CPA Prep REG

REG Chapter 8 Part 2: Other Federal Laws and Regulations

Welcome to the grab bag lesson - we will cover several different topics that haven't been covered so far

Welcome to the grab bag lesson – we will cover several different topics that haven’t been covered so far. Here are today’s learning outcomes:

  • Summarize federal laws and regulations, for example, employment tax, Affordable Care Act, and worker classification federal laws and regulations.
  • Identify violations of federal laws and regulations, for example, employment tax, Affordable Care Act, and worker classification federal laws and regulations.

Employment Tax

If you’ve ever had a job then you know a little about employment taxes. Generally, if you work as an employee you will have to pay social security tax as well as medicare tax. However, what is not commonly know is that your employer must match these taxes. Here is the breakdown:

  • Social security rate is 6.2% for the employee and 6.2% for the employer.
  • Medicare tax is 1.45% for the employee and 1.45% for the employer.
  • Social security tax is subject to the first $128,400 of wages for 2018.
  • Medicare tax is subject to all wages.
  • For employees earning in excess of $200,000, an additional 0.9% additional medicare tax must be withheld for earning in excess of $200,000 regardless of filing status.

Federal Unemployment Tax

Employers have to pay an additional employment tax for federal unemployment benefits. This tax is .6% of the first $7,000 paid in wages less exempt payments (fringe benefits, retirement, dependent care). Don’t worry about memorizing these numbers just know that the employer pays these taxes and not the employee.

Self Employment Tax

If you are self employed then you must pay the employee and the employer portion of the tax. This means you’ll pay 12.4% for social security and 2.9% for medicare tax. You will be able to deduct the employer portion of the tax on your 1040 as an adjustment to AGI.

Affordable Care Act

Here are the requirements for employers:

  • If you have fewer than 25 full-time employees, including full-time equivalent employees, you may be eligible for a Small Business Health Care Tax Credit to help cover the cost of providing coverage.
  • Generally, employers with 50 or fewer employees may be eligible to buy coverage through the Small Business Health Options Program or (SHOP Marketplace). Learn more at HealthCare.gov.
  • If you have 50 or more full-time employees, including full-time equivalent employees, you are an applicable full-time employer and need to issue statements to employees and file an annual information return reporting which health insurance you offered employees. ALEs are subject to the employer shared responsibility provisions.
  • Some states allow employers with up to 100 employees to buy coverage through the Small Business Health Options Program, or SHOP Marketplace.
  • Regardless of size, all employers that provide self-insured health coverage to employees must file an annual return reporting certain information for each covered employee and provide the same information to covered individuals.

And for employees:

  • Most taxpayers already have qualifying health care coverage, and will simply check a box on their tax return.
  • If you purchased coverage through the Health Insurance Marketplace, you may be eligible for the premium tax credit.¬†Claim and reconcile the credit on Form 8962.
  • Some taxpayers are exempt from the requirement to have coverage and will not need to make a shared responsibility payment.¬†Find out if you are exempt.
  • If you do not have qualifying coverage or an exemption for each month of the year, you will need to make a payment with your return.

Employee vs. Self Employed Subcontractor

If you are classified as an employee then you are subject to the above rules. However, if you are a subcontractor then you are not considered an employee and therefore you won’t have employment taxes withheld from your pay. If you are considered a subcontractor then you are subject to self employment tax (as illustrated above) but the payee has no obligation to withhold and remit those taxes on your behalf. You are considered a subcontractor if:

  • You have your own equipment.
  • You set your own hours.
  • You’re able to work for other people/businesses.
  • Your work is not associated with the business (you are not a representative of the company that pays you).

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