Q: I was looking at my quarterly returns for the first quarter, and I noticed that one of my employees appears on her unemployment tax return in Virginia, where my business is located, but she lives in Maryland. Is this normal or normal?
A: Yes! In general, the unemployment tax depends on where the employee is physically employed. If she lives in Maryland but heads to Virginia to physically work for your business, report her wages to Virginia. Conversely, if she works remotely from Maryland and is physically working from home, you must report her wages to the State of Maryland for unemployment purposes.
Q: What if my employee travels a lot for work? Do I report wages for all the different states you travel to?
A: No! Unemployment must be reported to only one state. You can change status if an employee permanently moves to a new physical work location. For example, if your employee who works at your job location in Virginia is permanently transferred to your Florida branch (and thus the employee moves to Florida in the foreseeable future), you would begin reporting wages to Florida for unemployment purposes.
If your employee travels for work, there are some tests you can take. 1) Does the employee spend most of his time in one particular country? If yes, report wages there. If not and they travel frequently, then 2) Does your employee spend time in the state that includes the main location of your business? If yes, report wages to your main site state. If your employee has never traveled to the state you are in, then 3) Where do your employee’s instructions or directions come from? Inform the country issuing travel orders of the wages. If you have an employee who doesn’t fit into any of these situations, it’s a good idea to consult a CPA to ensure that you comply with the tax regulations set by each state when reporting unemployment wages.
Q: Now that I am familiar with the general rules, what do I do if I discover that I have incorrectly reported employee wages?
A: The first step is to contact our customer support team to make adjustments in iSolved! Let them know which employee was incorrectly reported, and where wages should be reported. Once the adjustment is triggered, our tax team will communicate when the adjustments are processed for submission to the tax agencies to let you know if you need to take any action.
Q: I have received a lot of mail and calls about a tax credit called the Employee Retention Credit. Is this a project?
a: Yes, that’s a real credit! During the pandemic, the IRS created a new credit for employers to take for their payroll taxes called the Employee Retention Credit, or ERC. This credit is for wages paid to employees who worked during at least a partial suspension of your business operations or during periods when you experienced a significant decline in revenue. The credit covers periods from March 13, 2020 through September 30, 2021. If your business started after February 15, 2020, you may also be eligible for credits from October 30, 2021 through December 31, 2021. Credits are paid to eligible employers who claim them via refunds cash from the IRS.
Q: How do I know if I qualify for ERC? How much credit will I get?
a: There are two primary ways in which you can qualify. The first method is the partial or complete cessation of your business operations due to a government mandate. For more information, you can visit the IRS publication here: https://www.irs.gov/irb/2021-11_IRB#NOT-2021-20. The second way to qualify is to experience a decrease in sales of at least 50% when comparing the quarter of 2020 to the same quarter of 2019, or a decrease in sales of at least 20% when comparing the quarter of 2021 to the same quarter in 2019.
The wages credit credit in 2020 is limited to 50% of the first $10,000 of wages paid to the employee for the entire year. The 2021 Payroll Credit is limited to 70% of the first $10,000 in wages paid to an employee for each quarter! Items that can affect eligibility and credit amount include (but are not limited to): the size of your business, eligibility periods, PPP coverage, and landlord wages. To help qualify your business and credit account, please email us at email@example.com!
Q: Well, then the credit is legitimate and it looks like it could have a really positive impact on my company – that’s great news! But is these companies’ contact with me legitimate, and should I work with them to get credit?
a: There are many channels through which you can receive ERC services, but the three main ones are:
- Your payroll company (ours!!)
- your CPA
- offshore company
Most likely, you are receiving telemarketing from the third option, a third-party company. These are usually ERC “pop-up” companies, meaning they didn’t exist until ERC became available and their main service is to calculate and claim credit. Their fee is usually a percentage of the credit, payable when the refund is received. However, the IRS has issued warnings about these predatory firms, describing their aggressive stance by claiming credit “schemes”. You can read more about it and how to protect yourself here: https://www.irs.gov/newsroom/irs-issues-renewed-warning-on-employee-retention-credit-claims-false-claims-generate-compliance-for-people – and companies – that claim credit – incorrectly.
We highly recommend that you work with us, or an experienced tax professional, if you decide to pursue these credits to ensure that you do so appropriately and not leave yourself open to potential audits or penalties.
Q: How do I cancel a 1099 that was electronically filed with the IRS. You submitted the same form twice by mistake. Do I have to create a VOID form with the same amounts?
a: In order to void a duplicate 1099 that was filed in error, you will need to file a new 1099 with the IRS with the Corrected box checked at the top. Fill in the information exactly as it appears on the 1099 number you want to cancel, but put $0 for all money instead.
Q: All of my employees have received their W-2s and are filing their individual income tax returns. But oh no! I realized there was something wrong with one of my employees’ W-2s. How can I fix that?
a: If you see an error on your W-2—whether it’s incorrect wages, taxes, name, SSN, etc.—the first step is to contact us at firstname.lastname@example.org to process the amendment or correction. Once processing is complete, your W-2 in iSolved will be promptly updated with the correction and you can advise your employee to withdraw the new W-2 if they receive them electronically. If your employee does not receive their W-2s electronically, you will need to request a reprint of the W-2. Soon after, the tax department will contact you about processing tax adjustments, if any.
Q: Why does the tax office contact me about adjustments? I thought everything was already fixed in iSolved!
a: The IRS has already filed all of its fourth-quarter 2022 returns and year-end settlements, so if your taxes change, adjustments are necessary to “update” the appropriate tax agencies with your corrections or they won’t match the W-2s filed by your employees. The discrepancy may result in a tax notice, and we don’t want that!
Q: Will the employee need to obtain a W-2C and amend individual income tax return?
a: W-2s were filed by the IRS on January 24, 2023. If your correction is processed on or after that date, the IRS will provide you with a W-2C that you must distribute to the relevant employee. If your employee has already filed an individual income tax return, they will need to file an amendment. If they haven’t filed a tax return yet, they can just use the updated amounts on their W-2C when they file the return. When applying electronically, your employees will not need to indicate that they have a W-2C. However, if they are still filing with paper, they must include a copy of their W-2C with the original incorrect W-2 with their paper return.
Q: What can I do to ensure that my taxes are paid in time and in full by the New Year 2023?
a: Each year starting in November (sometimes as early as October!) the tax agencies will send out unemployment rate updates, withholding frequency updates, and other updates about your relevant accounts to ensure accurate filing and payment. Once received, forward it to Dominion Payroll at email@example.com so that once 2023 begins we can apply and pay at the correct rates and frequencies. This will result in no underpayments, no lost returns, and no late notices! This means a stress-free 2023!!
Q: I forward tax rate notifications and frequency updates as soon as I get them, but sometimes I still get late payment notifications. what is going on? Are you not paying my taxes?
a: Check to make sure we have all of your account numbers. In iSolved go to Reporting > Report Archive and under Output Item for Latest Payroll select ‘Exceptions – Invalid Tax ID’ and view the report. It will show you if we are missing any tax IDs. With the advancement of technology, most tax agencies have adopted electronic authorizations for both returns and payments. Dominion Payroll cannot comply with these authorizations unless they have the correct account numbers on file for you as returns and payments cannot be sent electronically without an account number associated with your FEIN. Yes – this means that for many state agencies we can’t file or pay on your behalf because the state won’t even accept paper returns or check payments!
No account number can cause a compounding effect with your taxes. For example, if we don’t have your VA unemployment account number in 2023 Q1, your first quarter return may not be processed and payment may not be accepted, resulting in a penalty and interest. If you provide your account number before submitting Q2, we can deliver Q2 and pay it neatly, but some of the Q2 payment will be used to pay the penalty and interest in Q1, leaving Q2 paid less than … and then Q2 will incur a penalty and interest! In addition, if the agency has not finished processing the first quarter return by the time we file Q2, the second quarter taxable wage increase may be superficial because taxable wages have not yet been processed in the first quarter. This will cause the agency to charge an additional tax on the taxable wages that should have been there in the first place!
Therefore, to avoid any ripples arising in the first quarter, please ensure that we have all the necessary information needed to process your taxes accurately so you can sit back, relax, and enjoy the New Year!
Q: I’ve searched the report archive – the output item – and the exceptions. I don’t have the option to select “Exceptions – Invalid Tax ID” as recommended in the answer to the question above. Is that a problem? Nor have I received any updates from “tax agencies sending unemployment rate updates, withholding frequency updates, and other updates about your relevant accounts to ensure accurate filing and payment.” Is this a problem??
a: If you don’t see “Exceptions – Invalid Tax ID” in your reports, then your accounts are set! This report will only appear if you have accounts that are missing account numbers or have incorrectly formatted account numbers (eg you provide us with a 9-digit account number, when it should be 10-digit for each agency).
If you are not receiving rate updates or frequency updates, please contact the agencies to make sure your mailing address is up to date. The IRS will change your mailing address based on the address shown on your last filed returns, but state agencies generally do not. So if you move elsewhere, be sure to tell these state agencies!
Do you have questions you would like to ask our tax experts? Click here to submit your questions.