An exempt status is good for only one year.

If you have filed “exempt” on your 2008 W-4, you are required by the Internal Revenue Service to complete a new W-4 for 2009. You must give your employer a new Form W-4 by February 15th to continue your exemption. If by February 15^th your employer has not received a new Form W-4, the filing status will be defaulted to single with 0 withholding allowances.

 If you claim exempt, but later your situation changes so that you will have to pay income tax, you must file a new Form W-4 with your employer within 10 days after the change. Your claim of exempt status may be reviewed by the IRS. If you have any question  please contact StaffScapes Payroll Department at (303) 466-7864

For additional information please visit http://www.irs.gov/

The “Making Work Pay” provision of the stimulus package will reduce income tax withholding for majority of employees.

The IRS has just released the changes to the income tax withholding tables used to calculate employees’ tax withholdings from their pay checks. The change comes from the $400 to $800 refundable tax credit provided under the stimulus package. This tax credit will be provided to employees through out 2009 and 2010 by changing the tax withholding from their normal paychecks. This credit is for employees making less than $75,000 individually or $150,000 for married couples. A new W-4 form is not needed to claim this tax change.  StaffScapes  recommends that employees with multiple jobs or couples that combined put them in higher tax brackets should contact their tax advisor to verify and/or revise their W-4.

The IRS has made it clear that the new tax withholding tables are to be used as soon as possible, but at the latest by April 1, 2009.  As of Monday, March 2, 2009, StaffScapes’ employees will have the advantage of having their checks processed using the new tax tables, resulting in more “take home” pay for most employees.  Additional information about the stimulus package, including the “Making Work Pay” provision, can be found on the IRS website at: http://www.irs.gov/newsroom/article/0,,id=204335,00.html?portlet=6.

The IRS recently published information about the non-taxability of unemployment benefits.

The American Recovery and Reinvestment Act of 2009 (or Stimulus Bill) has given individuals that are collecting unemployment benefits in 2009, the ability to exclude the first $2,400 of these benefits. The exclusion applies to each individual separately even for married couples filing. This exclusion applies only to benefits received in 2009, so this will not reduce the taxable wages for the 2008 year form 1040 that most people are filing currently. Further information can be found posted at the IRS website at the following address: http://www.irs.gov/newsroom/article/0,,id=205633,00.html.

The IRS has amended it’s rules on Safe Harbor contributions to allow employers to terminate the match during these hard times.On May 18 the Internal Revenue Service (IRS) published proposed regulations that could provide relief to employers whose plans provide for safe harbor non-elective contributions. The relief allows employers to amend their plan to reduce or suspend future safe harbor non-elective contributions without terminating the plan if the employer is encountering a "substantial business hardship" (as set forth in certain criteria established by the IRS). While the suspension of employer contributions may potentially have an impact on employee morale and the perception of the employer’s benefits program by potential employees, employers who meet the criteria may find that these regulations provide welcome and necessary relief from future safe harbor non-elective contribution funding requirements and a viable alternative to terminating the plan.

A house bill has recently been introduced that will significantly change the liability of misclassifying employees as independent contractors.

A bill concerning employee status was introduced in the House on July 30 by Rep Jim McDermott (D-Wash). The bill, H.R. 3408 or Taxpayer Responsibility, Accountability, and Consistency Act of 2009, makes it substantially harder to avoid employment tax liability for misclassifying an employee as an independent contractor, repealing the safe harbor provisions of current Section 530 in the Code. The bill also states “any individual who performs services for a taxpayer may petition (either personally or through a designated representative or attorney) for a determination of the individual’s status for employment tax purposes”. In addition, H.R. 3408 would significantly increase (by 1,200% with some fines) employer penalties for misclassification.

IRS will audit 2,000 taxpayers each year for the next three years.

Beginning February 2010, the Internal Revenue Service will begin employment tax audits on 2,000 randomly selected taxpayers (employers) per year for the next three years.  The IRS states that they are conducting this study “to collect data that will allow the IRS to understand the compliance characteristics of employment tax filers”. This means, the IRS is using this three year “study” to find out where employers are not staying in compliance with collecting, reporting, and paying taxes. The IRS also explains that the examinations will be comprehensive in scope. The IRS will not be looking for just a handful of different problem areas, but searching for any and every area of non-compliance. Now is the time to audit your employment compliance practices. Contact StaffScapes to discuss any concerns or problems that you may have.

See Also

• IRS Will Begin Employment Tax Research Study in February 2010

On December 3, 2009, the Internal Revenue Service announced a reduction to the optional standard mileage rates for 2010.

For the year 2010, the optional standard mileage rate will reduce from 55 cents to 50 cents per mile. Taxpayers have the option of using the optional standard mileage rate to calculate deductible costs of operating an automobile for business purposes.

The rate for computing the deductible medical or moving costs have also reduced to 16.5 cents per mile, however the rate for providing services for charitable organizations has remained unchanged at 14 cents per mile. For further information you can go to the IRS announcement at: http://www.irs.gov/newsroom/article/0,,id=216048,00.html

A highly overlooked aspect of the health care reform, Patient Protection and Affordable Care Act, is the expanded 1099-MISC reporting requirements. The 1099-MISC reporting is being expanded in two different ways. The first expansion requires businesses to include payments made to corporations, and the second expands reporting to include payments of property.  The definition of “property” is still unclear, but IRS Commissioner Douglas Shulman recently made reference to “goods” instead of property which would suggest the IRS is looking at using a larger, more comprehensive definition.

This increased reporting requirement being placed on all businesses seems to be substantially burdensome in my opinion. How many businesses in this country will have to send 1099s to companies such as their local office supply store, and how many office supply stores want to receive potentially hundreds of thousands of 1099s from their customers? Businesses of all sizes will be required to report hundreds of 1099-MISC reports for any individual or corporation for which it pays $600 or more to in the year. Currently the requirement only applies to payments made to individuals, which makes sense, since individuals have the higher risk of not fully reporting income.  However, businesses already have reason to fully report their income to offset expenses and show owners and investors a return on their investment, not to mention potential SEC requirements and the fear of audits.

The AICPA, American Institute of Certified Public Accountants, is currently trying to influence Congress to repeal this section of the new health care law. If we are lucky, Congress will see the problems with this section and repeal it, however businesses in the mean time should review their systems to begin preparing for additional reporting burdens coming in 2012.

The expanded 1099 reporting provision of the PPACA has been repealed as of April 14, 2011. For additional information please proceed to our recent post: Two Provisions of Health Care Reform Recently Repealed.

Recently reported by Americans for Tax Reform, beginning on January 1, 2011, virtually everyone will be affected by tax increases based on expirations of prior tax cuts and recently enacted laws. Below is a list of a few tax changes coming in 2011, however this by no means is a complete listing of tax changes:

Personal income tax table changes. The income tax rates for all Americans will be increased by increasing the rates for each bracket of income. The phasing out of itemized deductions and personal exemptions will also continue resulting in increased tax rates as well. If the tax rate tables revert back to pre-2001 rates the changes to the income tax tables are: The 10% bracket rises to 15%, the 25% bracket rises to 28%, the 28% bracket rises to 31%, the 33% bracket rises to 36%, and the 35% bracket rises to 39.6%.

Marriage tax increases. The correction made in 2003 to reduce the effect of the “marriage penalty” will expire, increasing taxes to a large portion of married couples. Also the standard deduction will no longer be doubled for married couples relative to the single level.

Family tax increases. The child tax credit that is currently $1,000 per child will be reduced to $500 per child. The dependent care and adoption tax credits will also be cut.

The AMT will affect more tax payers. The Alternative Minimum Tax, which was enacted in 1969 to affect very few taxpayers, continues to be un-indexed for inflation. This will lead to an estimated 28.5 million taxpayers to pay taxes at a higher level.

Over-the-counter medicine. The health care reform act will take away the ability of Americans to use tax-free health savings accounts (HSA), flexible spending accounts (FSA), or health reimbursement accounts (HRA) to pay for non-prescription, over-the-counter medicines.

HSA withdrawal tax. The additional tax on non-medical withdrawals from an HSA will increase from 10 to 20 percent. This is technically a penalty tax on top of the normal income taxes you will have to pay for this withdrawal amount.

Name-brand drug tax. Drug manufacturers will have an additional tax put on them for their brand-name drugs. This will obviously be passed down to the individuals who purchase these drugs, ultimately increasing the cost of needed medication.

The IRS announced today, October 12, 2010, that it will defer the health insurance reporting requirement for employers, making reporting by employers optional for 2011. The Affordable Care Act requires that the aggregate cost of employer-sponsored health coverage must be reported on a Form W-2.  For this purpose, the aggregate cost is to be determined under rules similar to the rules for COBRA continuation coverage.  This rule was to be effective for taxable years beginning on or after January 1, 2011, but will now be voluntary for 2011.

The IRS and Treasury Department decided this relief to be necessary to give employers time to make changes to their payroll systems or procedures to be compliant. The IRS announced it will be publishing guidance on this requirement later this year. The IRS also stressed that although amounts are to be reportable come 2012, the amounts reported are not taxable and are for informational purposes only.

The IRS announcement can be found at IR-2010-103.

Multiple government agencies responsible for implementation of the new health care reform bill (PPACA), including the Internal Revenue Service and Health and Human Services, recently announced an amendment to the rules governing the grandfathered status of group health plans. The amendment allows group health plans to change policies, contracts, or carriers and keep their grandfathered status, provided the coverage does not violate one of the other rules for maintaining grandfather status (e.g. not increasing co-insurance, deductibles, co-pays above certain thresholds, etc.). This amendment to the interim final rules is effective November, 15, 2010.

Several concerns were raised concerning the prior interim rules which lead way to the creation of this amendment. One of those concerns which this amendment corrects was that self-insured group health plans were being treated differently than fully-insured programs. Self-insured plans were allowed to change third party administrators without affecting grandfathered status. Now that this amendment has been put in place, this change will equalize the treatment of the two different plans.

The full amendment can be found here.

Employees who are participating in a HSA must file a Form 8889 along with their 1040. Form 8889 must be filed for any year that an individual makes or receives HSA contributions or any year that they take a HSA distribution.

Employers will report any contribution it made to the HSA on the W-2 on box 12. In addition, individuals should receive a Form 5498-SA from the HSA trustee that reports total contributions made during the year and the value of the HSA at year end. If any distributions were taken during the year, the trustee will also send a Form 1099-SA to the individual reporting total distributions made for the year.  These three forms will be used to complete Form 8889.

Additional information can be found in the instructions for Forms 1040 and 8889 at the IRS website. Individuals should consult their tax advisors if they have any additional questions.

Have you updated your employee applications for new hires?  The new 2011 W-4 has been released by the IRS.  Once the employee completes the W-4 upon hire, the only other time this form would be applicable is if the employee would like to make changes to their withholding election.  When the employees are having their taxes prepared is a great time for them to ask their tax advisor for be submitted for their W-4 withholding.  Select here for the form 2011 W-4.

The Internal Revenue Service has recently issued a notice providing interim guidance on how businesses should report to employees their employer-sponsored group health plan coverage amounts as required under Section 6051(a)(14), enacted as part of the Affordable Care Act.  Notice 2011-28 is valid for all employers who sponsor a group health insurance plan offered to their employees.

In general, employers are required to report the aggregate cost of employer-sponsored coverage on an employee’s W-2 form.  The amount should be listed in Box 12 of the W2, using Code DD. The IRS has stated that the new reporting requirement is for informational purposes only, and the amount reported will not affect the taxability of the insurance coverage. This new reporting requirement begins with the 2012 calendar year, however there is an exemption, for at least one year, for small employers that issue less than 250 W-2 forms per year.

The notice defines and provides additional guidance in regards to items such as: aggregate cost, applicable employer-sponsored coverage, subjected employers, calculation methods, and other general requirements. Also included in the notice are 31 “Q&A” type discussions.

Yesterday, the Internal Revenue Service announced an increase to mileage reimbursements beginning July 1, 2011.  For business miles driven, the rate will increase from 51 cents per mile to 55.5 cents per mile. With the costs of fuel combined with those associated in maintenance of vehicles, the IRS made this special adjustment to help tax payers. 

In addition to business miles, reimbursement for medical and moving mileage expenses were also increased from 19 cents per mile to 23.5 cents per mile.  For more information, view the IRS update.

The IRS recently announced that a little more than 228,000 taxpayers had claimed the Small Business Health Care Tax Credit for tax year 2010. As of Mid-May, these taxpayers received a total amount of more than $278 million. This amount is significantly lower than the estimated Credit for tax year 2010 of $2 billion. Why is the difference between the estimate and actual so large?

The Treasury Inspector General for Tax Administration (TIGTA) audited the plan to determine if the IRS “adequately implemented and accurately processed the Credit”. TIGTA found that the Credit was “mostly successful, but some improvements are needed”. TIGTA reports that the IRS did timely complete the actions related to the Credit and put more of the responsibility on the taxpayers making mistakes on the form used to request the Credit (Form 8941). I do not agree with their assessment of the discrepancy.

I believe the problem is that the Credit was over-estimated due to the Full-Time Employee and the Average Annual Wage restrictions. Most small employers that provide health insurance provide them to full time employees, and most of those full time employees, at least here in Colorado, make more than $25,000 per year. What we found with our clients was that only about a third of them could claim some part of the Credit, and of them only one could claim the full Credit. The third that could take a portion of the Credit had to decide if the Credit was more than what they would have to pay their tax accountant to claim it. If the IRS and TIGTA want to know what they can do to get more small business to claim the Credit, then they need to look at and change the Full-Time Employee and Average Annual Wage restrictions.

On December 12, 2011, the Internal Revenue Service announced that the standard mileage rates for business will remain unchanged from the mid-year adjustment for 2012.

For the year 2012, the optional standard mileage rate will stay 55.5 cents per mile. Taxpayers have the option of using the optional standard mileage rate to calculate deductible costs of operating an automobile for business purposes.

The rate for computing the deductible medical or moving costs have also reduced to 23 cents per mile, however the rate for providing services for charitable organizations has remained unchanged at 14 cents per mile. For further information you can review the IRS announcement here.

The Middle Class Tax Relief and Job Creation Act of 2012 that was recently passed, extends the 2% Social Security tax cut through the entire 2012 calendar year. The social security tax rate for employees will continue at the reduced 4.2% rate with employer contributions remaining at the standard 6.2%. This reduced rate was temporarily in effect for the 2011 year only but was extended for two months this year by the Temporary Payroll Tax Cut Continuation Act of 2011.
 

The IRS reports that “no action is required by workers to continue receiving the payroll tax cut” and “As before, the lower rate will have no effect on workers’ future Social Security benefits.”
 

The IRS Notice IR-2012-27 has additional information.