[RonTax]

Dear Experts,

My company agreed to pay me 55% of revenue the project when I given my project to them. The company deducting royalty fees, social security tax and medicare tax of employer contribution taken from 55% from the revenue. My offerletter doesn't say about this. I am holding h1 visa with them. Appriciated your guidance regarding this.

Thank you!

[AtlantaTaxExpert]

RonTax:

It appears that your company considers you an employee. I cannot comment on the royalty fees, but, if you are an employee, then they should withhold 6.2% of the payment for Social Security taxes (up to $90,000 for 2005) and 1.45% of the payment for Medicare taxes (no ceiling). Your income should be documented on a Form W-2.

If they withheld twice that amount, they consider you an independent contractor. In that case, you need to file Schedule C to report the income (and your expenses) and Schedule SE to report the same incime as self-employment income. Your income (and the withheld taxes) should be documented using Form 1099-MISC.

In either case, the withholding is appropriate because, as an alien on a H1 visa, you are liable for Social Security and Medicare taxes.

[RonTax]

Thanks for the reply. I am the employee of the company. I have a base salary and I am paying the social security tax and medicare tax for each paycheck. When the company calculates the bonus on yearly basis, company deducts their portion of social security tax and medicare tax from my bonus. My friend told me that as per IRS law, bonus is a part of the salary and the company has to pay their portion of social security and medicare tax and not from my bonus. Is it right ? I appreciate your help.

Thanks.

[AtlantaTaxExpert]

RonTax:

I agree with your friend's interpretation of the IRC. Bonus is considered a part of your salary.

However, you may be misinterpreting the withholding. Since bonuses are large lump-sum payments, they have a larger income tax withholding requirement. The normal federal income tax withholding for a bonus is 30%. This is on top of the normal Social Security and Medicare taxes withholdings, plus whatever the state income tax withholding may be.

[RonTax]

Thanks! I am employee of the company. Compnay deducting twice the amount of social security and medicare tax from my salary. My friend told me that "company can't not deduct their portion of social security and medicare tax from my salary. If they deduct then they are breaking IRS laws". Is it correct ?

Thanks!

[AtlantaTaxExpert]

RonTax:

That is correct if you are an employee. For every dollar you pay in Social Security and Medicare taxes, your employer also pays a dollar.

They should not withhold that extra dollar from your check. If they consider you an employee, then they are in violation of the withholding tax regulations.

[janeckmarsh]

Can I itemize medicare taxes withheld on my Schedule A in the medical category. Medical expenses already exceed 7.5% of my AGI