Shared Flashcard Set


Fundementals of Payroll

Additional Accounting Flashcards





Documents Employers Request to Hire New Employees

  • Social Security card
  • Fill out I9 Withholding Certificate
  • Fill out W-4 for federal tax
  • Fill out W-4 State for state tax
  • Fill local tax form if applicable
  • Employers must protect employee name and SS#.


Methods of Paying Employees

  • Pay via check, direct deposit, cash, paycards

Withholding Taxes

  • All employees must pay federal income and employment taxes on wages
  • Depending on the state, state taxes must be paid by employer, some states don't have state tax, only 41 states do
  • Local taxes must be paid if applicable.
  • Employment taxes = (FICA) Medicare and Social Security tax
  • FICA taxes = paid by employee and employer
  • SS Tax = 6.20% put in employee's federal account to pay employee when they retire
  • Money is used for retirement, disability survivors
  • Self-employed must pay, as well both parts




  • Medicare tax - 1.45% - provides retired employees health insurance when they become 65.
  • Employer pays equal share of SS tax and Medicare tax
  • Largest health insurance program
  • Covers over 39million Americans
  • Provides health insurance to people age 65 and over, those who have permanent kidney failure, people with certain disabilities




Unemployment Insurance Tax

  • A joint federal-state system handles the unemployment insurance for employees who lose their jobs
  • Payments are made to eligible workers if they qualify
  • In most states, only the EMPLOYERs pay the federal (FUTA) and state (SUI) unemployment  tax that support unemployment.
  • Some states require employees to pay portion of unemployment tax - Alaska, New Jersey, Pennsylvania
  • Each payment is based on a maximum wage base and each state has a different percent to be paid and a different wage base


Disability Insurance Tax

  • This tax exists only in CA, New Jersey, NY, RI, PR and Hawaii.
  • CA and NJ have a Paid Family Leave program that is paid by employee contributions



Independent Contractor

  • Employer decides if new hire is an employee or independent contractor
  • Employers must withhold all applicable taxes and match the FICA tax on an employee, but NOT for an independent contractor
  • An independent contractor MUST have a TIN number to be classed as an Independent contracto
  • Independent contractors must pay both employee and employer FICA tax on their own behalf
  • Employer determines classificiatoin using the Common Law test


Independent Contractor

  • If the IC provides the employer with a TIN number the only obligation for the employer is to provide the IC a 1099-MISC when paying the IC $600 or more during a calendar year
  • A copy of the 1099-MISC must be sent to the IRS by the employer
  • If a ATIN number is provided by the IC, the employer is not obligated to withhold taxes from payments made to IC


Common Law Test for determining Whether a Worker is an Employee

  • Required to comply with employer's instructions about when, where and how to work
  • Works exclusively for the employer
  • Hired by employer
  • Subject to dismissal; can quit without liability
  • Has a continuing relationship with the employer
  • Work done personally
  • Performs services under the company's name
  • Paid a salary;reimbursed for expenses; participates in company's fringe benefits programs
  • Funished tools, equipment, materials and training
  • If an outside salesperson: company provides leads, sets terms and conditions of the sale, assigns a territory, and controls the sales process.

Common Law Test for Independent Contractor

  • Sets own hours, determines own sequence of work
  • Can work for multiple employers; services available to the public
  • Is self-employed
  • A contract governs how the relationship can be severed
  • Works by the job
  • Permitted to employ assistants
  • Performs services under the worker's business name
  • Payment by job, opportunity   for profit an loss
  • Funishes own tools, equipment and training, substantial investment by the worker
  • Controls sales process and terms

In applying for common law test, the IRS must consider three categories:  behavioral control, financial control, and relationship of the parties



Purpose of the Form SS-8


  • To receive an IRS ruling on what type of worker classification,  employers can fill out a Form SS-8
  • Form SS-8 = Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding.
  • This form contains questions designed to determine the classification (employee or IC)
  • If waiting for IRS determination, treat worker as an employee
  • If IRS rules worker is an IC, the employer is NOT entitled to a refund of any employment taxes paid 


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