The choice: Electronic deposits or harsh penalty

Still filing Form 8109 to deposit employment taxes? Beware. Congress has drawn the line at July 1, 1998, for most dentists to begin depositing these taxes electronically or pay a hefty penalty.

Dec 1st, 1997

Still filing Form 8109 to deposit employment taxes? Beware. Congress has drawn the line at July 1, 1998, for most dentists to begin depositing these taxes electronically or pay a hefty penalty.

Ron Combs, Associate Editor

Congress, it appears, has tired of playing the role of Mr. Nice Guy. Its message to dentists is clear: Make your employment-tax deposits electronically or pay the penalty. No more reprieves from the penalty.

Initially, doctors who withheld more than $50,000 in employment taxes (i.e., Social Security, Medicare, Federal Unemployment and Federal Income Tax Withholdings) during calendar year 1995 were to begin making tax deposits electronically beginning on January 1, 1997. Doctors failing to comply faced a penalty equal to 10 percent of the taxes deposited, effective on January 1, 1997.

"Howls of protest from doctors and other small businesses about this new requirement persuaded Congress to delay the imposition of the 10 percent penalty," recalls John K. McGill, a tax attorney and CPA. "The 1996 Tax Act delayed the effective date to July 1, 1997, and the Taxpayer Relief Act of 1997 provided a further reprieve from the penalty until July 1, 1998." There`s faint hope that the 10 percent penalty for failure to comply will be delayed for a third time, adds McGill, who is chief editor of The Blair/McGill Advisory, a monthly dental financial-management newsletter.

With no penalty applied, most dentists have ignored the requirement to make deposits electronically. They have continued filing the paper Form 8109 and depositing at their local bank. "Now, the effective date of this penalty will require thousands of doctors to change their operating procedures during 1998 or face penalties of $5,000 or more," says McGill. What about unincorporated practices and smaller incorporated practices making deposits under the $50,000 threshold? "They aren`t safe either," answers McGill. "Doctors depositing $20,000 or more of employment taxes during 1997, which will include virtually every dental practice, must make mandatory electronic payments beginning January 1, 1999."

How do doctors comply with the new law? They have two choices, explains McGill. "If a doctor banks with a qualifying financial institution, that bank can transmit his or her payroll taxes electronically under the ACH Credit Method. A second option is to have the doctor`s practice initiate the transaction through one of two banks acting as agents for the U. S. government (First Chicago in the North or NationsBank in the South) or deposit these taxes electronically through a payroll service, using the ACH Debit Method."

All doctors, McGill points out, should have received at least one written notification about these new rules, along with an Electronic Federal Tax Payment (EFTPS) instruction booklet. If you have not received this information, call (800) 555-4477 (southern states) or (800) 945-8400 (northern states).

So, doctor, if you have not converted to electronic depositing, and with the 10 percent penalty kicking in on July 1, 1998, now is the time to decide what you are going to do and how you are going to do it. Certainly, dealing with employment-tax deposits, payroll taxes and estimated payments in a timely manner as rules and regulations change presents a day-to-day challenge for busy dentists. A good start to meeting that challenge might include clipping Dental Economics` 1998 Tax Calendar and keeping it nearby.

The 1998 Tax Calendar prepared by the Dental Economics staff

January 15

The final quarterly installment of 1997 estimated individual income tax (including self-employment tax) is due. You have a choice: either pay now or skip this payment, file your Form 1040 and pay the balance by February 2. But make a note of the payment due because you receive no bills from the IRS to jog your memory. If you paid installments last year, use the preprinted installment vouchers showing your name, address and Social Security number that are part of the Form 1040 ES worksheet that should have come with your tax return forms. You can obtain these vouchers from your local IRS office.

Complete Form 8109 (Federal Tax Deposit-Withheld Income and FICA taxes) and deposit the taxes if you are a monthly depositor under the IRS tax deposit rules. Under these rules, if the practice`s total withheld income and FICA taxes for the 12 months ending June 30, 1997, was $50,000 or less, the practice must deposit taxes withheld during a calendar month by the 15th day of the following month. If the total exceeded $50,000, the practice must make semiweekly deposits. Under the semiweekly deposit rules, if a payroll is paid on Wednesday, Thursday or Friday, the payroll deposit is due by the following Wednesday. If payroll is paid on Saturday, Sunday, Monday or Tuesday, the payroll deposit is due by the following Friday. Note: Beginning July 1, 1998, semiweekly deposits must be made electronically to the IRS; they can no longer be deposited directly to your bank using Form 8109 without being subject to a 10 percent penalty.

February 2

Today is the deadline for furnishing 1997 Form 1099 information returns (Copy B) to recipients of $10 or more in dividends/interest or $600 or more in rents, interest, royalties, commissions, fees, prizes and other compensation to non-employees. Your IRS Center must receive Copy A of Form 1099, with the accompanying 1096 Transmittal Forms, by March 2.

Each employee must be furnished the W-2 Forms showing wages paid and taxes withheld in 1997 - that`s Copy B for the employee`s Form 1040 and Copy C for his or her records, as well as copies of the forms for any state or city returns. By March 2, you`re expected to file with the Social Security Administration the original copy of all W-2 Forms (Copy A) that you gave to your employees, along with a W-3 Form (Transmittal of Income and Tax Statements).

Reminder: If you paid more than $1,000 during the 1997 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 2.

Using Form 940, doctors are required to file an annual Federal Unemployment tax return for practice salaries paid in 1997 by this date. 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 1997 federal income tax on January 15. File a complete Form 1040 and pay the balance of your actual 1997 income tax and the balance of your 1997 self-employment tax.

File Form 941 to pay balance of last quarter 1997 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.

February 16

Complete Form 8109 and deposit taxes due for January. (See January 15 note.)

Ask for a new W-4 Form from each employee who claimed total exemption from withholding during the prior year. If no form is received from the employee, begin withholding income tax from the employee`s paycheck, effective February 16.

March 2

File Copy A of Form 1099, with the accompanying 1096 transmittal form, with your IRS Service Center. File Copy A of all W-2 forms given to employees, along with a W-3 transmittal form, with the Social Security Administration.

March 16

Did you practice as a corporation in 1997? A corporation`s federal income tax return Form 1120 or 1120S is due two and a half months after the end of its fiscal year. March 16 is the due date if your corporation`s year ends December 31; otherwise, simply transfer this entry to the proper date. You may request an extension to file until September 15, but all corporate income taxes must be paid with the request for extension.

Complete Form 8109 and deposit taxes due for February. (See January 15 note.)

File Form 2553 with the IRS if your corporation wants to be taxed as an S corporation effective January 1, 1998. If Form 2553 is filed after this date, S treatment will become effective January 1,1999.

April 15

File your federal individual income tax return, Form 1040, if you haven`t already done so or received an extension to August 17. Pay any balance you owe on your income tax for 1997. Complete Schedule SE and pay any remaining balance of your 1997 self-employment tax, if you are unincorporated.

If in a partnership, report your share of 1997 partnership earnings from Schedule K-1 on your Form 1040. Also, make sure the partnership return, Form 1065, is filed by this date.

Today is the deadline for filing your first quarterly estimated payment to cover your 1998 federal income tax and your self-employment tax liabilities, if unincorporated. Using Form 1040 ES, pay one-fourth of your estimated federal income tax and one-fourth of your estimated 1998 self-employment tax.

Calendar-year corporations pay one-fourth of estimated tax. Fiscal-year corporation payments are due in the 4th, 6th, 9th and 12th months of the corporation year using worksheet Form 1120-W.

Complete Form 8109 and deposit taxes due for March. (See January 15 note.)

File Form 1041, trust or estate income tax return, if your trust or estate year ends December 31. Otherwise, your return is due three and a half months following the close of your year.

April 30

File Form 941 to pay the balance of your first quarter 1998 contribution to Social Security plus the balance of Social Security and income taxes withheld from employees` salaries during the same period. This filing deadline is extended to May 11 if you have made deposits on time and also have made full payment of your Social Security and federal withholding liabilities during the preceding quarter.

May 15

Complete Form 8109 and deposit taxes due for April. (See January 15 note.)

If you practice as an unincorporated partnership or S corporation and selected a tax year ending other than on December 31, file Form 8752 and pay the resulting required payment.

June 15

For unincorporated doctors, the second installment of your 1998 federal tax is due. Using Form 1040-ES, remit payment of one-fourth of your estimated income tax and one-fourth of your 1998 self-employment tax. If you are unincorporated and your taxable income so far this year has varied by 10 percent or more from your original estimate, you should adjust your estimated tax payment accordingly. If incorporated, your federal income tax payments should be adjusted through your withholdings.

Calendar-year corporations are to pay one-fourth of their estimated tax by this date. Fiscal-year corporation payments are due in the 4th, 6th, 9th and 12th months of your corporation`s year.

Complete Form 8109 and deposit taxes due for May. (See January 15 note.)

July 1

Doctors who withheld more than $50,000 in employment taxes (Social Security, Medicare, Federal Unemployment and income tax withholdings) must begin making tax deposits electronically or face a 10 percent penalty.

July 15

Complete Form 8109 and deposit taxes due for June. (See January 15 and July 1 notes.)

July 31

File Form 941 to pay the balance of your second quarter 1998 contribution to Social Security plus the balance of Social Security and income taxes withheld from employees` salaries during the same period. This filing deadline is extended to August 10 if you made timely deposits in full payment of your Social Security and withholding liabilities during the preceding quarter.

File appropriate Form 5500 with the IRS if your practice sponsored a retirement plan or cafeteria plan in 1997 that operated on a calendar year. If your plan used a fiscal year, the return is due on the last day of the seventh month after the plan year ends.

August 17

Complete Form 8109 and deposit taxes due for July. (See January 15 and July 1 notes.)

File your federal individual income tax return, Form 1040, if you requested an automatic four-month extension by April 15. Pay the balance owed on your 1997 income and self-employment taxes.

September 15

If unincorporated, the third installment on 1998 federal tax is due - one-fourth of estimated income tax and one-fourth of 1998 self-employment tax. Adjust payment if taxable income varies 10 percent or more from the last estimate.

Calendar-year corporations are to pay one-fourth of your estimated tax. Fiscal-year corporation payments are due in the 4th, 6th, 9th and 12th months of your corporation`s year.

October 15

Complete Form 8109 and deposit taxes due for August. (See January 15 and July 1 notes.)

Now would be a good time to arrange a meeting with your tax adviser to plan year-end strategy.

File 1997 Form 1120 (regular) or Form 1120S (S corporation) return if you practiced in a corporation during 1997 and received an automatic six-month extension to file your federal corporate income tax return on or before March 16 and paid any tax due.

Complete Form 8109 and deposit taxes due for September. (See January 15 and July 1 notes.)

November 2

If you are practicing as a corporation, make sure your total individual income tax withholding for the year, plus any quarterly payments you made, will add up to at least 100 percent of the taxes you expect to owe for 1998. If your totals fall short, be on the safe side by increasing your withholding for the remainder of the year.

File Form 941 to pay the balance of your third quarter 1998 Social Security plus the balance of Social Security and income taxes withheld from employees` salaries during the same period. This deadline is extended to November 10 if you made deposits on time in the full amount during the preceding quarter.

Ask for a new W-4 Form for each employee whose withholding allowance will change for the next calendar year.

November 16

Complete Form 8109 and deposit taxes due for October. (See January 15 and July 1 notes.)

December 15

Calendar-year corporations pay one-fourth of estimated tax. Fiscal-year corporation estimated payments are due in the 4th, 6th, 9th and 12th months of the corporation year.

Complete Form 8109 and deposit taxes due for November. (See January 15 and July 1 notes.)

We suggest that a copy of this tax calendar be forwarded to your tax adviser.

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