Payroll and Payroll Taxes
The union as an employer
The wage and payroll tax area is very complex and is ever changing. To the extent that any affiliate pays wages and withholds taxes, it has the responsibility to stay abreast of laws affecting the payment of wages.
For payroll tax purposes, a labor organization is treated as any other business entity and is subject to all payroll tax filing requirements. If an affiliate employs one or more individuals (regardless of the number of hours worked), the affiliate is subject to a number of state and federal employment tax and labor laws. This section provides an overview of those requirements. Further information can be found in the Internal Revenue Service Circular E, Employer’s Tax Guide.
The employer or person controlling the wage payments must generally withhold federal income, Social Security and Medicare tax, state income and local income taxes imposed upon employees. Income tax withholding is a "pay-as-you-go" method of collecting the estimated tax due from employees on wages paid to them.
The officer as an employee
Allowances (e.g., auto allowance, officer allowance, stipends), reimbursed dues and lost time paid to officers are considered wages. Federal income, Social Security and Medicare taxes, state income tax and local income taxes must be withheld from the above payments. The withholding, deposit and filing requirements are discussed below.
Withholding forms and filing requirements
Form I-9
The Department of Immigration and Naturalization requires that employers have a valid Form I-9 on file for all employees.
Form W-4
A Form W-4 must be on file for each officer or employee (including any member receiving lost time payments) who receives compensation or taxable payments from the affiliate. The amount to withhold from each employee is determined by the number of withholding exemptions claimed on the employee’s W-4. (If an employee claims more than 10 withholding exemptions, a copy of the W-4 must be sent to the IRS.)
Federal income tax withholding
Federal income taxes must be deducted from the paychecks of employees to the extent that those payments constitute wages. Withholdings are based on the number of exemptions and the applicable withholding tables or rates.
Social Security and Medicare taxes
Social Security and Medicare taxes must be deducted from all employees’ paychecks until the maximum Social Security limit is reached. The percentage of wages withheld and/or the base wages may change from year to year. This information is contained in IRS Circular E.
Deposit requirements
The Internal Revenue Service requires the employer to deposit federal withholding and Social Security and Medicare taxes when undeposited taxes reach certain prescribed balances set by the IRS. In certain cases, these deposits must be made by electronic funds transfer. Deposits, other than the electronic funds transfers, are made at authorized commercial banks or to the Federal Reserve Bank in the employer’s geographic area. Send one check covering both Social Security and Medicare and federal withholding taxes, payable to the bank where the affiliate’s deposits are made. The deposit due dates and deposit requirements are outlined in Circular E.
Form 941, Employer's Quarterly Return
By the last day of April, July, October and January following the close of the calendar year, Form 941 must be filed with the IRS. The 941 is used to reconcile tax deposits made throughout the quarter and to pay any undeposited taxes due.
Federal unemployment taxes
This tax applies to every covered employer who, during the past or current year, pays wages of $1,500 or more in any calendar quarter or has one or more employees at any time in each of 20 calendar weeks. Unemployment is a tax paid entirely by the employer rather than withheld from the employees’ wages. Payments are made in the same manner as federal and Social Security and Medicare taxes and are due on the last day of the calendar month following each quarter (April 30, July 31, October 31, and January 31). A deposit is not necessary if the tax due for the quarter plus the tax due but not deposited from previous quarters is $100 or less. See IRS Circular E for rates.
Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return
An annual return is due on or before January 31, following the calendar year to which it relates. Basically, the return reconciles federal unemployment tax deposits with total wages subject to tax.
State income tax withheld
Most states impose income taxes and withholding requirements similar to those of the federal government. Affiliates unfamiliar with the requirements of their state should contact the state Department of Revenue or the Department of Taxation.
State unemployment tax
Unlike federal unemployment taxes, some states require that their unemployment taxes be paid by the employer and be withheld from employees’ salaries. For information as to whether and how payments are subject to tax, contact the Department of Employment Security (or its equivalent) in your state.
Workers' compensation insurance
Most states require Workers’ Compensation Insurance. Usually, Workers’ Compensation Insurance can be obtained through a private insurance carrier or from a state-operated fund. Be sure that the coverage purchased meets the state’s minimum requirements.
Wage and Tax Statement, Form W-2
Each employer must provide each employee with a Form W-2 showing total wages, federal income tax withheld, Social Security and Medicare taxes withheld, state taxes withheld and other pertinent information as required on the form. This form must be provided to the employee on or before January 31. On or before February 28, these forms must be mailed (or electronically transferred) to the Social Security Administration, along with a Form W-3, Transmittal of Income and Tax Statements.
Miscellaneous income, Form 1099-MISC
Amounts paid to individuals, other than salaries and wages, must be reported on Form 1099-MISC if those payments equal or exceed $600 for the year. The dates for filing this form are the same as those for the W-2 Wage and Tax Statement.
Form 1099 is required for payments to individuals for services. For example, if the union paid $600 or more to an accountant for professional services and the accountant is an individual practitioner or a partnership, Form 1099-MISC must be provided to the accountant and to the IRS. If the accountant’s firm is a corporation, however, Form 1099 is not required. Also Form 1099-MISC does not need to be provided for the purchases of goods -- only services are subject to Form 1099 reporting. IRS Form 1096 is used to transmit Forms 1099 to the IRS.
