Payroll News

http://www.irs.gov/businesses/small/article/0,,id=220746,00.html

QR8: How does application of the payroll tax exemption to wages paid to restaurant employees affect the 45B credit?
A-QR8: Certain food and beverage establishments can claim a credit under section 45B of the Internal Revenue Code for social security and Medicare taxes paid or incurred by the employer on certain employee tips, referred to as the “45B credit.”

An employer could be eligible for both the payroll tax exemption and the 45B credit on certain tips if the employer has tipped employees who are also qualified employees under the HIRE Act.  The payroll exemption is taken on the employer’s Form 941 and the 45B credit is taken on the employer’s income tax return.

The payroll tax exemption applies to all wages paid to a qualified employee unless the employer elects out of the payroll tax exemption with respect to the employee. An employer that applies the payroll tax exemption with respect to a qualified employee will be entitled to a smaller 45B credit because the employer will pay only Medicare tax (and not social security tax) on the employee’s wages, including reported tips.

This obviously complicates the Form 8846. PayMaster will have to credit just the Medicare portion on employees who have the HIRE ACT exception taken.

Thankfully the IRS will not revise Form 941 for the third and fourth quarters of 2010. Employers will be directed by the form and the instructions to leave lines 12c and 12d blank on the returns that they file for the third and fourth quarters.

Filed under: Federal News, Payroll News