A Tip on Tip Reporting If you are like millions of taxpayers in the service industry, you may receive tips. The tax code is clear; if you receive tips you must report them as income. Some employers have systems to make this easy, while others do not. Here are some suggestions:
An inevitable part of life is a changing jobs. Now a recent Supreme Court decision clarifies that severance payments you receive when you leave your job are wages and subject to employment taxes. So how might this impact you?
All employees and employers pay FICA taxes. There are two components;
Social Security. Social Security tax rates are 6.2% for the employee and 6.2% for the employer (total 12.4%) on the first $117,000 of wages in 2014.
Medicare. Medicare tax is 1.45% for the employee and another 1.45% for the employer (total 2.9%). There is also a potential Obamacare surcharge if your wages exceed $200,000 single and $250,000 married.
Many employers who pay a severance check to employees when they leave have classified these checks as other, non-wage, income. This allows both the employer and employee to save on paying these FICA taxes.
As you review your filing requirements for 2013, make sure you don't overlook the so-called "nanny tax." If you have a household employee, you could be liable to pay state and federal payroll taxes.
First, you must determine whether you have a household employee. Generally, this is someone you hire to work in or around your house. It could be a babysitter, nurse, maid, housekeeper, or gardener. It doesn't matter whether they work part-time or full-time, or whether you pay them hourly, weekly, or by the job.
Early this year, review the amount of income tax you're having withheld from your wages to see if it should be adjusted. While you must meet minimum tax payment requirements, don't overwithhold or you'll be giving the IRS interest-free use of your money for a year. Don't underwithhold either, or you face penalty and interest charges on the underpayment.