Page 25 - IRS Employer Tax Guide

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
For additional information about employer withholding hospital insurance part is financed by the Medicare tax.
compliance, see IRS.gov/WHC. Each of these taxes is reported separately.
Substitute Forms W-4. You’re encouraged to have your Generally, you’re required to withhold social security
employees use the official version of Form W-4. You may and Medicare taxes from your employees' wages and pay
use a substitute version of Form W-4 to meet your busi- the employer's share of these taxes. Certain types of wa-
ness needs. However, your substitute Form W-4 must ges and compensation aren't subject to social security
contain language that is identical to the official Form W-4 and Medicare taxes. See section 5 and section 15 for de-
and your form must meet all current IRS rules for substi- tails. Generally, employee wages are subject to social se-
tute forms. At the time you provide your substitute form to curity and Medicare taxes regardless of the employee's
the employee, you must provide him or her with all tables, age or whether he or she is receiving social security bene-
instructions, and worksheets from the current Form W-4. fits. If the employee reported tips, see section 6.
You can't accept substitute Forms W-4 developed by Tax rates and the social security wage base limit.
employees. An employee who submits an employee-de- Social security and Medicare taxes have different rates
veloped substitute Form W-4 after October 10, 2007, will and only the social security tax has a wage base limit. The
be treated as failing to furnish a Form W-4. However, con- wage base limit is the maximum wage subject to the tax
tinue to honor any valid employee-developed Forms W-4 for the year. Determine the amount of withholding for so-
you accepted before October 11, 2007. cial security and Medicare taxes by multiplying each pay-
Invalid Forms W-4. Any unauthorized change or addi- ment by the employee tax rate.
tion to Form W-4 makes it invalid. This includes taking out For 2020, the social security tax rate is 6.2% (amount
any language by which the employee certifies the form is withheld) each for the employer and employee (12.4% to-
correct. A Form W-4 is also invalid if, by the date an em- tal). The social security wage base limit is $137,700. The
ployee gives it to you, he or she clearly indicates it is false. tax rate for Medicare is 1.45% (amount withheld) each for
An employee who submits a false Form W-4 may be sub- the employee and employer (2.9% total). There is no
ject to a $500 penalty. You may treat a Form W-4 as inva- wage base limit for Medicare tax; all covered wages are
lid if the employee wrote “exempt” below Step 4(c) and subject to Medicare tax.
checked the box in Step 2(c) or entered numbers for Additional Medicare Tax withholding. In addition to
Steps 3 and 4. withholding Medicare tax at 1.45%, you must withhold a
When you get an invalid Form W-4, don't use it to figure 0.9% Additional Medicare Tax from wages you pay to an
federal income tax withholding. Tell the employee it is in- employee in excess of $200,000 in a calendar year.
valid and ask for another one. If the employee doesn't give You’re required to begin withholding Additional Medicare
you a valid one, then how you will treat the employee de- Tax in the pay period in which you pay wages in excess of
pends on when you first paid wages to the employee. An $200,000 to an employee and continue to withhold it each
employee who was paid wages in 2019 should be treated pay period until the end of the calendar year. Additional
as single and claiming zero allowances on a 2019 Form Medicare Tax is only imposed on the employee. There is
W-4. However, if you have an earlier Form W-4 for this no employer share of Additional Medicare Tax. All wages
employee that is valid, withhold as you did before. An em- that are subject to Medicare tax are subject to Additional
ployee who is first paid wages in 2020, including an em- Medicare Tax withholding if paid in excess of the
ployee who previously worked for you and was rehired in $200,000 withholding threshold.
2020, should be treated as if the employee had checked For more information on what wages are subject to
the box for Single or Married filing separately in Step 1(c) Medicare tax, see section 15. For more information on Ad-
and made no entries in Step 2, Step 3, or Step 4 of the ditional Medicare Tax, go to IRS.gov/ADMT.
2020 Form W-4.
Amounts exempt from levy on wages, salary, and Successor employer. When corporate acquisitions
meet certain requirements, wages paid by the predeces-
other income. If you receive a Notice of Levy on Wages, sor are treated as if paid by the successor for purposes of
Salary, and Other Income (Forms 668-W(ACS), 668-W(c) applying the social security wage base and for applying
(DO), or 668-W(ICS)), you must withhold amounts as de- the Additional Medicare Tax withholding threshold (that is,
scribed in the instructions for these forms. Pub. 1494 has $200,000 in a calendar year). You should determine
tables to figure the amount exempt from levy. If a levy is- whether or not you should file Schedule D (Form 941), Re-
sued in a prior year is still in effect and the taxpayer sub- port of Discrepancies Caused by Acquisitions, Statutory
mits a new Statement of Exemptions and Filing Status, Mergers, or Consolidations, by reviewing the Instructions
use the current year Pub. 1494 to figure the exempt for Schedule D (Form 941). See Regulations section
amount. 31.3121(a)(1)-1(b) for more information. Also see Reve-

Social Security and Medicare Taxes nue Procedure 2004-53, 2004-34 I.R.B. 320, available at
IRS.gov/irb/2004-34_IRB#RP-2004-53.
The Federal Insurance Contributions Act (FICA) provides Example. Early in 2020, you bought all of the assets of
for a federal system of old-age, survivors, disability, and a plumbing business from Mr. Martin. Mr. Brown, who had
hospital insurance. The old-age, survivors, and disability been employed by Mr. Martin and received $2,000 in
insurance part is financed by the social security tax. The wages before the date of purchase, continued to work for

Page 24 Publication 15 (2020)