Payroll Issue

[Burke]

In the course of a state unemployment system payroll audit for tax year 2007, a $3,000 payment made to the employee was deemed to be salary. As the maximum SUTA tax was already paid on this employee for the year, there was no additional SUTA tax due.
But this was not included in the employee's original W-2, and we want to go ahead and amend the federal and state returns to include this in income to avoid further penalties and interest.
Instructions say to file 941C with the current 941 employer return and issue a W2C for the prior year. No problem under normal circumstances. However, ...

since I know the state has entered into an agreement with the IRS to share such audit information, do I assume they have done/will do it? I have the state report and it is not mentioned. And if so, will the IRS contact and/or adjust the 2007 return for employer and/or employee without me having to do anything? I want to be proactive on this, but avoid hassles with duplications.

[BOB W]

Instructions say to file 941C with the current 941 employer return and issue a W2C for the prior year. No problem under normal circumstances. However, ...

I think the instruction mean to file 941C for the CORRECT quarter (IN 2007) but mail it in with the current qtr 941...??? Because how can you file a 941c for the current qtr...????

[JG EA]

Do you agree with this SUTA change? Not all SUTA adjustments apply to the federal wages. But if you think it is correct and will have to change anyway going ahead and doing it sounds like a good course. If you have questions about the reporting to the federal level, I have found just asking the SUTA auditor about it is very helpful. They have told me what if anything will be reported and if it is also a federal issue.

You also may like to know there will be an IRS phone forum on Correcting Employment Taxes in 2009. I know you want to correct right away and include the correction with the 4Q and in doing so will be under the current system of attaching the correction to the current 941. This forum seems interesting to get all the new information. You have to register by tomarrow.

http://www.irs.gov/businesses/small/article/0,,id=158856,00.html

[Burke]

I think the instruction mean to file 941C for the CORRECT quarter (IN 2007) but mail it in with the current qtr 941...??? Because how can you file a 941c for the current qtr...????

Yes, that is what I meant to say. I am interpreting the instruction that way, to attach the 941C for the 2007 quarter in which it should have been reported to the current 941 report (actually not to be sent in until 1/31/09) along with the additional FICA taxes that are due.

[Burke]

Do you agree with this SUTA change? Not all SUTA adjustments apply to the federal wages. But if you think it is correct and will have to change anyway going ahead and doing it sounds like a good course. If you have questions about the reporting to the federal level, I have found just asking the SUTA auditor about it is very helpful. They have told me what if anything will be reported and if it is also a federal issue.

You also may like to know there will be an IRS phone forum on Correcting Employment Taxes in 2009. I know you want to correct right away and include the correction with the 4Q and in doing so will be under the current system of attaching the correction to the current 941. This forum seems interesting to get all the new information. You have to register by tomarrow.
http://www.irs.gov/businesses/small/...158856,00.html

Yes, I agree with it. We discussed it. Thanks for the forum info. I signed up.

[Jesse]

since I know the state has entered into an agreement with the IRS to share such audit information, do I assume they have done/will do it? I have the state report and it is not mentioned. And if so, will the IRS contact and/or adjust the 2007 return for employer and/or employee without me having to do anything? I want to be proactive on this, but avoid hassles with duplications.

Personally, I wouldn't assume they have done or will do it. I would also do the corrected W-2 and issue it to the employee so that they can amend their 2007 returns as soon as possible to avoid increasing underpay penalties and interest. Who knows when the IRS increase in tax assessment notice will finally reach them.

Concerning the 941c you might want to wait until after 1/1/09, I did hear that the new correcting forms are much easier to work with.

[Black Bart]

Agree with Jesse

Personally, I wouldn't assume they have done or will do it. I would also do the corrected W-2 and issue it to the employee so that they can amend their 2007 returns as soon as possible to avoid increasing underpay penalties and interest. Who knows when the IRS increase in tax assessment notice will finally reach them.

Concerning the 941c you might want to wait until after 1/1/09, I did hear that the new correcting forms are much easier to work with.

While I've received state tax due notices (on income tax--not payroll tax) after IRS audits, I have never yet seen a bill from the feds as a result of a state audit. If I wanted to get it over with, I'd fix it up now as it's probably a long shot you'll ever hear from them. If you do you can always just send copies of the corrected papers.

I think the new form 941X goes into effect on January 1st. I don't know exactly how it works except you're supposed to be able to file it by itself, as opposed to now attaching corrections to a currently due 941.

[Snaggletooth]

Form 94X

Just got back from a seminar where an IRS speaker unveiled the new "Form 94X."

This replaces the 941C effective 01/01/09, and applies to the entire family of quarterly reports, e.g. 941, 943, 944, etc.

Identifies the problem, but makes the correction prospectively rather than retroactively, thus there is no amendment to a prior quarter. Not sure how that heals a prior year out-of-balance problem, but I guess we'll see.

[Burke]

I knew they were coming out with the new 941X. But, I thought the info said it was for use on 2009 taxes, so did you understand you could use it for the last quarter of 2008 (to be filed 1/31/09)?

[JG EA]

..so did you understand you could use it for the last quarter of 2008 (to be filed 1/31/09)?

Doubt it but I'll find out Tuesday.

[veritas]

We were

I knew they were coming out with the new 941X. But, I thought the info said it was for use on 2009 taxes, so did you understand you could use it for the last quarter of 2008 (to be filed 1/31/09)?

told it could be used for prior years returns at this week's seminar.

[Burke]

While I've received state tax due notices (on income tax--not payroll tax) after IRS audits, I have never yet seen a bill from the feds as a result of a state audit. .

This is a new program and not all states have signed a share agreement. My state was one of 7 effective this year. It makes sense. The IRS lets the state do the audits -- generally conducted by the Unemployment Office, targeting high-incident professions which commonly use independent contractors,such as real estate and building contractors. They are primarily looking for situations where these people should be treated as employees. The state gets to assess the unemployment tax, and then the IRS gets the information and gets to assess FICA/MC taxes from the employer, I assume. How this is resolved when the TP has already filed and paid self-employment tax I do not know. Does anyone else?

[JG EA]

Doubt it but I'll find out Tuesday.

The phone forum answer is:

Use the new X forms for errors discovered on or after 1/1/09. (This means errors on 941's etc. in prior periods within the statute of limitations period.)

[Burke]

Thanks. I signed up for it and tried to access today, but could not make the connection. Any other tidbits that you found out?

[JG EA]

Let's see. These new forms are not attached to anything. Just sent in when the mistake discovered. 941C will be obsolete of course.

They gave e.g. Error discovered 02/11/09 - Employer overreported social security wages on 941 for the 4th quarter 2008. Employer checks the box in Part 1 line 1 of Form 941-X for Adjusted employment tax return - Employer wants to use the money as a credit for the 1st quarter 2009.

You can choose between adjustment and a claim for refund on the form, unless you are 90 before the end of the statute of limitations then you only have the refund choice I think. That is to give the IRS time to process the claim on the 941-X.(and all the other X's like 944, etc.) No 843 for these type of taxes anymore because it is done on the form. And there was something about if you were in the 90 day period at the end of the 3 (or 2) year period and you had both overpayments and underpayments you had to do 2 forms instead of the usual one.

The statute is the same as for tax returns. 3 years from the due date of the return or 2 years from when the taxes were paid. The starting due date is a little unclear to me. It sounded like they were saying for the whole year's 941s the due date was April 15th of the following year, but I am not positive.

Payment methods for the X's Checks, Credit Cards, and EFTPS but no coupons for the X's.

If you owe employees money you have to have them certify that it has been paid but the records of this certification remain in the employers files.

These are all interest free:
Exceptions to Interest-Free
Treatment
• Prior audit
• Knowingly underreported
• Notice and demand
• Notice of Determination of Worker
Classification (Letter 3523)

Oh and if a 941, etc was not filed previously (worker misclassified,etc.) then no X's. Just do the original 941 form. Still interest free.

Drafts are availiable now, 941-X available in January, rest later.