Employment Taxes

Employment taxes

Whether you have one employee or a hundred, you will be way ahead of the game if you get an outside firm to handle your filings and payroll taxes. So, before you do anything else, get yourself a payroll service to take all of the time, hassle, anxiety, and risk out of the payroll process.
Employment tax rules are extremely complex. If you try to handle them yourself, you are bound to make a costly mistake and you'll pay interest and penalties. If a payroll service makes the mistake, typically, it will pay.

As an employer you have a tremendous fiduciary responsibility to collect and withhold taxes from employees on virtually every paycheck you issue. Throughout the United States, you must withhold an appropriate amount for federal income and other earnings-related taxes. Many states and some municipalities also require the payment of an income or other tax on earnings.

Your employees must fill out a federal W-4 form and a Form I-9 from the Immigration and Naturalization Service. States that do not use the same income basis for determining tax liability as does the federal government may require that employees fill out state filing forms.

You, or your payroll service, must determine the appropriate amount to be withheld for each individual. If you withhold too little from your employee's incomes, you will be penalized by the governments involved. The federal government also requires that you withhold your employees' share of federal Social Security and Medicare taxes. Tables for calculating federal withholding taxes are available from the Internal Revenue Service at

1-800-TAX-FORM

State withholding tables may be obtained from your state income tax department.

Budgeting for your share of the payroll taxes
The employer is also responsible for a share of their employee's unemployment, Social Security, and Medicare taxes. The amount that you pay will depend on many factors salaries, your firm's balance, if any, in your state's unemployment insurance account, dates of hire, and a host of other considerations. As a quick and dirty rule of thumb, allowing 13 percent on top of your gross payroll should cover your share of the payroll taxes.

Timing of employment tax payments
If you are a growing company, paying employment taxes yourself can be very frustrating. Employment tax rules change as the size of the company increases both your liability and the time frame in which the taxes must be paid. Following are two general guidelines:

New employers pay federal withholding taxes on a monthly basis. As the business grows, the frequency increases to semi-weekly. For the largest businesses, taxes are due within twenty-four hours of each payroll.
Each state has its own rules for frequency of payment. Generally, payments are not required more frequently than are federal taxes. But be sure to check with your state tax office

Determining Taxable Income As Per 2012-13 Guidelines

The income tax form for 2012-13 fiscal states that the following investments will be regarded as exempted from taxation as per the Section 80C of the Indian Income Tax Act:
Premium of life insurance
Mutual funds
Unit Linked Insurance Plans
Fixed deposit postal deposit schemes with tenures of 5 years each
National Savings Certificates
Pension plans
Public Provident Fund
Tuition fees
Principal of housing loans
Fixed deposits
The employee's contribution to the provident fund is normally deducted from his or her salary. The following deductions are also available to an employee as per the rules of the Indian Income Tax Act:
Mediclaim expenses for self as per Section 80D
Interest paid for education loans as per Section 80E
Mediclaim expenses for parents as per Section 80D

Detailed Explaination of Income Tax Calculation Sheet

As per the income tax form for the 2012-13 fiscal the following factors will be taken into consideration while deciding the gross salary of a taxable employee:
Basic
Special allowance
HRA
City compensatory allowance
Exemption of HRA under Section 10/13A
Referral allowance
Transport allowance
Arrears of the previous year/s
Exemption of transport allowance under Section 10/14

The areas mentioned below are the "other payments" and liable to be subjected to taxes: 
AIP/SIP/PIP/V.Pay
Notice pay recovery or reimbursement
Referral claim
Tour
Taxable reimbursement
LTA
Leave encashment
The following are regarded as "prerequisites" or "others" in the 2012-13 income tax form: 
Company leased accommodation
Payment for sweeper, watchman, and gardener
Less paid by the employee
Car perks
Medical reimbursement
Hard furnishing
Interest free loans
Normally the tax on these categories is deducted while calculating the salary. 

The following factors are also considered while paying the salaries of taxable employees:
Loans from housing property
Interest of housing loan

How to Calculate Taxes on Your Own

Taxpayers can use the sheet to compute the taxes on their own. Following are some steps with which they can use the sheet:
Fill in the amounts for the first category of payments like the Basic and HRA
Then fill up the "Other Payments" and "Pre-requisites or Others" sections if you receive such payment. Once filled up the aggregate amount will represent the your overall income
Now comes the part of finding out how much can be exempted from taxes. For this you will need to put in the applicable figures for your housing loan interest or loss from residential property. (In case you are eligible for any of the above mentioned tax exemptions granted under Section 80C, 80D, 80U or 80E you can also include the amount to calculate your taxable income.)
Now, with regards to determining the applicable income tax amount the basic tax to be imposed on salary needs to be mentioned in the columns. Tax payers can also fill in the other taxes like PRV employer tax and referral claim.

Tax Saving Tips : Save your tax and save a lot of money

The history of Income Tax in modern India dates back to 1860 when the first Income Tax Act was introduced and which remained in force for a period of 5 years. This Act lapsed in 1865.

There are different ways to save your tax and save a lot of money. Even there are different plans to save your tax in India. New salary is revealed in India in 2010, people get a higher salary or higher current salary beyond their own expectation and the current salary is dependable upon the cutting of tax. All types of new income tax schemes will depend upon the India finance ministry for government employees as well as for private employees in India. India government gives different types of tax discounts and there are different type of popular tax saving options for the people of India such as funds, saving bonds and life insurance etc. There are number of banks in the list of most popular tax saving schemes in India. You can call any of the banks for the information about tax saving options. The tax saver will tell you about the plans and procedure about the tax saving according to your current salary or total CTC. It is better to pay the car loan EMI, home loan EMI and many more in advance because the bank will imply the new interest rate at higher level up to 0.50%. So don’t take your loan EMI very easily.

A powerful systematic investment plans will help people in India. Reserve bank of India has various tax saving tools. The bank will sign the bond for 3 and 5 years at the rate of interest is 7.5% per annum. There are two types of bonds under the reserve bank of India such as cumulative bond and non-cumulative bond. There are so many private sector banks in India for tax saving. The best way to get information about saving tax is get in touch with a tax consultant. He has the complete information about tax implied on your salary and how you can save it. It is suggested to give the exact information about the income you receive from all sources. Mutual funds, Child insurance policies and health insurance plans can give you numerous benefits and you will be able to save tax. An agent will come at your place and help you fill the documents which you need to submit at the time of filing for year’s tax. This is because of the fact that the process may be confusing and tedious.

Getting help from a tax consultant, you will be able to save a lot of time and efforts. It is possible to save tax if you take right steps at the beginning of year. Proper planning and implementation is required so that you can save significant amount of money. One of the best options to get the information about tax saving schemes is to get online and browse various sites giving details about tax saving schemes. You do not have to do anywhere to get information as you can get it at the comfort of your home. You can also contact a tax consultant who can give you the best suggestions.

Advance Tax

As the name suggests, it refers to paying a part of your yearly taxes in advance. Advance tax is the income tax payable if your tax liability exceeds Rs 10,000 in a financial year. Advance tax should be paid in the year in which the income is received.

Advance tax is applicable when an individual has sources of income other than his/her salary. For instance, if one is earning through capital gains, interest on investments, lottery, house property or business, the concept becomes relevant.

Any rebate due fetches you an interest of 0.5 per cent every month, or, six per cent annually, as in the case of an income tax refund. However, if you don’t pay the advance tax on time, you’ll be charged one per cent every month, or, 12 per cent a year.

E-filing of income tax return is an easy, 15-minute job. And it is definitely smoother than finding a tax consultant, haggling for the right price and then waiting endlessly for him to do the job at his whims.

So, how do you do it?

STEP 1

Go to the website of directorate of income tax, India, and register yourself, that is if you are not registered already. As you register, you need to fill in your PAN number and other details in order to set your login and password.

STEP 2

Once you are done with registration, log out and log in again with your PAN number as user ID and the new password you have set earlier. Click on e-filing A.Y. 2010-11 on the left side and download the e-filing form for INDIVIDUAL, HUF (HUF stands for Hindu undivided family)

STEP 3

The form comes in a ZIP file. Save it to your desktop and extract the Excel file from it to a new folder. Open the excel file and enable macros. Mind you, you have to enable macros in order to complete the process.

STEP 4

Fill in details like Name, Address, City, State, Pin Code in the sheet for INCOME DETAILS; fill in your PAN number wherever required and then fill in details of your income, investments and tax paid as provided to you in the Form 16 as per the instructions on the sheet. Then click on the VALIDATE button to check. If the details are correct. It will show the sheet is ok. (That is if no errors are found).

STEP 5

The next sheet of the file is TDS. Fill in the details for No 23 only if you have income only from salary. If you have income other than salary, fill in details for No 24 also. Fill in details of TAN number, name of company, address, city, state, pin code as given in form 16.

STEP 6

Fill in details of income charged under salaries, deductions from Chapter VI-A, tax payable and tax deducted. All these information is found on your Form 16. Click on VALIDATE button to check for correctness.

STEP 7

Next sheet is taxes paid and verification. Fill in details of name, father’s name, place, date and PAN number under the VERIFICATION section shown in RED. Click validate once again. If all the three sheets are shown OK on validation, you are ready to generate an XML file of the details.

STEP 8

Click on Generate XML and it will ask you to save the file. Once saved, go back to the website and log in (if you are logged out) with your user name and password. On the left side, click on submit return with 2010-11 as assessment year. Upload your generated XML to the site. Your e-filing is done.

STEP 9

It sends you a copy of acknowledgement to your email ID and also allows you to download the acknowledgement by clicking on blue link. The acknowledgement again comes in a ZIP file. Extract the file, take a printout of the PDF file and sign it manually.

STEP 10

Send a signed Acknowledgement to Income Tax Department address shown at the bottom of the PDF file by ORDINARY POST only. You will get a confirmation from IT department within one week.

Save Income Tax : wiser ways of saving income tax

For preparing calculative and fast income tax, you should to keep records of all the receipts and bills in a systematical manner. Like this, you can do more changes in the expenses, for the next year to save your tax.

The employers of the company or office can keep the record of their official traveling expenses like costs to go to seminars, conferences, cost of hotels, airfare, taxi charges, car rental, parking, toll tax etc. All these expenses are 100% deductible.

The health expenses of workers are also included as it helps to save your tax. These medical expenses are deductible and you can transfer the non-deductible health expenses into legitimate business expense.

For saving the income tax, entertainment is one another option. Earlier, there was no deduction on entertainment sources. But now it has approved and through entertainment sources, you can reduce income tax.

Refund Banker

The 'Refund Banker Scheme,' which commenced from 24th Jan 2007, is now operational for taxpayers assessed all over India (except at Large Taxpayer Units) and for returns processed at CPC (Centralized Processing Centre) of the Income Tax Department at Bangalore.

In the 'Refund Banker Scheme' the refunds generated on processing of Income tax Returns by the Assessing officers/ CPC-Bangalore are transmitted to State Bank of India, CMP branch, Mumbai (Refund Banker) on the next day of processing for further distribution to taxpayers.

Refunds are being sent in following two modes:


RTGS / NECS: To enable credit of refund directly to the bank account, Taxpayer.s Bank A/c (at least 10 digits), MICR code of bank branch and correct communication address is mandatory.

Paper Cheque: Bank Account No, Correct address is mandatory.
Taxpayers can view status of refund 10 days after their refund has been sent by the Assessing Officer to the Refund Banker - by entering 'PAN' and 'Assessment Year' below.

Other Refunds

Status of 'paid' refund, being paid other than through 'Refund Banker,' can also be viewed at www.tin-nsdl.com by entering the 'PAN' and 'Assessment Year' below.

'Refund paid' status is also being reflected in the 'Tax Credit Statements' in Form 26AS.