you will require an EIN. These are some of the reasons:

Finance and Banking

As a business owner, you will have the need to open a bank account. In that case, banks and credit unions require businesses to have an EIN. Having an EIN also means that you can easily get financing funds and working capital.

Hiring Employees

Another instance where a business requires an EIN is while hiring employees. This is because employers use EIN to track payroll tax remittances. In case of establishing any form of business other than a sole proprietorship, a business has to obtain an EIN. This holds true even when a business has no employees at all. The IRS will use EIN to track business income taxes.

Keogh Plan

Keogh is a tax-deferred retirement plan for self-employed individuals. If you are self-employed with such a plan, you will require an EIN.

Bankruptcy

Another case where EIN is needed is when a sole proprietor is filing for bankruptcy. Similarly, in a situation where you plan to inherit or purchase an existing business and plan to run it as a sole proprietor, you will have to obtain an EIN.

Steps to Apply for an EIN

People usually apply for an EIN when launching their business but they also do so for tax purposes or when applying for a loan. Follow the steps below to apply for an EIN number.

Check for the Eligibility Criteria

In order to get an EIN, you must ensure if you meet the following requirements:

• Your business should be in the US or US territories
• The applicant must have a valid identification number such as an SSN

Collect All the Necessary Information

For a smooth application process, make sure you have all the information given below:

• Form SS-4
• Names, SSN, and addresses of the responsible party
• Type of business entity that your company falls under
• In case you have a corporation, mention the state where it is incorporated
• Reason for applying for EIN
• The date on which you commenced your business
• Closing month of your business’s fiscal year
• Maximum number and type of employees you will be hiring during the next 12 months
• Description of the industry in which your business operates and your products and services

Apply for an EIN via Email, Fax, or Online

You have the option to choose either of the three methods. If you’re based in the US, applying online is a convenient option for you. However, if you are outside the US and plan on coming to the US for business purposes then you can also apply for an EIN via phone.

If you apply online via the IRS’s online application form, you get your EIN instantly once you submit it. In the case of applying through fax, it takes around four working days. However, if you submit your application via email, it may take up to four weeks.

An important point to remember is that if you choose to get your EIN via fax or email you will have to submit a completed SS-4 form.

The Key Takeaway

As a resident or a newcomer to the US, it is important to have an identification number. The identification number serves many purposes such as filing for tax returns or opening a bank account. It is advisable that you equip yourself with the relevant knowledge to better decide which identification number is most important to get. Hopefully, you are better able to understand the three identification numbers via this article.

The post ITIN, SSN and EIN: Learning the Details and Differences appeared first on AttendanceBot Blog.

OASDI stands for Old Age, Survivors, and Disability Insurance. The OASDI tax funds the social security program. Employers collect this money through employees’ paychecks which directly go to the federal government. The federal government then uses it to develop and fund social security programs. 

Is OASDI Tax Mandatory?

The federal government mandates OASDI tax for almost everyone who earns an income. Also known as the Social Security tax, OASDI is mandatory for members of Congress, employees, self-employed INDIVIDUALS, and employers unless they are exempt. 

Who Is Exempt From OASDI Tax?

• Members of the executive and judicial branches in the federal government who were employed before 1984 were given the choice of either switching to the social security program or remaining with the old system known as the Civil Service Retirement System. Those who stayed with the latter do not have any legal obligation to pay the OASDI. 
• Others who are exempt from paying OASDI are certain members of religious programs who are against the idea of receiving social security benefits. 
• Non-residents, qualified students who work in the college they attend, and employees who work for foreign governments. 

What Does OASDI Tax Cover?

Old-Age Support

When qualified contributors reach retirement age, they receive social security benefits. This means that they will receive monthly benefits as a replacement for their income in retirement. 

Survivor Benefits 

Survivors are referred to as relatives of the deceased. The survivor benefits depend upon the earnings of the deceased. The more they contributed as OASDI tax, the higher the benefits of the survivors. The relatives of the deceased are going to get a percentage of the deceased’s social security benefit on a monthly basis. 

Disability Benefits 

Qualifying contributors and their family members receive disability benefits under the Social Security Disability Insurance (SSDI). They are eligible to receive it after waiting for five months. 

Benefits will end if the beneficiary becomes better and returns to work. Benefits to the family members of the disabled worker are payable under conditions similar to those of retired workers. 

Death Payment 

A surviving child or spouse may also qualify to receive a lump-sum payment of $225 if specific requirements are met.  Surviving children of deceased workers are eligible for benefits if 

• They are under 18
• Are full-time students at elementary or secondary schools 
• Or go disable before the age of 22

Hospital Insurance 

Although not mentioned in the acronym itself, the OASDI tax also funds the medicare hospital insurance. This helps qualifying members with inpatient hospital and home care. 

Employees and Self-Employed Contribute Differently 

OASDI tax is taken directly from paychecks. Therefore, employers, employees, and self-employed pay vary. There are two ways in which contributions are made to OASDI: FICA or SECA. 

Employee and Employer Contributions

FICA stands for Federal Insurance Contributions Act. Employers pay the same percentage contributions as employees which are 6.2%. Employees pay 6.2% of net earnings. 

Self Employed Contribution 

Rules are slightly different for self-employed individuals. They have to pay through SECA instead of FICA. SECA stands for Self Employment Contributions Act. Self-employed people have to pay for both the employer and themselves so they have to pay a total of 15.3% of their net earnings. 

What Is OASDI on My Paycheck?

The OASDI applies to income or wages up to a certain amount and it keeps changing every year. For instance, in 2020, it was $137,700 and in 2021, it moved up to 142,800. 

Sometimes, employees have to face the problem of overpaying OASDI. For example, if an employee has two different jobs and the earnings from both add up to more than $142,800, then there is a chance that employers might withhold more than required. So what happens in that case?

There’s a space in the income tax return that employees can use to claim the overpaid tax. 

FICA Tax Rate

For 2021, the social security wage base is 142,800. This means that employees have to pay 6.2% of their income up to 142,800. This signifies that earning beyond this mark will not be taxed for social security. 

Although most workers pay FICA tax, it is not applicable to all paychecks. Some of the payments that are exempt from FICA tax include;

• Children under 18 years employed by their parents 
• Students performing a service and employed by a school, college, or a university
• Some church-controlled organization wages 
• A few local and state government salaries 

Employees who are exempt from FICA do not have the obligation to contribute to Social Security or Medicare Tax but they won’t receive the benefits either. 

For Medicare’s Hospital Insurance Program, the tax rate is 1.45% for employees and employers and 2.9% for self-employed individuals.

How to Calculate FICA Tax?

When employees start a new job, they have to fill out a W-4 form. The form requires employees to specify their marital status and number of dependants. These are some of the factors that determine what amount will the employees pay as OASDI. 

If an employee is earning $50,000 then the FICA tax they will be paying will be $3825 which is the result of multiplying 7.65% by $50,000. 

Changes in Social Security Benefits of 2021

Every year the SSA announces changes to the Social Security program. The changes for the year 2021 were announced in October 2020 and have been in effect since Jan 2021. As an employer, you should be aware of these in order to update your Social Security information. 

1.3% Increase in the Monthly Benefits 

As of 2021, almost 70 million Social security recipients received a 1.3% cost of living adjustment to their monthly benefits. This adjustment is based on the consumer price index to keep pace with inflation. 

Increase in Taxable Earnings 

As mentioned earlier in this article, the income cap has increased to $142,800 compared to $137,700 last year. The tax rate remains the same at 6.2% but only the wage base has changed.  

As the taxable income increases, more OASDI will be deducted from the paycheck. 

Rise in Full Retirement Age 

The earliest that an employee can start collecting benefits is age 62. However, if the benefits are collected before reaching the full retirement age, then the payout will reduce permanently. 

According to the current law, the retirement age will increase by two months each year until hitting the 67 age mark. 

If employees delay in collecting their benefits beyond their full retirement age, then they have the right to collect more than full payment. In fact, if employees are put off until the age of 70, they will receive a 32% higher payout than what they would have received at the full retirement age. However, delaying further than age 70 has no incentives. 

Increment in Social Security Disability Benefits 

Social Security disability insurance is an insurance program that provides benefits to people who can no longer work due to a disability. The benefit is in the form of an income replacement. 

In 2020 the disabled people received $1261 which has now gone up to $1277 per month. 

However, a disabled worker with dependents will receive an average of $2224 per month.  

What’s the Future of OASDI?

Some policymakers say that the OASDI tax rate of 6.2% is not sufficient to work in the future. They suggest that the tax rate should increase to 7.55% in order for the Social Security program to remain solvent. If not, then benefits will have to be reduced in order to keep the program running. 

However, the tax rate of 6.2% has been in effect since the 1990s and is most probably going to remain the same in the foreseeable future.

The post Everything That Is Important to Know About OASDI appeared first on AttendanceBot Blog.

Since tax laws and tax filing requirements change every year, HR must cross-check with the IRS website that the W3 form information is being reported correctly to the authorities. Understanding tax forms like the W-3 can save businesses time and reduce stress during tax season. With a sample W-3 form or example W-2 as a guide, filling out essential information—such as Social Security wages and Medicare wages—becomes much simpler.

By the end, you’ll not only feel confident in your tax reporting, but you’ll also discover tips to streamline your process and avoid common pitfalls. Let’s get started on the path to tax filing success! 

What is a W3 Tax Form?

A W3 tax form is a tax declaration form submitted to the SSA, declaring total earnings, social security wages, Medicare wages, and withholdings for all employees from the previous year.

The W3 form is called the ‘transmission of wage and tax statement.’ The W2 form report is used to prepare the W3 form. That is, all employees’ wages are added in the W2 form, preparing the base to assemble relevant data for the IRS W3 form.

What is the Need for a W3 Form in Business?

If the business is solely based in the United States, HR must have all the relevant information about the IRS W3 form. This is because the business owners are required by law to report employee payroll and income data, whether or not they are US citizens. If this sounds confusing, it’s because it is!

Let us explain how things work at your end. When a person contacts your business for employment purposes, HR has no choice but to ask them for their personal information, including their Social Security Number (SSN).

HR must collect the full name, address, and SSN of the employees they are hiring. This information is essential because they have to report the exact wages in the employees’ tax filing form.

If the employees already have one, the HRs must ask about their date of birth (DOB). The DOB matters because most SSNs are valid for 80 years, and before they expire, employees must inform authorities if they plan to continue using them.

Under federal guidelines, HR must verify the employees’ identities before hiring them. Failing to follow through with these procedures could result in legal ramifications to the business, including fines. Always remember that hired or temporary workers are subject to the same rules, that is, completion of a similar verification process.

When Should a W3 Form be Filed?

HR is obliged to file the W3 tax form with all the W2 forms of employees before the end of January, after the tax year. The deadline for W3 submission is January 31st.

We suggest that HR give the W2 forms to the employees a few weeks earlier. This will give them enough time to check their forms and correct any potential errors before submitting them to the SSA.

Source

When an employer perceives a possible delay in submitting the W2 and W3 forms to the SSA, they can request an extension of up to 30 days to file returns using Application 8809. The IRS grants extensions only under reasonable extraordinary circumstances.

Difference Between the IRS W2 and W3 Tax Forms

The W3 and W2 forms are quite similar. 

The marked difference between the IRS W3 and W2 forms is that the latter is for information regarding the salaries and total taxes per employee. On the other hand, W3 forms report employees’ total wages and taxable salaries to the SSA and IRS.

Filling Out the W2 Tax Form

The IRS W3 form contains complete information on the total taxable wages and sums up all the taxes that incur from business in a year. The primary purpose of W3 forms is to summarize all the W2 forms and act as a ‘cover sheet’ for W2 forms.

Filling Out the W3 Tax Form

Before filling the IRS W3 form, an HR professional must collect all the W2 forms first. It is also necessary to report the addition of the tax information given in the W2 form.

Both forms comprise boxes and letters and have similar instructions for completion. You can also find a sample W3 form below for more clarity.

Source

HR will need to carefully look at the boxes from A to H in the W3 form.

• Section A is for assigning a control number
• Section B has two parts: the type of employer and payer
  • The first part of Section B is for the employer, where you have to check the box and identify the kind of payer they are. You can classify the relevant section by recognizing the form name used to file the quarterly tax report of employees.
  • The second part of Section B describes the type of employer they are; so, check the required section according to the business type.
• In Section C, you have to mention the number of W2 Tax forms being submitted.
• Section D asks about the Establishment Number. The box is relevant to companies that have multiple businesses under the same firm. As an HR professional, you have to state the same Establishment Number mentioned in the W2 forms.
• In Section E, fill out the EIN of the respective business.
• Section F needs the the registered name of the company.
• In Section G, enter the valid address of the business.
• Section H is for employers who have used different EINs in the same year. If there is any change in the ownership in the current year, the new and the former owners will have separate EINs.

As an HR professional, you have to enter the full income report from the data given in the W2 forms in Sections 1 to 19.

How to Make Corrections in the IRS W3 Form

If an employer makes mistakes on the W2 forms and realizes this after submitting the W3 form, HR can file the W2c and W3c tax forms with the corrections.

The IRS does not have an official deadline for this type of correction. However, HR should make the corrections as soon as possible after discovering the errors. You are also obliged to give the W2c copy to the affected employees.

How to File the IRS W3 Form

As an HR professional, you can use these three options to file IRS form W3:

• E-filing online
• Mailing the forms
• Hiring an accountant to file 

E-filing Online

The SSA encourages filing all the forms online because e-filing is more accurate, faster, and more secure. If the total number of W2 forms is greater than 250, HR professionals must file them online along with the W3 forms.

HR professionals must use the Business Services Online (BSO) portal to file the forms online. 

As an HR professional, you can use either of these two options to file IRS form W3 under the BSO portal:

• You can build a fill-in form and print the copies to submit

• You can upload the wage files from the businesses tax and payroll software from which the BSO portal will automatically create a similar W3 form online.

The tax payment can be made online using the EFTPS (Electronic Federal Tax Payment System).

The benefits of filing IRS W3 and W2 tax forms online are as follows:

• Electronic tax filing saves HR professionals’ efforts and time and helps ensure correctness and accuracy.
• HRs do not have to calculate and submit an IRS W3 form; the SSA makes a W3 form automatically.
• The due date for submitting an electronic application is at the end of March, which is one month later than submitting these forms by mail.
• HRs can verify employees’ SSN for reporting the wage information at the BSO portal.
• The BSO site offers a tutorial, manuals, a checklist, and other helpful information to file those W2 forms electronically.
• If HR professionals make an error on one or more W2 forms after submission, they can submit W2c forms to correct the mistakes.

Mailing the Forms

While the SSA promotes filing all the forms online, small businesses can also mail the IRS W3 and W2 forms.

As an HR professional, you need to order the paper copies of W3 and W2 forms from the IRS before posting and making a payment. After ordering and filling out the W3 forms, you have to send the document to the address given below:

Social Security Administration

Direct Operations Center

Wilkes-Barre, PA 18769-001

HR professionals can send the W3 forms more rapidly by choosing private carriers. The current address for quick shipment is as follows:

Direct Operations Center

Social Security Administration

ATTN: W2 Process

1150 E. Mountain Drive

Wilkes-Barre, PA 18702-7997

Hiring an Accountant for Filing

You can also hire an auditor to file the IRS W3 form for all the deposits and outstanding payments. The tax professional will handle all the filing and tax depositing requirements.

Is Filing a W3 Mandatory?

Whether you’re new to handling tax forms or just looking for a refresher, familiarizing yourself with what a W-3 looks like can be incredibly helpful. From filling out a W-2 form to clarifying the difference between W-2 and W-3 forms, ensuring accuracy in your wage statement filings is key to maintaining compliance and a smooth HR operation.

In this article, we have covered all the important points for HR in the US to know before filing IRS W3 forms. Here are some quick points to remember:

• The IRS W3 form contains a full report on the wages, and the total salary companies give their employees
• All the HR professionals who file one or more of the W2 tax forms must also file the IRS W3 form
• You can get copies of forms on the IRS portal and can e-file from the BSO portal of the SSA

The post W3 Form: Your Essential Guide to Hassle-Free HR Tax Filings appeared first on AttendanceBot Blog.

Let’s find out why the payroll tax holiday is a deferral and what the long-term ramifications are.

What are Payroll Taxes?

Payroll taxes are all the taxes levied by the state and federal government bodies on both employers and employees. It usually includes taxes deducted from paychecks by employees and the taxes paid by employers based on their income. These taxes include: 

• Social Security Tax
• Federal and State Income Tax
• Federal & State Unemployment Tax 
• Medicare Tax 

The federal payroll tax rates are decided and levied across the nation, whereas state payroll tax rates differ by state. The federal income tax rates are gradual and increase in stages based on the total income.

As the overall income of the people increases, they move to a different tax bracket with higher tax rates. For Social Security tax rates, it is paid according to the set percentage of the total income but to a limit. Lastly, the Medicare tax is a flat percentage of all earnings. 

What is a Payroll Tax Holiday? 

On August 8, 2020, former President Donald Trump issued an executive order to create a payroll tax holiday. This allowed people to defer employee payroll taxes without sustaining any penalties or fees. 

The only tax affected by the executive order is the Social Security tax, and the tax rate for it is 12.4%. However, the Social Security tax is split between the employer and the employee, so effectively, employees only get a 6.2% benefit. Also, the employees that benefit from the payroll tax holiday are those whose biweekly income is below $4,000. 

Do All Employers Have to Apply for a Payroll Tax Holiday?

The answer is that it depends.

All federal government employees are eligible for payroll tax holidays. But for the private sector, it’s an optional program. It’s entirely up to your employer and is not required by law. You can enjoy the benefits of the program if your employer or organization chooses to join the program.

But under no circumstances is the payroll tax holiday a right. 

On the other hand, if the business is participating, the program will likely be in effect for all employees or for those who chose it on an individual basis.

Why Would an Organization Not Participate in the Payroll Tax Holiday?

If your organization does not participate in the program, it’s likely due to the following reasons:

It isn’t a “Holiday” it’s a Deferral

The payroll tax holiday program allows employees to defer only on Social Security. Since most employees are likely to stick to the organization they currently work for, they will have to pay those deferred taxes in 2021. To put it in simple words, the paychecks of the employees will be considerably smaller than usual, which will lead to more financial instability for the employees and no benefits.

Complicates the Payroll Process Unnecessarily

While most employees are likely to stay with the organization, there is no denying that some may leave. Even when employees leave your organization, the deferred taxes are still owed and must be paid to the U.S. Treasury. This means that the organization has to pay for the deferred amount according to the payroll tax holiday program. Many businesses are not doing well during the pandemic, and there is a possibility that they may have to downsize their workforce. Adding employee exits to the mix, it’s just too big of a risk for organizations. 

Is the Payroll Tax Holiday Worth Taking?

I am sure the thought crossed your mind, “ Let’s enroll for the payroll tax holiday and see if the federal government forgives the debt.”

Well, it’s not that simple. Payroll, especially on an undertaking like this, has an enormous amount of administrative burden. A lot of notifications must be sent out, as well as numerous accounts set up and individual pre and post-tax calculations done for each participant who wants to opt for the program. 

A lot of organizations chose not to opt for this program.

Employee Payroll Tax Holiday: The Effects

While most private companies will most probably implement the payroll tax holiday, the employees that fall in the low-income bracket will be the most severely hit group. They will suffer a massive financial burden as the deferred taxes have to be paid back to the federal government. If the employee earns the maximum eligible amount, they might be able to overcome the financial burden of paying back the deferred tax amount, but the same cannot be said for those that earn $30,000 or less annually. The burden of paying back the taxes can lead to massive financial instability. 

The Biden Administration has yet to make a public statement on the repayment process for the deferred payroll tax that he will inherit from President Donald Trump. The most favorable options include: 

• Prolonging the deferred payroll tax repayment period so that there is less impact on people that earn less than $4,000
• Forgiving the deferred payroll taxes completely

However, if the decision of forgiving the deferred taxes is put into motion, it will be unfair to those whose taxes are being withheld. Additionally, it could also lead to destabilizing Social Security by reducing the amount that is allocated to its funding.  

Another potential issue for those that have deferred taxes is that they might just get slammed with more taxes, especially those that earn less than $4,000 biweekly. If these employees are participants of the payroll tax relief, they might just take a surplus of $496 per month in their paychecks for four months. This may put them in a higher tax bracket, which would result in them paying more taxes. Every dollar you earn that surpasses the lower tax bracket will be taxed higher.

How to Survive the Payroll Tax Holiday?

Here are some tips to overcome the potential financial instability due to reduced paychecks in 2021. 

Analyze the Impact

2020 has been unprecedented, and people are now trying to seek their normal way of life. The payroll tax holiday was another surprise that people didn’t know what to do about or how to solve its aftermath. 

The first thing that you need to do is to get a precise estimate of how much your paycheck will be affected. Start by reducing your last paycheck in December by 8%. This accounts for the 2% payback and the 6.2% payroll tax break. Employees that are serving will suffer a lesser financial burden as they will receive a 3% increase in their paychecks in 2021.

Nonetheless, 8% should help you create a steady cash flow to support yourself and your family. Assuming you will be making payments totaling the amount owed each month over the next 12 months. 

Save Some Money

Many employees, especially those that work for the government, will witness an increase in their paychecks. If you don’t have the necessary expenses and can spare the cash, consider saving it for the coming months. Your paycheck will be reduced in 2021, and you can use the excess that you are saving during this time to ease the financial burden of the payroll holiday. While the idea of saving some money is not something out-of-the-box, keeping your expenses in check and setting aside money can be really helpful in difficult times.  

Re-Evaluate your Expenditures

The coronavirus pandemic has already destabilized the finances of many. While many employees have already kept a keen eye on their expenses and changed their spending habits, the payroll tax was yet another surprise that no one knew what to make of. Although people were relieved at first knowing they could defer taxes, they got confused upon understanding the implications.

They will get financial relief, but they have to pay it back this year. This means an additional annoyance to your financial dilemma. In such cases, it’s best to re-evaluate your expenses and limit those that aren’t necessary. Look for expenses that you can cut back on. Stop services that aren’t necessary, put a hold on spending habits and purchases that you can avoid. It might make you analyze all your expenses, but it’s definitely worth the effort. You don’t necessarily have to put a stop to all expenses other than those that fulfill your basic needs. Start small, for example, a subscription to a streaming platform, and then find similar expenses. 

Find Ways to Boost Income

Last year shook many families financially, but it also led them to find new ways to support their expenses. Putting effort into finding side jobs can be the key element to restoring your finances and attaining stability. Making some extra cash from your hobby, contract work, selling stuff, or running a side business from home can help you overcome the financial instability caused by the taxes taken out of your paychecks. 

Reach Out for Financial Aid

Hoping that it doesn’t come to this, but if you are in a really tight spot, ask for financial aid. Various organizations such as the Navy-Marine Corps Relief, Army Emergency Relief, We Care for America, and more, are always on standby to help those that struggle to get by daily.

Changing Jobs Could Lead to Severe Implications

While government employees have to defer on their taxes, it’s optional for private organizations. But if you have deferred on taxes, it’s best to put a hold on the idea of changing jobs for a while. Doing so could potentially result in a highly deduced paycheck or some form of unwanted surprise from a previous employer. Make sure to check with the employer about the implications that you would face on doing so. 

Do Employees Have a Say in the Implementation of Payroll Tax Holiday?

Well, whether they have a say in it or not totally depends on the business. 

Federal Employees

If you work for the government, then you don’t have a choice. All federal and government employees will automatically receive a payroll tax holiday. You will witness an increase in your paychecks due to the deferred taxes for four months. You will have to pay those bases in the upcoming months in 2021.

Private Employees

As for private employees, their say in the matter totally depends on the way their employer approaches the payroll tax deferral. If your employer is not interested in the program, then it’s unlikely that they would implement it as the mandate is optional for the private sector. But there are employers that have implemented the payroll deferral program. Also, some employers have even asked for the opinions of their employees on the matter. In such cases, the decision is based on a majority vote. If the employees want to leverage the deferred tax holiday, then they need a majority vote and vice-versa. 

What’s Next for the Payroll Tax Holiday? 

While the employees that have deferred tax will enjoy a surplus in income till December, they need to know that they will have to pay it back eventually. This means that they will see a significant decline in their income in 2021. While the relief does sound good. It may be devastating to those with low income in the under $4,000 dollar mark. They could witness a massive financial burden. 

Rather than relief, think of it as a no-interest loan that employees are borrowing from the government. Employees will have to pay it back in full. 

The post The Ultimate Guide to the Payroll Tax Holiday appeared first on AttendanceBot Blog.

Apart from offering them a salary that is at par with their efforts, employers make sure that they mitigate employee turnover and keep their employees happy through a host of other benefits. 

In this blog, we’ll take you through the fringe benefits that can be offered to employees and how they’re taxed.

What are Fringe Benefits? 

Fringe benefits are the additional non-monetary benefits that a company provides to its employees over and above their regular salary. For example, a company can offer medical insurance to an employee. The employee can use it in case of a medical emergency.

Subsequently, for all intents and purposes, employee benefits and fringe benefits are used interchangeably.

Most companies use these benefits to ensure the employees stay motivated. Furthermore, job seekers also compare various companies based on the offered fringe benefits while applying to different companies. 

Fringe Benefit Examples

Fringe benefits examples may differ depending on the type of company, its employees, type of business, and other parameters. Additionally, the most common fringe benefits examples are:

• Medical Insurance Plans
• Retirement Plans
• Meal Vouchers
• Workers’ Compensation Plans 
• Paid Time Off

Furthermore, some companies may also offer more uncommon benefits as fringe benefits such as:

• Company Sponsored Vacations
• Company Car
• Subsidies

Most companies list the fringe benefits available in the job descriptions themselves. But companies may also provide a cafeteria-style benefits choice, where employees choose the benefits that work for them.

Source

How are Fringe Benefits Taxed? 

The IRS considers the IRS fringe benefits as perks given by the employers to the employees and has made relevant policies for fringe benefits tax unless they fall under the specific list of tax excluded items.

However, the IRS mandates that companies include the taxable fringe benefits under employees’ W-2. 

Taxable Fringe Benefits

• Mileage expenses, exceeding the permissible limit
• Relocation expenses if the employee is moving less than 50 miles away
• Tuition or education expenses not related to the employee’s job 
• Working conditions benefit, such as a company car, if used for personal purposes
• Gym memberships
• Income from non-statutory stock options
• Income from the vesting of restricted stock 
• Housing Expenses
• Reimbursement for any development unrelated to work 
• Travel expenses unrelated to business
• Group term insurance exceeding $50,000 of sum assured
• Cash or non-cash benefits as rewards, unless nominal in value or given to charity 

Non-Taxable Fringe Benefits

The IRS does not levy tax on some benefits. Here are the most common non-taxable fringe benefits examples: 

• Accident and disability insurance benefits 
• Achievement awards up to $1600
• Adoption assistance
• Educational Assistance up to an annual limit of $5,250
• Dependent care assistance up to $5,000
• Medical insurance plans
• Athletic facilities on-premise
• Retirement planning services 
• Lodging or meals related to job 
• Employee discounts 
• Commuter benefits 
• No additional cost services

Non-Employee Fringe Benefits

In the process of answering the question of how fringe benefits are taxes, non-employees play a crucial role. Although the IRS has specifically listed the taxable and non-taxable fringe benefits, most or all of the fringe benefits may fall in the category of non-taxable if the employer provides the fringe benefits to a non-employee.

If the recipient of a taxable fringe benefit isn’t your employee, the benefit isn’t subject to employment taxes. However, you may have to report the benefit on one of the following information returns:

• If the non-employee is a partner, the company must add the fringe benefits into Schedule K-1
• If the non-employee is an independent contractor, the company must include the fringe benefits on Form 1099-MISC

Non-Employee Classification

We’ve all heard of the term employees but who is a non-employee?

There are specific criteria that an individual must fulfill to be recognized by the company and the IRS as a non-employee. The criteria are as follows: 

• The individual must hold more than 2% of the company stock in an S-corporation (S-2%). 
• The individual must be a highly compensated employee (HCE)
  • who could either be a shareholder, owning more than 5% of the voting power
  • an officer
  • HCE based on circumstances
  • the HCE’s spouse/dependent.
• The individual must be an HCE among the five highest-paid officers or 25% of the highest-paid employees. Furthermore, the individual must own 10% of the total employer’s stock. 
• The individual must be an HCE who has received more than $150,000 as salary for the previous year or owns more than 5% of the company at any time during the current or the previous year. 
• An individual who is 1% owner of the business with annual pay of more than $150,000 or owns 5% of the business as an officer with annual pay of $185,000. 

How do Employers Track Fringe Benefits? 

Companies with many employees who are provided IRS fringe benefits can face issues in keeping tabs on the expenses and reimbursements. Employees too can find it troublesome to know on what benefits they must pay taxes. 

In this case, employers can use a policy document called an Accountable Plan.

An accountable plan is a chart that defines the reimbursement provided by the company to the employees and their taxability status. It serves as a guide where the company records the fringe benefits provided to the employees. 

Does the IRS need an Accountable Plan? 

According to the IRS Publication 15 (Circular E), Employer’s Tax Guide, companies can exclude expense reimbursements from an employee’s wages if the business has an “accountable” plan.

An accountable plan has no legal value, and thus, the IRS does not demand that a company submit it with them. However, an accountable plan can prove to be a vital document to ensure that a company complies with the tax laws and IRS regulations. 

Furthermore, it also allows the employees to mitigate the event of paying unnecessary taxes on the non-taxable fringe benefits. Thus, the IRS suggests that a company must have an accountable plan to reimburse their employees and successfully and ensure non-taxable benefits. 

For a company to have an accountable plan, the reimbursement policy should meet the following three requirements: 

Returning Excess Amounts

If employers mistakenly reimburse the employees an extra amount, the employees must return the excess amount as soon as possible. 

Clear Business Connection

The expenses incurred by the employees must correlate with an event connected to the business. 

Substantiation

The employees must provide valid proof of the business expenses incurred in the form of receipts, amount, time, and purpose. 

In case a company does not have an accountable plan in place, IRS Publication 15 states that “The IRS will treat the payments to your employee for travel and other necessary expenses of your business under a nonaccountable plan are wage as supplemental wages. These are subject to the withholding and payment of income, social security, Medicare, and FUTA taxes.”

Tax Advanced Benefits of Fringe Benefits

Tax advanced benefits are unique benefits that a company can provide to their employees to lower their taxable income effectively. These types of benefits create monetary savings for both the company and the employees. Under the feature of advanced tax benefits, the company uses their pre-tax dollars to pay for the non-taxable benefit they provided to the employees who have already paid for it with their post-tax salary.

Although the process seems a little complicated, it helps hugely as afterward, it results in fringe benefits deducted from the paycheck of the employee and presents it as a tax deduction. 

Section 125 Cafeteria Plan: The Flexibility in Fringe Benefits 

In a company’s quest to offer its employees an ideal work environment, a cafeteria plan is the most flexible way for offering IRS fringe benefits. Under the cafeteria plan, the employees can choose the fringe benefits as per their tax liability. The plans offer these benefits as pre-tax deductions to reduce the employee’s taxable income. 

For instance, under the cafeteria plan, the company can choose between medical insurance and mileage expenses. If the employee chooses the medical insurance and decides to contribute $50 towards the premium, the company cuts the $50 from the employee’s paycheck, reducing the taxable income by $50. 

The list of benefits that the company can include in cafeteria plans comes from the IRS’s list of non-taxable benefits, along with the flexible spending accounts (FSAs). Additionally, the list is of fringe benefit examples that a company can add to the plan are: 

• Adoption Assistance
• Accidental and Medical Benefits 
• Dependent Care Assistance
• Group Life Insurance Coverage
• Health Savings Account (HSAs)

Companies can not include the following fringe benefits in their cafeteria plan made under section 125: 

• Working Conditions Benefit 
• Archer Medical Savings Account 
• Tuition Reduction 
• Commuting Benefits
• Retirement Planning Benefits
• Athletic Facilities
• De Minimis (Minimal) Benefits
• Educational Assistance
• Employee Discounts
• No-additional Cost Services
• Meal Expenses
• Lodging on Company Premises
• Employer-Provided Cell Phones

We’ve gone into more detail about cafeteria-style flex benefits here.

Source

Impact of Fringe Benefits on Businesses

Anyone without deep knowledge of organizational operations and leadership would think that providing fringe benefits can prove to be a financial burden for the company. While the financial aspect is true, as the companies must incur the costs related to the fringe benefits, the return they get against paying for them is fundamental to the growth of their business.

Furthermore, there are numerous advantages of fringe benefits to the employees. Employers use fringe benefits for the personal development of the employees and ensure the company nurtures: 

Motivated Employees

Fringe benefits motivate employees as they know that the company cares for them. As the benefits are over and above the regular salary, employees stay motivated to help the company grow. Moreover, they do not want employers to think less of them and feel that they should prove themselves. 

Employee Loyalty

Fringe benefits drive employee loyalty at the workplace. When employees know that the company is spending more to improve their standard of living, they become loyal to the company and try to do everything possible to contribute to its success. The employees get attached to the company, its ways and contribute to its growth. 

Minimum Employee Turnover

Although fringe benefits are a small part of an employee’s contribution, if they’re done right they can account for a lot more. For instance, in companies like Google benefits like free meals, nap pods, and free childcare can go a long way to improve employee engagement.

When employees are satisfied with what they do and the benefits they recieve, they don’t feel the need to leave the company for a new one. Furthermore, the company has to spend fewer resources in finding a replacement for exiting employees. 

Ideal Employees

Most companies provide education support to the employees, ensuring that they learn new skills related to their work. In the long run, through these, companies ensure that they employ a class of employees who are skilled and hungry to improve their skill set. Subsequently, these employees contribute a lot more to a company’s success. 

Positive Goodwill

With loyal, satisfied employees come loyal, satisfied customers. When every employee looks to grow the business by all possible means, the company can better serve the customers and ensure brand advocacy. Moreover, through positive word of mouth of employees and customers, the company’s goodwill increases, increasing business and profits. 

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Fringe Benefits are Here to Stay

A company is only as good as its employees. Employees are the people who work hard, execute company policies and serve the customers. Thus, a company must do everything in its power to create a positive work environment for employees. As long as employees are satisfied, the company will grow and find success. 

IRS fringe benefits are the ideal instruments that a company can use to ensure their employees feel cared for personally and professionally. Thus, HR can create a comprehensive fringe benefit policy for the employees, detailed accountability, and a cafeteria plan. 

The policy will allow for greater flexibility for the employees and transparency for the business if the company gets audited. Since numerous studies have shown how companies that offer fringe benefits better achieve their goals, companies should include them to utilize their greatest asset: their employees. 

The post The Comprehensive Guide to Fringe Benefits appeared first on AttendanceBot Blog.

You need to file every year before April 15, except when it is on a Saturday, Sunday, or a federal holiday. This article will be your guide to Form 1040 and provide you with your state’s 1040 mailing address.

Who Needs to File Form 1040?

Most people in the US need to file this form and send it to the IRS address to file their income tax. It doesn’t matter if you are an independent contractor, employee, freelancer, or live-off investments.

You need to file 1040 if you come under any of the following conditions: 

The Different Versions of 1040

Here are a few variations of 1040:

Form 1040

This is the standard form that most taxpayers need to use to determine the taxes they need to pay. 

Form 1040 SR

Taxpayers that are 65 and above need to file this form. This form is printed with a larger font and gives importance to senior-specific tax incentives. 

Form 1040 NR

Non-Residents who are engaged in trade or business need to use this variation of the form 1040. Other than that, representatives of deceased persons or an estate or trust need to use this form as well. 

Form 1040-X

People that need to make amendments to the form 1040 they already submitted can use Form 1040-X to do so. 

Form 1040-V

You can use this form to send the payment for the tax you owe. However, this form is optional, and you can choose to send the payment without it as well. The IRS has this option because it allows them to process payments efficiently. You do not need to staple Form 1040-V with 1040 as it is processed separately. However, you do need to include it in the same packet as 1040. 

Schedules of Form 1040

Form 1040 has twenty attachments in total. However, taxpayers do not need to file all of these attachments. It depends on their income, deductions, tax credits, and other factors. Schedule M was introduced in 2010 because of the American Recovery and Reinvestment Act of 2009. After the 2008 recession, a stimulus was announced by the Federal Govt. to make the economy more stable and provide financial security to the people.

In 2018, Form 1040 was made simpler by creating new schedules to make some parts optional. The line numbers on the new schedule were similar to the old ones to make the transition easier. Schedules help you in calculating various figures that are needed to fill 1040. 

Here are the details of the various schedules: 

Schedule 1

You can use this form to report common sources of income and various adjustments to them. For example, you can use it to calculate alimony, profit from the sale of tangible property, education expenses, among other things. 

Schedule 2

You can use this form to report additional taxes. It is a two-part form.

• The first one is to report alternative minimum tax.
• The second one will help you to report Medicare tax, self-employment taxes, additional taxes on IRAs, and household employment taxes; to name a few. 

Schedule 3

You can use this form to report payments and additional credits. This form is also a two-part form.

• The first one can be used to report refundable credit
• The second one to report non-refundable credit

Schedule A

You can use this form to enter itemized deductions. You can use this to report medical expenses, mortgage interest, local taxes, theft losses, and other line items. 

Schedule B

You can use this form to report income from interest and dividend that is more than $1500. You can use Form 1040 itself for interest and dividend income less than $1500. 

Schedule C

You can use this form to report profits or losses from your business. If you are an independent contractor, freelancer, sole proprietor, or owner of a single-member LLC, you can use this form.

Schedule D

You can use this form to report the capital gains or losses from your investments. In fact, income generated from cryptocurrency trading must also be reported in Schedule D. Depending on if the income is ordinary or a capital gain, it should be reported under the current column. 

Schedule E

You can use this form to report income from real estate, estates, partnerships, royalties, REMICs, trusts, or any other pass-through entity. 

Schedule F

Farmers can use this form to report farming-related income and expenses. 

Schedule H

Taxpayers with household workers can use this form for expenses related to nannies, gardeners, house help, and caretakers. 

Schedule J

Farmers and fishers who want to figure out their tax by averaging the past three years’ taxes can use this schedule to do so. 

Schedule R

You can use this form to claim disability or senior tax credits. 

Schedule SE

Business owners and independent contractors with profits of more than $400 can use this form to calculate self-employment taxes. 

Schedule 8812

You can use this form to claim the tax credit on children. Additionally, you can use this form to calculate your tax refund if your child tax credit is more than the tax you owe. 

How to Fill Form 1040

Form 1040 is a two-page document. On the first page, you have to fill out basic details like name, address, filing status, and social security number. People filing jointly need to add the name and social security number of their spouse. 

Taxpayers that have dependents need to add their names, social security numbers, and relationships with the dependents. You need to check the box beside each dependent in case you are claiming tax credit because of them. Additionally, you need to certify that you, your spouse, and your dependents had health care coverage or a coverage exemption for the year. 

At the end of the first page, you need to write your occupation and sign. Individuals that are working with a preparer or a professional need to write their information and have them sign the document as well. 

Tax Refund

You can claim a tax refund for a particular year within a three-year window. However, you will have to pay taxes immediately when they are due. Additionally, you can apply for a refund for next year in advance. 

• Line 19 represents the total payments you have made towards taxes.
• Line 16 represents the total amount you need to pay as income tax.
• You are entitled to a refund if your total payments exceed the amount you owe to the Federal Government. You need to enter the excess amount on Line 20. 

Next, fill out the refund section with your account details and routing number. You can enter a savings account as well as a checking account for this purpose. However, in case you need your refund in the form of a cheque, you need to file Form 8888.

If you have already claimed a refund but have not received it, you can file Form 3911 to trace your tax refund.

Penalties

You can get an extension on filing your Form 1040 by filing Form 4868. The penalty for not filing within the due date is 25% of unpaid taxes. However, that depends on whether the individual managed to obtain an extension. Individuals will not be subjected to a penalty if they do not have any unpaid taxes.  

State Tax Returns

Form 1040 is used for federal income tax only. State taxes need to be filed separately. Some states do not have an income tax. State tax returns often have items from Form 1040. Tax software like TurboTax automatically files state taxes with the help of the information obtained from Form 1040. 

New Changes

For the years 2020 and 2021 American citizens were receiving stimulus cheques to secure them against financial uncertainty during the pandemic. For this reason, they have added Line 30. Taxpayers that did not receive stimulus checks can use this to claim refundable credit. 

The “Amount You Owe” section has been changed. The line “Schedule H and Schedule SE filers, line 37 may not represent all of the taxes you owe for 2020” has been added. The change has been made because employers could defer social security tax due to the CARES Act. The payment section of Form 1040 can be used to report the deferred amount as “Deferral for certain Schedule H or SE filers.”  

Form 1040 now includes 3 additional lines to report withholdings:  

• 25a: W-2 withholdings
• 25b: 1099 withholdings
• 25c: Other withholdings

Individuals can use Line 10b of Schedule A to claim a deduction for charitable contributions of up to $300 made in cash. Additionally, self-employed individuals can use Form 7202 to claim the tax credit for sick and family leave. 

E-filing

Individuals can file Form 1040 online as well. 

• IRS Free File helps people with an income of $66,000 or less to file their taxes. There are some other conditions as well. Free file does not handle some forms of income and deductions. 
• Individuals can use tax compliance software that has been approved by the IRS to file their returns automatically. 
• People can also use a tax professional for e-filing. 

Tax compliance software can file tax returns of individuals on their behalf. Individuals need to file Form 8948 to explain why they did not file Form 1040 electronically. 

Paper Filing

You can use paper filing to file Form 1040 as well. This has been the way of filing ever since 1040 was introduced in 1913. The IRS releases the form every year in January. 

Considering the developments in technology, the IRS allows taxpayers to download the form as a PDF and file it virtually. However, individuals cannot sign the forms virtually.

• By entering your prior-year Adjusted Gross Income or your prior-year Self-Select PIN
• Alternatively, they can also print the form, fill it by hand, and send it to the IRS. 

Form 1040, along with the additional forms needed, must be sent in a single packet. Taxpayers can send it by mail or courier it to the IRS address according to their location in or outside the United States. Taxpayers must send the amount they owe as well. For this, they can use Form 1040-V to make the process smoother. All the forms can be stapled together except for Form 1040-V. However, 1040-V must be sent with the packet itself.

IRS Free File is a great tool for people that earn below a certain level. However, if you are not eligible for it, you might need to shell out hundreds of dollars to file your taxes. 

Your State’s IRS Address for Mailing 1040

If you are looking for the IRS address to mail a federal tax return, here are the details for your state:

IRS Address for Non-Resident Aliens

Where Do I Mail my Tax Return? 

Taxation doesn’t need to be more complicated than it already is and we hope this article was able to answer any questions you had about tax filing.

Make sure to note down the IRS tax return address for your state that we’ve listed above. Do make sure to attach all the correct schedules while mailing your tax returns.

The post The State Wise Guide to IRS Address for Mailing Your 1040 appeared first on AttendanceBot Blog.