Collecting, Recording and Processing Information for Family Employer and Employee Tax Exemptions

Submitted by admin on Tue, 05/04/2021 - 15:24
Policy: 

Using the Employee Information Form, F/EA collects information on a workers's familial relationship to his/her employer.  Based on certain familial relationships, workers and their employers are exempt from certain taxes.  When a workers is exempt from taxes with an employer contribution, the employer is also exempt from paying the employer tax.

The F/EA processes all Employee Information Forms upon receipt.  The F/EA uses current Federal and State regulation information to record exemptions based on familial relationships.

F/EA uses the following criteria from IRS Publication Circular E:

  1. If workers is under 21 and the workers is employed by his/her parent, the workers is exempt from FICA (Social Security and Medicare) and FUTA (and probably SUTA, but check state laws) until workers is age 21.  The workers is not exempt from Federal Income Tax withholding.
  2. If the workers is over age 21 and the workers is employed by his/her parent, the workers is NOT exempt from any Federal taxes.
  3. If the workers is employed by his/her child, the workers is exempt from FICA (Social Security and Medicare) and FUTA (and probably SUTA, but check state laws).  The workers is not exempt from Federal Income Tax withholding.
  4. If the workers is employed by his/her spouse, the workers is exempt from FICA (Social Security and Medicare) and FUTA (and probably SUTA, but check state laws).  The workers is not exempt from Federal Income Tax withholding.
Procedure: 
  1. Upon receipt of Worker Hire Packages, <<Staff Title>> quality checks all forms, including the Employee Information Form, the form which records employer/workers familial relationships.
  2. <<Staff Title>> review Employee Information Form and identifies if information provided indicates that workers has a Family Relationship tax exemption.
  3. For any workers with Family Relationship tax exemptions, <<Staff Title>> enters applicable information in Payroll System so that payroll system does not withhold taxes from workers wages for which workers is exempt.  Payroll System also will not calculate employer taxes for which workers is exempt.
  4. <<Insert Process to enter data in payroll system>>
Internal Controls: 

The internal controls used by F/EA to monitor this process establish responsibility, segregate duties, document procedures and ensure independent internal verification.

The methods of internal control utilized by F/EA to collect, record and process information for family employer and workers tax exemptions are:
 
1. Worker Information is not entered into the payroll system until the Worker Hire Package has satisfactorily passed a quality check.
  •  This ensures that workers with incomplete packages are not paid.

2. All packages are date stamped immediately upon receipt.

  •  Verification of date stamp occurs by a separate staff member when packages are entered in Payroll System

3. During quality check, each form is separately initialed and dated as it passes a satisfactory quality check.

4. F/EA stays up to date with any changes to Family Tax Exemptions using Stay Up to Date with Forms, Rules and Regulations

5. A control sheet is used to Quality Check each packet.

  • During quality check, this control sheet is completed by the reviewer
  • The control sheet is reviewed secondarily during entry of workers information in to the payroll system