U.S. Employee Payroll Taxes

by L. Kenway BComm CPB

Part 1 of The Bookkeeper's Notes on employee payroll taxes ... everything in one place ... to use as a handy reference to calculate withholdings and contributions.


Let's chat about employee payroll taxes for home based business owners in the U.S.

What You'll Find In This Chat ...

  • 2022 FICA Employee Payroll Tax RATES (also known as Social Security Tax (SST))
  • 2021 FUTA Employee Payroll Tax RATES (also known as federal unemployment tax)
  • U.S. FSLA Payroll record retention guidelines by TSheets (takes you to their site). Click on Required Records under "This Article".

    INDEX for Federal Payroll Taxes Series
    Click on any image below to go to the article.

    Part 1

    Social Security Rates

    Employee Payroll Taxes

    ✔ FICA & FUTA Rates

    ✔ Business Travel Allowances

    ✔ and more

    Part 2

    Payroll Tax Deposits

    ✔ Payroll Tax Deposits

    ✔ Forms 940 & 941

    ✔ Correcting Form 941

    ✔ Notice 4520

    ✔ FUTA Credit Reductions

    Part 3

    W-2 W-3 W-4 Forms

    ✔ Employment Forms

    ✔ W2, W3, W4

    ✔ Form 1-9

    ✔ New Hire Paperwork

    Part 4

    Independent contractor rules

    ✔ Independent Contractor Rules

    ✔ Forms W9, 1096, 945, 1099-MISC

    ✔ VCSP

                                   good bookkeeping practice

    Failing To Exercise Authority

    This employee payroll tax tip comes to you from the American Institute of Professional Bookkeepers.

    If you have the authority to write cheques or enter into contracts, the IRS can hold you personally responsible, under willful failure to pay taxes, for unremitted payroll taxes due along with associated penalties and interest if it can be shown you were aware other expenses were being paid.

    Source: AIPB Bookkeeping Tips Volume 8: Issue 15 (Free eNewsletter)

    Minimum Wage

    Fair Labor Standards Act (FLSA) federal minimum wage for covered nonexempt employees is $7.25 effective July 24, 2009. There may also be minimum wage laws in your state.

    Minimum wage for all states can be found at:

    dol.gov/whd/state/stateMinWageHis.htm .

    The U.S. Department of Labor says that if an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher of the two minimum wages.

    In Obama's State of Union address in February 2013, he announced that minimum wage will be increased in stages until it reaches $9 in 2015. After that, the minimum wage will be indexed to inflation.

    Then in January 2014, he announced an executive order raising the federal minimum wage to $10.10 an hour for future federal contract workers.

    FICA Employee Payroll Taxes

    Current social security tax rates - insurance protection

    Click here for information on FICA Payroll Tax Deposits.

    FICA (Federal Insurance Contributions Act) establishes two taxes on self-employed workers, employers, and employees.

    ... The first employee payroll tax known as the Social Security tax is for Old Age, Survivors and Disability Insurance (OASDI).

    ... The second employee payroll tax known as the Medicare tax is for Hospital Insurance (HI).

    Employers matched the employee's tax portion of FICA in 2013 through 2021; just as they did in 2010. There was an exception in 2011 and 2012 whereby employers no longer matched the employee's tax portion of FICA due to the 2010 Tax Relief Act, the Temporary Payroll Tax Cut Continuation Act of 2011 and the Middle Class Tax Relief and Job Creation Act of 2012. Self employed workers pay both portions of FICA in all years.

    FITW for each taxpayer is determined on form W4 Employee’s Withholding Allowance Certificate. Wage bracket tables are located in IRS Publication 15 Circular E Employer's Tax Guide. Lesson three of The Bean Counter's Payroll Course explains how to use the tables.

    Changes to Employee Payroll Taxes in 2022

    FICA rate for 2022 remains at 7.65% and is made up of:

    2022 FICA EE Rate ER Rate EE+ER Rate Wage Base Limit Maximum Tax
    Social Security6.2%6.2%12.4%*$147,000$8,537.40 EE $8,537.40 ER
    Medicare1.45%1.45%2.9%$200,000$2,900 EE
    $2,900 ER
    Medicare2.35%1.45%3.8%over $200,000no limit

    EE = employee's portion, ER = employer's portion

    COVID-19 Payroll Taxes Suspended

    Please read IRS Notice 2020-22 regarding the CARES (Coronavirus Aid, Relief, and Economic Security) Act which allowed eligible employers to defer payment of the employer's share of FICA between March 27 and December 31, 2020. The deferred payments are due half by December 31, 2021 with the remainder due by December 31, 2022.

    Please read IRS Notice 2020-65 allowing employers to suspend withholding and paying the employee's share of payroll taxes between September 1 and December 31, 2020. It applies to employees earning less than $4,000 in a bi-weekly pay period, concluding salaried workers earning less than $104,00 per year.

    To repay the tax obligation, companies suspending withholding of employees' payroll tax initially were to collect the additional amounts from workers' paychecks between January 1 to April 30, 2021.  However, President Trump signed the Consolidated Appropriations Act at the end of 2020 which extended the repayment period through to December 31, 2021. Penalties and interest on the deferred unpaid tax liability will not begin to accrue until January 1, 2022.

    Reference: SHRM

    Historical Employee Payroll Taxes Tables 2010-2021

    FICA rate for 2021 remains at 7.65% and is made up of:

    2021 FICA EE Rate ER Rate EE+ER Rate Wage Base Limit Maximum Tax
    Social Security6.2%6.2%12.4%*$142,800$8,239.80 EE $8,239.80 ER
    Medicare1.45%1.45%2.9%$200,000$2,900 EE $2,900 ER
    Medicare2.35%1.45%3.8%over $200,000no limit

    FICA rate for 2020 remains at 7.65% and is made up of:

    2020 FICA EE Rate ER Rate EE+ER Rate Wage Base Limit Maximum Tax
    Social Security6.2%6.2%12.4%*$137,700$8,537.40 EE $8,537.40 ER
    Medicare1.45%1.45%2.9%$200,000$2,900 EE $2,900 ER
    Medicare2.35%1.45%3.8%over $200,000no limit

    FICA rate for 2019 remains at 7.65% and is made up of:

    2019 FICA EE Rate ER Rate EE+ER Rate Wage Base Limit Maximum Tax
    Social Security6.2%6.2%12.4%*$132,900$8,239.80 EE $8,239.80 ER
    Medicare1.45%1.45%2.9%$200,000$2,900 EE $2,900 ER
    Medicare2.35%1.45%3.8%over $200,000no limit

    FICA rate for 2018 remains at 7.65% and is made up of:

    2018 FICA EE Rate ER Rate EE+ER Rate Wage Base Limit Maximum Tax
    Social Security6.2%6.2%12.4%*$128,400$7,960.80 EE $7,960.80 ER
    Medicare1.45%1.45%2.9%$200,000$2,900 EE $2,900 ER
    Medicare2.35%1.45%3.8%over $200,000no limit

    FICA rate for 2017 remains at 7.65% and is made up of:

    2017 FICA EE Rate ER Rate EE+ER Rate Wage Base Limit Maximum Tax
    Social Security6.2%6.2%12.4%*$127,200$7,866.40 EE $7,866.40 ER
    Medicare1.45%1.45%2.9%$200,000$2,900 EE $2,900 ER
    Medicare2.35%1.45%3.8%over $200,000no limit

    FICA rate for 2016 was the same as 2015 because there was no increase in COLA. It remained at 7.65% and was made up of:

    2016 FICA EE Rate ER Rate EE+ER Rate Wage Base Limit Maximum Tax
    Social Security6.2%6.2%12.4%*$118,500$7,347 EE $7,347 ER
    Medicare1.45%1.45%2.9%$200,000$2,900 EE $2,900 ER
    Medicare2.35%1.45%3.8%over $200,000no limit

    FICA rate for 2014 is 7.65% made up of:

    2014 FICA EE Rate ER Rate EE+ER Rate Wage Base Limit Maximum Tax
    Social Security6.2%6.2%12.4%*$117,000$7,254 EE $7,254 ER
    Medicare1.45%1.45%2.9%$200,000$2,900 EE $2,900 ER
    Medicare2.35%1.45%3.8%over $200,000no limit

    EE = employee's portion, ER = employer's portion

    Note 1* - The U.S. Senate allowed the payroll tax cut to lapse when it passed The American Taxpayer Relief Act on January 1, 2013.

    Note 2** - Medicare rates were released in mid-November. They are being increased to 3.8% and expanded to cover wage income and investment income for high income individuals ... defined as $200,000 for single filers,  $250,000 for joint filers and $125,000 for married filing separately filers. Employers are responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year.

    FICA rate for 2013 is 7.65%** made up of:

    2013 FICA EE Rate ER Rate EE+ER Rate Wage Base Limit Maximum Tax
    Social Security6.2%*6.2%*12.4%*$113,700$7,049.40 EE $7,049.40 ER
    Medicare1.45%**1.45%**2.9%**$200,000**$2,900 EE $2,900 ER
    Medicare2.35%**1.45%**3.8%**over $200,000**no limit

    FICA rates for 2012 implementing the Middle Class Tax Relief and Job Creation Act of 2012 for one more year are below.

    *Temporary Payroll Tax Cut Continuation Act of 2011 expired March 1, 2012 and was extended to the end of 2012 by the Middle Class Tax Relief and Job Creation Act of 2012.

    2012 FICA EE Rate ER Rate EE+ER Rate Wage Base Limit Maximum Tax
    Social Security4.2%6.2%10.4%$110,100$4,624.20 EE $6,826.20 ER
    Medicare1.45%1.45%2.9%unlimitedno limit

    FICA rates for 2011 implementing the 2010 Tax Relief Act are:

    2011 FICA EE Rate ER Rate EE+ER Rate Wage Base Limit Maximum Tax
    Social Security4.2%6.2%10.4%$106,800$4,485.60 EE $6,621.60 ER
    Medicare1.45%1.45%2.9%unlimitedno limit

    FICA rate for 2010 is 7.65% made up of:

    2010 FICA EE Rate ER Rate EE+ER Rate Wage Base Limit Maximum Tax
    Social Security6.2%6.2%12.4%$106,800$6,621.60 EE $6,621.60 ER
    Medicare1.45%1.45%2.9%unlimitedno limit

    FUTA Employee Payroll Taxes

    The employer bears 100% of the cost of FUTA and SUTA program contributions

    FUTA stands for Federal Unemployment Tax Act. It is a payroll tax that funds unemployment benefits. As a small business owner, you are required to pay FUTA. As this is an employer tax, nothing is withheld from employees paychecks. Click here for information on FUTA Payroll Tax Deposits requirements.

    If you pay amounts on time, you are eligible to receive a FUTA tax credit. The percentage you get back depends on whether your state has any outstanding federal unemployment insurance loans. For further details on the FUTA tax credit, please read my note on FUTA credit reduction states and rates.

    2012 to 2021 FUTA and July to Dec 2011 FUTA deposit rate is 6.0% with a maximum credit available of 5.4%. The minimum FUTA deposit rate is 0.6% (6.0% - 5.4%). Please read note on FUTA credit reduction states and rates. The rate may be different for household workers or farm workers.

    The 2013 proposed increase to employee payroll taxes for 2015 FUTA did NOT occur. Here are the Tax Policy Center's (taxpolicycenter.org) comments on the 2013 budget tax proposals.

    "Employers in some indebted states have faced higher taxes to repay these debts, which arguably discourages job creation. To mitigate this obstacle to economic growth, the President’s budget proposes to provide short-term relief to employers by suspending interest payments on state UI debt and suspending the FUTA credit reduction for employers in borrowing states in 2012 and 2013. Additionally, the Administration would raise the annual FUTA wage base to $15,000 per worker in 2015, index the wage base to subsequent wage growth, and reduce the net federal UI tax from 0.8 percent (which includes its proposed surtax) to 0.37 percent. States with wage bases below $15,000 would have to conform to the new FUTA base. States would retain the ability to set their own tax rates, as under current law. The Administration estimates that this proposal would cost $6.6 billion in 2013 and 2014, but the higher tax base would increase revenues starting in 2015. From 2013-2022, the proposal would raise $47.8 billion."

    2010 FUTA and Jan to June 2011 FUTA deposit rate is 6.2% with a maximum credit available of 5.4%. The minimum FUTA deposit rate is 0.8% (6.2% - 5.4%). 

    The FUTA tax applies to the first $7,000 (FUTA taxable wage base) you pay to each employee during a calendar year after subtracting any payments exempt from FUTA tax. Tax exempt wage base is earnings over the taxable wage base.

    FUTA Deposit Rate Maximum Credit Available Minimum Deposit Rate Taxable Wage Base
    2012-2021 6.0% 5.4% 0.6% $7,000
    Jul - Dec 2011 6.0% 5.4% 0.6% $7,000
    Jan - Jun 2011 6.2% 5.4% 0.8% $7,000
    2010 6.2% 5.4% 0.8% $7,000

    For 2011, there is a new simplified Form 940 that replaces previous Form 940 and 940-EZ. You CANNOT average the two rates in 2011. Each period is reported separately on the new form.

    FUTA surtax expires June 30, 2011 - read more here.

    Get a listing of SUTA for your state using the reference The Bean Counter recommends ... CCH's Map of State Employment Taxes at:


    Lesson four of The Bean Counter's Payroll Course explains FUTA and SUTA.

                                   good bookkeeping practice

    Amending Return Payments On EFTPS

    When making employee payroll tax payments, sometimes you need to adjust a prior period.

    If you need to amend an prior tax period using EFTPS, DO NOT select the screen option "Federal Tax Deposit" as this will apply your payment to the current period.

    Instead select one of two other options - Payment due with a return OR Payment due on an IRS notice. Either one of these options will allow you to enter the period the payment applies to.

    Source: NACPB June 10, 2011 Payroll Tax Update

    Employee Payroll Tax and
    Disability Insurance

    State temporary disability insurance applies in a handful of states where you have to withhold and/or pay taxes that fund the state's program.

    Use CCH's Map of Disability Insurance Taxes at toolkit.com/small_business_guide/sbg.aspx?nid=P07_1298 to see if which jurisdictions have this tax.

    Employee Payroll Tax and
    Workers Compensation

    Workers Compensation varies from state to state. You can find your compensation board on Department of Labor's website at dol.gov/owcp/dfec/regs/compliance/wc.htm .

    Payroll Taxes and Tax Deductions

    All employee payroll taxes paid by the employer, which does NOT include the employee withholdings as they are part of your gross wage expense, are a tax deductible expense.

    Your chart of accounts should include balance sheet accounts called payroll payable and payroll taxes payable. The payroll taxes payable will include federal income tax, social security, medicare, state income tax and state disability insurance. You should also have a direct labor, office wages and (employer) payroll taxes expense accounts on your income statement.

    Payroll Journal Entry Example

    Click here for Canadian payroll journal entries.

    Here is an example of a common U.S. payroll journal entry that records payroll. You can see all the different employee payroll tax liabilities which represents withholdings from the employee's pay.

      Debit (Increase) Wages or Salaries Expense for employees gross wage (expense account on the income statement)Credit (Increase) Federal Income Tax Payable (current liability on the balance sheet)

      Credit (Increase) State Income Tax Payable (current liability on the balance sheet)

      Credit (Increase) Social Security Payable (current liability on the balance sheet)

      Credit (Increase) Medicare Payable (current liability on the balance sheet)

      Credit (Increase) Insurance Payable (current liability on the balance sheet)

      Credit (Increase) Other Deductions Payable like retirement contributions or health care insurance (current liability on the balance sheet)

      Credit (Increase) Cash in Bank for the amount of employee net pay (current asset on the balance sheet)

    Here is an example of a common U.S. payroll journal entry that records the employer's portion of payroll taxes and benefits. You can see the expense side of the transaction represents the employer's share of payroll taxes.

      Debit (Increase) Employment (or Payroll) Tax Expense (expense account on the income statement)

      Debit (Increase) Employee Benefits Expense (expense account on the income statement)

      Credit (Increase) Social Security Payable (current liability on the balance sheet)

      Credit (Increase) Medicare Payable (current liability on the balance sheet)

      Credit (Increase) FUTA Payable (current liability on the balance sheet)

      Credit (Increase) SUTA Payable (current liability on the balance sheet)

      Credit (Increase) Insurance Payable (current liability on the balance sheet)

      Credit (Increase) Other Payroll Payable like retirement contributions (current liability on the balance sheet)

    When it is time to remit your employer and employee payroll taxes to the government, you will record the following government remittance journal entry:

      Debit (Increase) The Appropriate Employment (or Payroll) Tax Liability (current liability on the balance sheet)
      Credit (Increase) Cash in Bank (current asset on the balance sheet)

    IRS Rules for Gifts and Awards

    Employee payroll taxes can be complex ... so it is important to know the rules.

    Here are the IRS rules for De Minimis Fringe Benefits such as cash benefits, gift certificates and achievement awards given to employees.

    Cash awards are a taxable wage and subject to all taxes and withholdings.

    Near cash gifts such as gift certificates or gift cards, are never excludable from income, even for de minimis items. They are taxable which means they are subject to taxes and payroll withholdings.

    A non-cash gift or award has special rules that must be met to be excluded from employee wages. Generally, include the fair market value in wages subject to FIT, FITW, FICA and FUTA.

    The November 29, 2010 AIPB free newsletter (which got me started researching this subject) says "Nontaxable gifts: Fruit baskets, hams, turkeys, wine, flowers and entertainment tickets such as to a show or sporting event, generally are de minimis (nontaxable) fringes if they have a nominal value and are given infrequently."

    You can find the information on the IRS website under IRS > Forms and Publications> Publication 15(B) Fringe Benefit Guide ... but I found the supplemental publication Taxable Fringe Benefit Guide explained the rules much more clearly.

    There is also a good article at www.aicpa.org titled Giving Employees Gifts May Require Giving to the Tax Collector Too. It is located under Publications> Newsletters> The Practicing CPA> 2008> December. This article includes some planning guidelines ... and explains the long standing rule regarding the $25 limit.

    IRS publication 525 Taxable and Nontaxable Income also has some concise information on bonuses, awards and achievement awards. Here is the excerpt pertaining to employee payroll taxes found under Miscellaneous Compensation in the publication:

    "Bonuses and awards. Bonuses or awards you receive for outstanding work are included in your income and should be shown on your Form W-2. These include prizes such as vacation trips for meeting sales goals. If the prize or award you receive is goods or services, you must include the fair market value of the goods or services in your income. However, if your employer merely promises to pay you a bonus or award at some future time, it is not taxable until you receive it or it is made available to you.

    Employee achievement award. If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you generally can exclude its value from your income. However, the amount you can exclude is limited to your employer's cost and cannot be more than $1,600 ($400 for awards that are not qualified plan awards) for all such awards you receive during the year. Your employer can tell you whether your award is a qualified plan award. Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that do not create a significant likelihood of it being disguised pay.

    However, the exclusion does not apply to the following awards.

    • A length-of-service award if you received it for less than 5 years of service or if you received another length-of-service award during the year or the previous 4 years.
    • A safety achievement award if you are a manager, administrator, clerical employee, or other professional employee or if more than 10% of eligible employees previously received safety achievement awards during the year."

    I take this to mean that service awards are not taxable (do not attract employee payroll taxes) after five years of service ... but are taxable (do attract employee payroll taxes) if presented before five years of service or if given more frequently than five year periods.

    2016 Employee Fringe Benefits

    Source: Publication 15-B Employer's Tax Guide to Fringe Benefits

    Click here for cents per mile rule for business use of personal vehicle.

    Fringe benefits are a form of additional pay and generally include in an employee's gross pay unless there are specific exclusions. 2018 Benefits were affected by the Tax Cuts and Job Act (TCJA).

    Fringe Benefit 2018 2017 2016 2015 2014 2013 2012* 2011/2010
    Free parking$255 limit$250 limit$250 limit$245 limit$240 limit$230 limit
    Monthly transit pass$255 limit$130 limit$130 limit$245 limit?$125 limit$120 limit
    Biking$20 limit$20 limit$20 limit$20 limit$20 limit$20 limit
    Health premiumspay morethan halfto be eligiblefor

    federal tax credit
    Health Flexible Spending (FSA) family**$2600 limit$2550 limit$2500 limit$2500 limit--

    *Benefits were received at these rates. The American Taxpayer Relief Act reinstated parity retroactively for 2012. Click here for the procedures to refund the excess FICA tax paid on 2012 excess transit benefits. 

    **You'll find a great HSA and FSA cheat sheet over at benefits pro.


    David Bagley, CPA (davidbagleycpa.com) reports in a tax brief on 2012 year-end tax planning explains it is uncertain which tax extenders will be restored. With regards transit benefits parity he explains:

    "Qualified transportation fringe benefits may be excluded from an employee's gross income for income tax and payroll tax purposes. More generous exclusion amounts under the 2010 Tax Relief Act which provided for transit benefits parity among transit passes and van pool benefits, and qualified parking, expired after 2011. Under current law, for 2012, the excludible amount for qualified transportation fringes is limited to an inflation-adjusted $125 per month total for transit passes or van pooling; and an inflation-adjusted $240 per month for qualified parking."

    Mr Bagley explains his recommended strategy:

    "If Congress extends transit benefits parity in late 2012, it is unclear if the extension would be retroactive to January 1, 2012, as such an extension would create significant logistical challenges for employers. A prospective extension through 2013 would be more manageable. Employers should thus consider opting out of retroactively offering an arrangement for 2012 that includes transit passes and van pooling at the higher $240 level even if Congress should approve an extension for 2012."

    It is expected transit benefit parity will be addressed when Congress returns for a lame duck session after the November elections.

    2020 Business Travel Allowances

    Tax Receipts has an excellent flowchart summarizing your business travel deductions. It simplifies this complicated and often confusing expense claim.

    TaxReceits.com Small business travel expenses and deduction guide

    The U.S. General Services Administration (GSA) has an excellent per diem tool. You can search by city, zip code or state. It is located at gsa.gov/perdiem .

    2021 standard per diem rates were released in August in notice Federal Travel Regulation GSA Per Diem Bulletin FTR 21-01.

    On November 26, 2019, the IRS updated the rules for using per-diem rates to substantiate the amount of ordinary and necessary business expenses while traveling away from home. The new revenue procedure Rve. Proc. 2019-48 is effective from November 26, 2019 forward in light of the TCJA. See The November 26, 2019 Journal of Accountancy article "Per-Diem method clarified in light of TCJA changes" for more information.

    2018 / 2019 CONUS Rates

    For simple high-low per-diem CONUS rates in table format, see this notice in The IRS News.

    For FY2021 (effective October 1, 2020), the standard per diem lodging rate remains unchanged at $151 broken down as follows: $96 lodging, $55 meals and incidental expenses (2020 was $151) to reflect the average daily rate for lodging across the country. Reimbursement for meals and incidental expenses remain in range from $60 through $71 for meals per day depending on the location; $5 for incidental expenses*.

    If per diem rates fall short of actual expenses, the Federal Travel Regulation permits reimbursement of actual expenses.

    Rena Pirsos (XpertHR Legal Editor) explains that "per diem allowances that are equal to or less than the federal rates for the locality of travel are excluded from an employee's taxable income, while per diem allowances that exceed the federal rates are treated as taxable wages subject to employment taxes to the extent of the difference between the allowance and the federal rate."

    Rates are usually set annually by fiscal year, effective October 1. 

    2020-2021 Special Per Diem Rates (effective October 1, 2020 - September 30, 2021) were released in Notice 2020-71.

    2019-2020 Special Per Diem Rates (effective October 1, 2019 - September 30, 2020) were released in Notice 2019-55.

    2018-2019 Special Per Diem Rates (effective October 1, 2018 - September 30, 2019) were released in Notice 2018-77.

    2017-2018 Special Per Diem Rates (effective October 1, 2017 - September 30, 2018) were released in Notice 2017-54.

    2016-2017 Special Per Diem Rates (effective October 1, 2016 - September 30, 2017) were released in September 2016 in Notice 2016-58

    2015-2016 Special Per Diem Rates (effective October 1, 2015 - September 30, 2016) were released on September 16, 2015 in Notice 2015-63.

    2014-2015 Special Per Diem Rates (effective October 1, 2014 - September 30, 2015) were released on September 19, 2014 in Notice 2014-57.

    *The Journal of Accountancy explains that "since 2012, incidental expenses have included only fees and tips given to porters, baggage carriers, hotel staff, and staff on ships".

    It is my understanding that as long as any per diem allowances you pay do NOT exceed federal per diem rates, they are not taxable to the employee. If you exceed the federal rates, the excess is taxable. See Revenue Ruling 2006-56 for further small business tax information.

    A breakdown of the daily component can be found at gsa.gov/mie . The GSA points out that the first and last calendar day of travel is calculated at 75%.

    Meals and Incidental Expenses (M&IE) and Lodging - Maximum federal per diem rates prior to May 21, 2012 used to be found on the IRS website in the IRS publication 1542 Per Diem Rates (For Travel Within the Continental United States) at irs.gov/pub/irs-pdf/p1542.pdf . However that publication is no longer available. Your best bet now is to go to their information page on Per Diem Payments.

    Publication 1542 explained the high-low method and the localities that qualify and the regular rate method. The choice of rates you must make for the last three months of the year were discussed in the Transitional Rules section of the publication.

    (The high-low per diem method for substantiating expenses while traveling away from home was to be discontinued by the IRS. See Announcement 2011-42 and Rev. Proc. 2010-39. However, a number of taxpayers commented that they use the high-low substantiation method and asked that the Service retain it. Accordingly, this revenue procedure (Rev. Proc. 2011-47, 2011-42 IRB) continues to authorize the high-low substantiation method. Beginning with the rates for 2011-2012, the Service will publish an annual notice that provides the special per diem rates for purposes of sections 4.04, 4.05, and 5 of this revenue procedure and the list of high-cost localities for purposes of section 5 of this revenue procedure and will update this revenue procedure only as necessary.) 

                                   good bookkeeping practice

    Employee Payroll Taxes
    U.S. Business Travel Expenses

    I subscribe to the free AIPB Bookkeeping Tips newsletter. Every so often it includes a quiz to help you determine if your knowledge is up-to-date.

    In their June 22, 2015 newsletter they had a short quiz on tax deductions for travel expenses. So here is a reminder that you must be away on business for travel expenses to be deductible. (Pretty obvious.) Your tax home is the city / town of your principal place of business. Your residence can be your tax home ONLY if there is NO principal place of business. In the U.S. the tax home is defined by where a taxpayer earns income not where they reside.

    One question in another quiz (AIPB May 2, 2011 newsletter) explained that "business travel expenses are deductible by an individual or reimbursable to an employee tax free only when incurred while temporarily away from the tax home, which means no more than one year."

    Renee Daggett, EA at Admin Books shared this May 18, 2012 tip on FaceBook ...

    "For travel and entertainment expenses (other than lodging) receipts are generally NOT required for expenses below $75. You still need to show the time, place, amount and business purpose."

    This is background information from a 2010 CPA Daily News article [this publication is no longer available] titled Simplified Per-Diem Rates Lowered for Post-Sept. 30 Business Travel Rev Proc 2010-39, 2010-42 IRB ...

    "Background. An employer may pay a per-diem amount to an employee on business-travel status instead of reimbursing actual substantiated expenses for away-from-home lodging, meal and incidental expenses (M&IE). If the rate paid doesn't exceed IRS-approved maximums, and the employee provides simplified substantiation (time, place and business purpose), the reimbursement is treated as made under an accountable plan—it isn't subject to income- or payroll-tax withholding and isn't reported on the employee's Form W-2. Receipts of expenses aren't required.

    In general, the IRS-approved per-diem maximum is the GSA per-diem rate paid by the federal government to its workers on travel status. This rate varies from locality to locality. These rates in effect for the federal government's fiscal year period beginning Oct. 1, 2010, may be found at http://www.gsa.gov. However, in applying the per-diem, M&IE, and incidental-expenses-only allowances, an employer may continue using the CONUS (continental U.S.) rates that were in effect for the first nine months of 2010 for CONUS expenses in all of 2010, instead of using the GSA rates that are effective Oct. 1, 2010, provided that the employer consistently uses those prior rates for the last three months of 2010. (Rev Proc 2010-39, Sec. 3.02(1)(a))"

    I have to say, the U.S. travel allowance system seems very complicated compared to the Canadian system. I'm starting to really appreciate the federal government's efforts to simplify and reduce red tape for small businesses!

    Unclaimed or Uncashed Paychecks

    When dealing with employee payroll taxes, you as a business owner need to be aware of escheatment rules and regulations.

    If you have employees who did not cash their paychecks, you will find important employee payroll tax information regarding how to handle this type of transaction in QuickBooks on Intuit's website at:

    http://payroll.intuit.com/support/kb/1000763.html .

    The article is titled Escheat regulations for unclaimed or uncashed wages.

    The article explains why "under no circumstances should the funds from uncashed paychecks be returned to the general checking account."

    The general rule is the amounts are returned to the state after 1 year. However there are some exceptions.

    Unclaimed paychecks for North Carolina, North Dakota and Pennsylvania are returned to the state after two years.

    Unclaimed paychecks for Kentucky, Massachusetts, Maryland, New York, and Oregon are returned to the state after three years.

    Unclaimed paychecks for Delaware, Illinois, Montana, and Mississippi are returned to the state after five years.

    According to AIPB's free newsletter Bookkeeping Tips dated December 20, 2010, you must make a reasonable effort to contact the employee. In addition, you remain liable for any unclaimed wages until they are paid or turned over to the state.

    The unclaimed wages must be reported to your state annually during the holding period. AIPB says the reporting information required is:

    · employee’s name,
    · last known address,
    · description of the abandoned property (“wages”),
    · the date the wages became payable,
    · the dollar amount involved, and
    · the date of the last transaction with the employee.

    Penalties and interest charges will be levied if you attempt to spend or keep the unclaimed wages.

    The Accounts Payable Network (www.theaccountspayablenetwork.com) states that you should void the uncashed checks. If the owner reappears, they have a right to their property so just reissue a check at that time. They say use of the money in the interim is a business decision.

    I would open up a separate bank account specifically to hold these voided and unclaimed paychecks.

    The Accounts Payable Network has a list of escheatment resources if you need more information. Look under AP Compliance Suite> Escheatmet> Escheatment Resources.

    Don't forget to check out my other chats on employee payroll taxes.

    It's been great chatting with you about your books today!

    See you on the next page ...
    Your tutor Lake

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