Employers

Why pay social security taxes?

Social Security benefits are based upon the worker’s earnings as reported to the social Security Administration. The worker’s earnings are also used to determine insured status for entitlement to retirement, survivors, and disability insurance benefits. Accordingly, it is important that these earnings are reported promptly and accurately.

Employer Identification Numbers (EIN)

The Social Security Administration issues an EIN upon receipt and processing of a completed application for an Employer Identification Number. The applicant must submit a copy of business license and evidence of the ownership, inception date of business, form of business and nature of business and others upon applying for an EIN. All employers in the FSM must get an employer identification number and must indicate this number on the employer’s tax return. Applicants with more than one business must have one EIN for each business. The EIN must be entered on the Employer’s Quarterly Tax Return. If you change the name of your business enterprise, you must write or visit the nearest Social Security office so your records can be updated. Changing your business name without informing Social Security might result in your employee’s earnings not being credited to their records, and an employee could lose some rights to benefits.

The Act defines employees as:

  • any officer of a corporation, or
  • any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee; or
  • any self-employed person who has at least one employee for whom he is required to report in a given quarter; or
  • any self-employed person who had more than $10,000 of annual gross revenue in the preceding calendar year.

Employees also include FSM citizens employed in FSM embassies and consulates located outside of the FSM, non-citizens employed on “special contracts” within the FSM, and domestic service.

Employers

All employers incorporated or doing business in the FSM are considered employers for Social Security purposes. This includes:

  • sole proprietors who have at least one employee;
  • sole proprietors who have more than $10,000 of annual gross revenue in the preceding calendar year;
  • partnerships;
  • corporations;
  • foreign entities operating or doing business in the FSM under a foreign-aid agreement;
  • FSM National and State Governments and all agencies, bodies, or political subdivisions thereof; and
  • Foreign investment permit holders, subject to provisions of Social Security self-employment, partnership, or corporation tax filing requirements.

Self-Employment

A self-employed person is a sole proprietor who engages in any trade or business. Self-employed persons who have employees do not need to prove gross revenue in excess of $10,000. As long as they have at least one employee, they must file the Employer’s Quarterly Tax Return and pay the Social Security tax at the end of every such quarter. Self-employed persons with employees must report gross wages for themselves equal to twice the wages of the highest paid employee reported by them for that quarter.

Self-employed persons who have no employees are required to file the Employer’s Quarterly Tax Return for such quarters indicating their self-employment status and marking the “No Payroll This Quarter” box. At the end of the fourth quarter, these self-employed persons must attach a copy of their Business Gross Revenue form with their Employer Quarterly Tax Return. If gross revenues exceed $10,000, then these self-employed persons must report gross wages for themselves for each calendar quarter equal to 5% of the business’ gross revenues for the calendar year.

To compute for Quarterly Gross Wages:

Example:

  • 2013 Business Gross Revenue = $ 16,000 x 0.05
  • Quarterly Gross Wages = $ 800
  • Quarterly Social Security Tax Due = $800 x 15% = $120.00
  • Annual Social Security Tax Due = $120.00 x 4 quarters = $480.00

If a self-employed person only had employees for some quarters during the calendar year, then the self-employed person would report gross wages for himself equal to twice the wages of the highest paid employee for those quarters in which he had employees, and for the remaining quarters would use the preceding formula for self-employed person with no employees.

A self-employed person with more than one business and no outside employment shall report wages for himself for the quarter equal to twice the wages of the highest paid employee from all of the businesses.

A self-employed person with more than one business, each of which does not meet the minimum $10,000 gross revenue rule, may combine any of the businesses until the “over $10,000” gross revenue amount is reached.