Page 35 - IRS Employer Tax Guide

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Fileid: … ations/P15/2020/A/XML/Cycle07/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
employee withholding of social security and Medicare Adjustment of tax on group-term life insurance pre-
taxes as “fractions-of-cents” adjustments. If you pay your miums paid for former employees. The employee
taxes with Form 941 (or Form 944) instead of making de- share of social security and Medicare taxes for premiums
posits because your total taxes for the quarter (year for on group-term life insurance over $50,000 for a former
Form 944) are less than $2,500, you may also report a employee is paid by the former employee with his or her
fractions-of-cents adjustment. tax return and isn't collected by the employer. However,
To determine if you have a fractions-of-cents adjust- include all social security and Medicare taxes for such
ment for 2020, multiply the total wages and tips for the coverage on Form 941, lines 5a and 5c (Form 944, lines
quarter subject to: 4a and 4c). If the amount paid for an employee for premi-
• Social security tax reported on Form 941 or Form 944 ums on group-term life insurance combined with other wa-
by 6.2% (0.062), ges exceeds $200,000 for the calendar year, report the
Additional Medicare Tax on Form 941, line 5d (Form 944,
• Medicare tax reported on Form 941 or Form 944 by line 4d). Back out the amount of the employee share of
1.45% (0.0145), and these taxes as a negative adjustment on Form 941, line 9
• Additional Medicare Tax reported on Form 941 or (Form 944, line 6). See Pub. 15-B for more information on
Form 944 by 0.9% (0.009). group-term life insurance.
Compare these amounts (the employee share of social Example. Cedar, Inc., filed Form 941 and was entitled
security and Medicare taxes) with the total social security to the following current period adjustments.
and Medicare taxes actually withheld from employees and
shown in your payroll records for the quarter (Form 941) • Fractions of cents. Cedar, Inc., determined the
or the year (Form 944). If there is a small difference, the amounts withheld and deposited for social security
amount, positive or negative, may be a fractions-of-cents and Medicare taxes during the quarter were a net
adjustment. Fractions-of-cents adjustments are reported $1.44 more than the employee share of the amount
on Form 941, line 7, or Form 944, line 6. If the actual figured on Form 941, lines 5a–5d, column 2 (social se-
amount withheld is less, report a negative adjustment us- curity and Medicare taxes). This difference was
ing a minus sign (if possible; otherwise, use parentheses) caused by adding or dropping fractions of cents when
in the entry space. If the actual amount is more, report a figuring social security and Medicare taxes for each
positive adjustment. wage payment. Cedar, Inc., must report a positive
$1.44 fractions-of-cents adjustment on Form 941,
For the above adjustments, prepare and retain a line 7.
TIP brief supporting statement explaining the nature • Third-party sick pay. Cedar, Inc., included taxes of
and amount of each. Don't attach the statement to
Form 941 or Form 944. $2,000 for sick pay on Form 941, lines 5a and 5c, col-
umn 2, for social security and Medicare taxes. How-
Adjustment of tax on third-party sick pay. Report both ever, the third-party payer of the sick pay withheld and
paid the employee share ($1,000) of these taxes. Ce-
the employer and employee share of social security and dar, Inc., is entitled to a $1,000 sick pay adjustment
Medicare taxes for sick pay on Form 941, lines 5a and 5c (negative) on Form 941, line 8.
(Form 944, lines 4a and 4c). If the aggregate wages paid
for an employee by the employer and third-party payer ex- • Life insurance premiums. Cedar, Inc., paid
ceed $200,000 for the calendar year, report the Additional group-term life insurance premiums for policies in ex-
Medicare Tax on Form 941, line 5d (Form 944, line 4d). cess of $50,000 for former employees. The former
Show as a negative adjustment on Form 941, line 8 (Form employees must pay the employee share of the social
944, line 6), the social security and Medicare taxes with- security and Medicare taxes ($200) on the policies.
held on sick pay by a third-party payer. See section 6 of However, Cedar, Inc., must include the employee
Pub. 15-A for more information. share of these taxes with the social security and Medi-
care taxes reported on Form 941, lines 5a and 5c, col-
Adjustment of tax on tips. If, by the 10th of the month umn 2. Therefore, Cedar, Inc., is entitled to a negative
after the month you received an employee's report on tips, $200 adjustment on Form 941, line 9.
you don't have enough employee funds available to with-
hold the employee's share of social security and Medicare No change to record of federal tax liability. Don't
taxes, you no longer have to collect it. However, report the make any changes to your record of federal tax liability re-
entire amount of these tips on Form 941, lines 5b and 5c ported on Form 941, line 16, or Schedule B (Form 941)
(Form 944, lines 4b and 4c). If the aggregate wages and (for Form 944 filers, Form 944, line 13, or Form 945-A) for
tips paid for an employee exceed $200,000 for the calen- current period adjustments. The amounts reported on the
dar year, report the Additional Medicare Tax on Form 941, record reflect the actual amounts you withheld from em-
line 5d (Form 944, line 4d). Include as a negative adjust- ployees' wages for social security and Medicare taxes.
ment on Form 941, line 9 (Form 944, line 6), the total un- Because the current period adjustments make the
collected employee share of the social security and Medi- amounts reported on Form 941, lines 5a–5d, column 2
care taxes. (Form 944, lines 4a–4d, column 2), equal the actual

Page 34 Publication 15 (2020)