Federal Withholding from Qualified Plan

[Guest THess]

I have a client who has never had any distributions from their plan until now (Dec). This is the only client I have in which the investment company does not prepare 1099's, 945's or 1096's. (It has been at least 5 years since I have done these types of forms.)

There were 2 distributions with 4 checks to each. One set of checks issued on 11/28 (received 12/2), and one set issued 12/02 (received 12/06). (This investment company issued separate checks for each fund, as well as separate withholding checks for each fund.) No one check is for over $2,500, but together they are.

In the past (5 years ago), we filed a 945-V and sent the withholding checks in monthly. In looking at the instructions for filing form 945 it mentions that the withholding checks must be deposited into a depository. Then it goes on to say that they can be sent with the annual 945.

I called the IRS to get their opinion, and after talking to 6 people (over an hour), I never got a straight answer.

My question is....since the checks were received in December, and no other checks will be issued before the end of the year, can I send in the checks with the annual 945? Will the client be penalized? What if the distribution happened in February? Do other TPA's or Investment Providers make their clients set up separate depository accounts for each client's TIN for federal withholding?

Please help! I'm getting more frustrated by the minute.

[pmacduff]

Here is a copy of the #945 instructions for 2003 - hope this helps! - It seems pretty clear to me on page #2 in the second column..."depositing withheld taxes".

i9452003.pdf

[Harwood]

Form 945 Instructions:

"Deposit all nonpayroll (Form 945) Federal income tax withholding, including backup withholding, using Form 8109, Federal Tax Deposit Coupon, at an authorized financial institution, unless you are required to use the EFTPS electronic deposit system"

Due to the relatively small amounts involved, you appear to be "monthly schedule depositor" [Form 945 Instructions, page 2]. Payments are made by the 8109 coupon, not electronically.

"Under the monthly deposit schedule, deposit Form 941 taxes on payments made during a month by the 15th day of the following month." [Publication 15; same rule applies to 945 taxes]

[Guest THess]

Thanks for your responses. I was looking at is the actual 945 form (attached). If you look at the second page where it states "Making Payments with Form 945"...that's where I need clarity. It may be clear to you pmacduff, but it is not to me. Could someone please explain it to me.

Also, for those of you who have self-trusteed plans, do you have each client go to a bank and set up an account specifically for withholding? Seems like a pain to me , as well as a pain for those clients who only have a distribution once every five years.

Thank you for all your help.

f945.pdf

[pmacduff]

Since the checks were issued/received in December and total over $2500, then they should be deposited in December. (The only time you can send $ in with the #945 filing is when the total for the year is under $2500.) All of my clients submit withholding (through their bank) throughout the year as distributions are done so I've never had anyone use the feature to file with the #945. A distribution in February is submitted in February. Then we have the client file the #945 with monthly totals filled in. We've never had a problem. Is your question because the withholding checks are payable to the Trustees and not to the bank, so the bank won't take that check to send to the IRS? Also - if you had a distribution in February where the total tax was under $2500 and that was your only distribution for that year, you can send that $ in with the #945. I just like the clients to get the $ to the IRS ASAP! [i wasn't trying to be snotty with my "clear" remark, I just thought maybe you hadn't seen the instructions. I have a lot of small clients where there may only be 1 or 2 a year also!]

[Guest THess]

Thanks pmacduff....sorry for the misinterpretation.

The IRS told me that I have until January 15th to make the deposit...so, I still have some time, but I agree that they should be deposited ASAP. As well, any withholding done during the year should be deposited in the month it was issued. I just thought being this close to the end of the year, and no further distributions will be made, that I could just send it in with the 945 form.

I had read the 945 instructions, but then when I got to the actual form I thought there was another way (by what I was interpreting).

What is your interpretation on the next part (on page 2 of the 945) where it states that it can be over $2,500?

The checks are made payable to the Treasury Department, and I'm afraid that the bank will not take them. I really hate to have to have them reissued, so I was grasping at another way out. And with this being the first distributions from the plan (which has been in effect for over 5 years), I thought it would be eaiser than making them jump through hoops when there probably won't be another distribution for another 5 years.

Trying to find the easy way out....lol.

Thanks!

[pmacduff]

THess - I went to Publication 15, section 11 - (see attached). I have to admit that I am VERY confused. I don't exactly know WHAT this is saying. Whatever the "Accuracy of Deposits" rule is????? I think we need help from an Accountant on interpreting this! I had another idea, though...what if you send the payments in with the #945 form prior to the $ deposit due date of January 15th? I can't imagine that the IRS will refuse a payment!!! Was that what you were striving for?? Let me know how you make out.

p15.pdf

[Guest THess]

Thanks! That's exactly what I was striving for, and my sentiments exactly...lol. The more I read, the more confused I got.

I think I'll take my chances and send it in with the 945 form. The worst that can happen is that I'll end up paying the 10% penalty (about $330).

Thank you so much pmacduff! Especially for all the time you took to research it as much as I did. (Somehow I will try and let you know how it turns out.)

[Mary Kay Foss]

When you make deposits with Form 8109, the checks are to be made out to the Bank, not the U.S. Treasury. That's part of your problem. Usually only the bank the checks are drawn on will accept the deposits.

I agree that the rules are just not very flexible when there are small or occasional tax deposits required. I deal with a small private foundation that needs to deposit federal taxes with Form 8109 whenever they owe tax. We're talking about less than $1,000 only once a year, but the rules aren't flexible.