Most doctors will face new payroll tax deposit penalties in 1999 warns tax attorney and CPA John K. McGill. Doctors who withheld more than $50,000 in employment taxes (ie, Social Security, Medicare, federal unemployment and federal income tax withholdings) during calendar year 1998 will be required to begin making these tax deposits electronically beginning on January 1, 1999. Doctors who fail to comply with the electronic tax deposit rules face a penalty equal to 10% of the taxes deposited. “
“Most doctors have continued to file the paper form 8109 and make their deposits at their local bank, since no penalty applied to their practice,” stated McGill. “In 1999, thousands of doctors must change their operating procedures to begin electronically depositing these taxes or they will face penalties of $5,000 or more,” he continued.
According to McGill, all doctors should have received at least one notification regarding these rules, along with an electronic federal tax payment (EFTPS) instruction booklet. If the doctor has not received this information, he or she should call 800-555-4477 (Southern states) or 800-945-8400 (Northern states).
“Doctors looking to comply with the new tax law have two choices,” says McGill. “If they bank with a qualifying financial institution, that bank can transmit payroll taxes for the doctor electronically under the ACH Credit Method. The second option is to have the doctor’s practice (or outside payroll service) initiate the transaction, using the ACH Debit Method through one of two banks acting as agents for the IRS: First Chicago in the North or Bank of America (NationsBank) in the South.”
Since these new rules will affect thousands of chiropractic practices for the first time in 1999, now is the time for doctors to obtain the additional information they need to begin electronic deposits on January 1st and thus avoid the stiff new penalties,” says McGill.
Important February 1st Reminders:
If you paid more than $1,000 during the 1998 calendar year to a housekeeper, babysitter or other household employee, you are liable for Social Security taxes and required to file Form 942 (Employer’s Quarterly Tax Return for Household Employees). Alternatively, the Social Security taxes (FICA) and Federal Unemployment Taxes (FUTA) due on any domestic helper’s wages can be computed and paid on the doctor’s individual tax return (Form 1040), rather than having to file Form 942 each quarter and Form 940 by February 1.
Using Form 940, doctors are required to file an annual Federal Unemployment Tax (FUTA) return for practice salaries paid in 1998 by February 1. If you made timely deposits in full payment of the tax, this deadline is extended to February 10. Are you liable for FUTA taxes? You are if your wage payments topped $1,500 in any calendar quarter last year, if you employed one or more persons on at least one day of each of 20 or more weeks during the last year, or if you pay a household worker $1,000 or more in a calendar quarter.
Here’s a memory jogger if you chose not to pay the last installment of your estimated 1998 federal income tax on January 15. File a complete Form 1040 and pay the balance of your actual 1998 income tax and the balance of your 1998 self-employment tax.
File Form 941 to pay balance of last quarter 1998 contributions to Social Security, plus the balance of Social Security and income taxes withheld from October 1 to December 31. This filing deadline is extended to February 10 if you made deposits on time in full payment of your Social Security tax and withholding liabilities during the preceding quarter. While it may not be an IRS requirement, it’s always a good idea to prepare and keep a reconciliation of the wages, Social Security taxes and income taxes withheld as shown on the W-2s with the quarterly 941 Forms and your books. Retain Copy D of all W-2s.