social security - Linkenheimer LLP CPAs & Advisors

Disability Income: How Is It Taxed?

Many Americans receive disability income. You may wonder if — and how — it’s taxed. As is often the case with tax questions, the answer is … it depends.

The key factor is who paid for the benefit. If the income is paid directly to you by your employer, it’s taxable to you as ordinary salary would be. (Taxable benefits are also subject to federal income tax withholding, although depending on the employer’s disability plan, in some cases aren’t subject to the Social Security tax.)

Frequently, the payments aren’t made by the employer but by an insurance company under a policy providing disability coverage or, under an arrangement having the effect of accident or health insurance. If this is the case, the tax treatment depends on who paid for the coverage. If your employer paid for it, then the income is taxed to you just as if paid directly to you by the employer. On the other hand, if it’s a policy you paid for, the payments you receive under […]

By Linkenheimer LLP|2020-11-05T18:46:01+00:00November 5th, 2020|income tax, social security|0 Comments

Now More Than Ever, Carefully Track Payroll Records

The subject of payroll has been top-of-mind for business owners this year. The COVID-19 pandemic triggered economic changes that caused considerable fluctuations in the size of many companies’ workforces. Employees have been laid off, furloughed and, in some cases, rehired. There has also been crisis relief for eligible businesses in the form of the Paycheck Protection Program and the payroll tax credit.

Payroll recordkeeping was important in the “old normal,” but it’s even more important now as businesses continue to navigate their way through a slowly recovering economy and ongoing public health crisis.

Four years

Most employers must withhold federal income, Social Security and Medicare taxes from their employees’ paychecks. As such, you must keep records relating to these taxes for at least four years after the due date of an employee’s personal income tax return (generally, April 15) for the year in which the payment was made. This is often referred to as the “records-in-general rule.”

These records include your Employer Identification Number, as well as your employees’ names, addresses, occupations and Social Security numbers. You should also keep for four years the total amounts and dates of payments of compensation and amounts withheld for […]

By Linkenheimer LLP|2020-11-03T17:12:43+00:00November 3rd, 2020|business, small business, social security|0 Comments

The 2021 “Social Security Wage Base” Is Increasing

If your small business is planning for payroll next year, be aware that the “Social Security wage base” is increasing.

The Social Security Administration recently announced that the maximum earnings subject to Social Security tax will increase from $137,700 in 2020 to $142,800 in 2021.

For 2021, the FICA tax rate for both employers and employees is 7.65% (6.2% for Social Security and 1.45% for Medicare).

For 2021, the Social Security tax rate is 6.2% each for the employer and employee (12.4% total) on the first $142,800 of employee wages. The tax rate for Medicare is 1.45% each for the employee and employer (2.9% total). There’s no wage base limit for Medicare tax so all covered wages are subject to Medicare tax.

In addition to withholding Medicare tax at 1.45%, an employer must withhold a 0.9% additional Medicare tax from wages paid to an employee in excess of $200,000 in a calendar year.

By Linkenheimer LLP|2020-10-30T15:45:44+00:00October 30th, 2020|medical deduction, medicare, social security|0 Comments

Employers Have Questions And Concerns About Deferring Employees’ Social Security Taxes

The IRS has provided guidance to employers regarding the recent presidential action to allow employers to defer the withholding, deposit and payment of certain payroll tax obligations.

The three-page guidance in Notice 2020-65 was issued to implement President Trump’s executive memorandum signed on August 8.

Private employers still have questions and concerns about whether, and how, to implement the optional deferral. The President’s action only defers the employee’s share of Social Security taxes; it doesn’t forgive them, meaning employees will still have to pay the taxes later unless Congress acts to eliminate the liability. (The payroll services provider for federal employers announced that federal employees will have their taxes deferred.)

Deferral basics

President Trump issued the memorandum in light of the COVID-19 crisis. He directed the U.S. Secretary of the Treasury to use his authority under the tax code to defer the withholding, deposit and payment of certain payroll tax obligations.

For purposes of the Notice, “applicable wages” means wages or compensation paid to an employee on a pay date beginning September 1, 2020, and ending December 31, 2020, but only if the amount paid for a biweekly pay period is less than $4,000, or the equivalent amount with respect […]

By Linkenheimer LLP|2020-09-08T23:07:39+00:00September 8th, 2020|employer, New Tax Laws, social security, tax|0 Comments

The President’s Action To Defer Payroll Taxes: What Does It Mean For Your Business?

On August 8, President Trump signed four executive actions, including a Presidential Memorandum to defer the employee’s portion of Social Security taxes for some people. These actions were taken in an effort to offer more relief due to the COVID-19 pandemic.

The action only defers the taxes, which means they’ll have to be paid in the future. However, the action directs the U.S. Treasury Secretary to “explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.”

Legislative history

On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act. A short time later, President Trump signed into law the Coronavirus, Aid, Relief and Economic Security (CARES) Act. Both laws contain economic relief provisions for employers and workers affected by the COVID-19 crisis.

The CARES Act allows employers to defer paying their portion of Social Security taxes through December 31, 2020. All 2020 deferred amounts are due in two equal installments — one at the end of 2021 and the other at the end of 2022.

By Linkenheimer LLP|2020-09-03T20:02:04+00:00August 24th, 2020|business, New Tax Laws, relief, social security|0 Comments