The IRS determines deposit requirements for 2006 from the total taxes employers reported on their Forms 941 for the previous four quarter look-back period consisting of the quarters ending 9/30/04, 12/31/04, 3/31/05 and 6/30/05.

In November, the IRS mailed a deposit frequency notice to employers stating what their deposit frequency will be for 2006.  Employers should check their letter to determine when they need to make payroll tax deposits in 2006.

Reporting Taxable Adjustments on W-2’s

Taxable adjustments (e.g., personal use of company car, value of group-term life insurance greater than $50,000) should be reported with regular payroll whenever possible.  This allows any required employee taxes to be withheld from the wages.  If taxable adjustments are reported without wages, the employer may be liable for the employee portion of the taxes.

S-Corp Shareholder Health Insurance Premiums

Health insurance premiums paid on behalf of a greater than 2% shareholder should be reported on the shareholder’s W-2.  It is reported in Box 2 of the W-2 only and is not subject to any federal withholding tax.

Employee Withholding Update

Employers should remind their employees to review their W-4 status and to file a new W-4 if their filing status or number of withholding allowances will change in 2006.  The IRS has a “Withholding Calculator” to assist employees with determining their filing status.  http://www.irs.gov/individuals/article/0,,id=96196,00.html

W-2’s

W-2’s should be issued to employees no later than January 31, 2006.  The Copy A of the W-2’s and W-3 should be mailed to the Social Security Administration no later than February 28, 2006.

Employers should consider using SSA’s Social Security Number Verification Service to verify employees’ names and social security numbers and to avoid error notices.
(See http://www.socialsecurity.gov/employer/ssnv.htm)

1099-MISC

1099-MISC should be issued to anyone who is not a corporation, for rent or non-employee services if the total amount for the year exceeds $600.  Additionally, gross proceeds paid to an attorney need to be reported on the 1099-MISC.  This form should be sent to the recipient no later than January 31, 2006 and copy A, accompanied by Form 1096, sent to the IRS no later than February 28, 2006.

These articles are intended to provide resources for the tax and accounting needs of small businesses and individuals. The information contained in this Website is intended to provide general information on matters of interest in the areas of tax and accounting and should not be acted upon in your specific situation without further details and/or professional assistance.   Users are encouraged to contact us regarding specific situations.