Pub 15 2019: Employer’s Tax Guide Explained

This article is a historical reference for IRS Publication 15, the Employer’s Tax Guide, for the 2019 tax year. This guide outlines an employer’s responsibilities for payroll taxes, and all information, including tax rates and wage limits, is specific to 2019. This content is intended for informational purposes, such as preparing an amended 2019 payroll tax return or responding to an IRS inquiry for that year. The rules discussed are not applicable to any other tax year, and using this guide for current payroll obligations would result in incorrect tax calculations.

Determining Employment Tax Liability for 2019

A key step for employers in 2019 was classifying individuals as either employees or independent contractors to determine tax liability. The distinction was based on the employer’s right to direct and control the worker, evaluated across three categories: behavioral, financial, and the relationship of the parties. Behavioral control involved instructions on how to do the work, while financial control related to payment and who provided supplies. The relationship aspect considered written contracts and employee-type benefits.

Once a worker was identified as an employee, their compensation was considered taxable wages. This included salaries, hourly pay, bonuses, and the value of non-cash benefits unless specifically excluded by law. For 2019, these wages were subject to Federal Insurance Contributions Act (FICA) taxes, composed of Social Security and Medicare taxes. Employers were required to withhold these taxes from employee wages and pay a matching employer portion.

The Social Security tax for 2019 was 6.2% for both the employee and the employer. This tax only applied to wages up to the annual Social Security wage base limit, which was $132,900 for 2019. Any wages paid to an employee above this amount were not subject to Social Security tax. The Medicare tax rate was 1.45% for both the employee and employer, and unlike Social Security, it applied to all covered wages with no limit.

Employers were also responsible for the Federal Unemployment Tax Act (FUTA) tax, which was paid by the employer and not withheld from wages. The standard FUTA tax rate for 2019 was 6.0% on the first $7,000 of wages paid to each employee. However, employers could take a credit of up to 5.4% for amounts paid into state unemployment funds, effectively reducing the FUTA tax rate to 0.6% for most.

Jurisdictions with outstanding federal unemployment loans could be designated as credit reduction states. For 2019, the U.S. Virgin Islands was the only jurisdiction subject to a FUTA credit reduction. Employers there had their FUTA credit reduced by 2.7%, resulting in an effective FUTA tax rate of 3.3% on the first $7,000 of each employee’s wages.

Withholding Federal Income Tax in 2019

Withholding federal income tax in 2019 relied on that year’s Form W-4, Employee’s Withholding Allowance Certificate, which is substantially different from the version introduced in 2020. For 2019, the form used the concept of withholding allowances. The more allowances an employee claimed, the less federal income tax was withheld. Each allowance claimed for 2019 reduced the amount of annual wages subject to withholding by $4,200.

An employee completed a “Personal Allowances Worksheet” attached to the 2019 Form W-4 to determine the correct number of allowances. This worksheet guided them to claim allowances for themselves, their spouse, and dependents. It also had sections for calculating adjustments based on tax credits and itemized deductions. The final number from this worksheet was entered on the Form W-4 and given to the employer.

Employers used one of two methods from Publication 15 to calculate withholding: the Wage Bracket Method or the Percentage Method. The Wage Bracket Method involved using IRS tables corresponding to the employee’s pay period. To use this method, an employer located the row for the employee’s wage amount and the column for their number of withholding allowances. The intersection showed the exact amount of tax to withhold.

The Percentage Method was a more precise calculation. It required the employer to first subtract the value of the employee’s withholding allowances from their gross pay. The value of one allowance was based on the pay period, such as $80.80 for a weekly payroll. After subtracting the total allowance amount, the employer would use the Percentage Method tables and tax brackets to calculate the withholding on the remaining adjusted wages.

Withholding on Supplemental Wages

Supplemental wages, such as bonuses and commissions, had specific withholding rules in 2019. If these payments were identified separately from regular wages, the employer had two options. One was to add the supplemental and regular wages together and calculate withholding on the single payment. The other option was to withhold a flat 22% on the supplemental payment, though a mandatory 37% rate applied to supplemental payments exceeding $1 million for an employee.

Depositing and Reporting 2019 Employment Taxes

Employers were required to deposit withheld 2019 taxes and report them to the IRS. The deposit frequency was determined by a non-optional monthly or semi-weekly schedule. This schedule was assigned based on the employer’s tax liability reported on Form 941 during a “lookback period” from July 1, 2017, to June 30, 2018. If the total reported taxes during this period were $50,000 or less, the employer was a monthly depositor; if more, they were a semi-weekly depositor.

Nearly all tax deposits were required to be made using the Electronic Federal Tax Payment System (EFTPS). Monthly depositors were required to deposit their employment taxes for a given month by the 15th day of the following month.

Semi-weekly depositors had different deadlines depending on the payday. For paydays on Wednesday, Thursday, or Friday, the deposit was due the following Wednesday; for all other paydays, it was due the following Friday. A rule required any employer who accumulated a tax liability of $100,000 or more on any day to deposit the tax by the next business day.

The primary form for reporting these taxes was Form 941, Employer’s QUARTERLY Federal Tax Return. This form was used to report federal income tax withheld and both the employer and employee shares of Social Security and Medicare taxes. Employers used Form 941 to reconcile their total tax liability for the quarter with their deposits. The form was due by the last day of the month following the end of the quarter.

For FUTA taxes, employers filed Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return. This form reported the employer’s annual FUTA tax liability. While the form was filed annually, FUTA tax deposits were required quarterly if the liability exceeded $500. The deadline for the 2019 Form 940 was January 31, 2020, but was extended to February 10, 2020, if all deposits were made on time.

Finally, employers reported annual wage and tax information to employees and the Social Security Administration (SSA). This was done using Form W-2, Wage and Tax Statement, which had to be furnished to each employee by January 31 of the following year. The employer then sent copies of all W-2s to the SSA, accompanied by Form W-3, Transmittal of Wage and Tax Statements. Form W-3 is a summary cover sheet and was also due by January 31.

Adjustments and Special Payroll Considerations for 2019

Employers who discovered an error on a previously filed 2019 Form 941 used Form 941-X, Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund, to make corrections. This form could be used to fix both underpayments and overpayments of taxes from misreported wages or incorrect tax calculations. A separate Form 941-X had to be filed for each quarter that contained an error, showing the amounts as originally reported, the correct amounts, and the difference.

The tax treatment of non-cash fringe benefits was another consideration for 2019, as their value was part of an employee’s taxable wages unless excluded. For example, the value of an employee’s personal use of a company vehicle had to be calculated and included in their income, using methods like the cents-per-mile rule (58 cents per mile for 2019). For employer-provided group-term life insurance, the cost of the first $50,000 of coverage was excludable from income. The cost of coverage exceeding $50,000 was included in taxable wages.

Employers of tipped employees in 2019 were required to pay FICA taxes on all wages and tips. Employees had to report their cash tips to the employer by the 10th day of the month after the tips were received. If reported tips at a large food or beverage establishment were less than 8% of gross receipts, the employer had to allocate the difference among employees. These employers could also claim a tax credit for a portion of the FICA taxes paid on tips using Form 8846.