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To HIRE or not to HIRE?

Sunday, July 11th, 2010

The Hiring Incentives to Restore Employment Act (HIRE) was signed in to law by President Obama on March 18, 2010. If an employer hires a worker after February 3, 2010 and before January 1, 2011 and this worker has been out of worker for more than 60 days, the employer is eligible for certain tax credits.  Household employees are not eligible for HIRE and neither are business owners or their relatives, but recent graduates and minors are. 

  • The HIRE tax credit is a 6.2%  Social Security Tax break, up to the lesser of 6.2% of the employees wages or $1,000. The employer takes the credit on their payroll tax forms, by reducing the employer portion Social Security to zero for eligible employees.
  • Then there is a HIRE Retention Credit which kicks in 2011 if a new employee is retain for 52 weeks and does not see a significant change in pay during the second half the year.  It also is the lesser of 6.2% of wages or $1,000.
  • Work Opportunity Tax Credit (WOTC) is $40% of the first $6,000 in wages and could be as much as $2,400.  Of course WOTC applies to a specific class of individuals who face difficulties getting into the workforce: Welfare recipients, disabled veterans, residents of certain geographic locales, and disconnected youth-so not all new hires will qualify for WOTC, but some might. 
  •  However the HIRE tax credit can not be taken with the WOTC.  But the HIRE Retention Credit can be taken with WOTC. 
  • Finally, if an employer was taking the COBRA assistance credit, because they laid of a given employee, and that employee was  laid off for more than the 60-day period, the employer can rehire that employee, who will be eligible for HIRE tax credit too. 

If an employer does hire a new employee that qualifies for HIRE and WOTC its probably a good idea to see which tax credit is the most beneficial to them.  An employer can elect to bypass HIRE in favor of WOTC.  If an employer has already taken HIRE on an employee and decides that WOTC would be a better deal, they need to file an amended employment tax return, 941-x, for each quarter they took the HIRE and repay the social security tax.  Once that is done the employer can take WOTC. 

More information on the HIRE credit.  Employees are to certify that they have not been employed more than 40 hours in the 60 day prior to hire using Form W-11 or comparable document. The 60-day period of unployement must be continuous but can bridge 2009-2010.   The document is to be kept in the employer’s files.  Electronic versions with electronic signatures are valid. Scanned images of signed paper W-11s are valid.  W-11s and equivalent need not be notarized. The W-11 must be signed, completed and in the employer’s hands before the employer can claim the HIRE credit on their form 941.  If the employer realizes they have claimed the credit for an ineligible employee they must amend the 941 on which they claimed the credit and pay the tax.  Temp agencies are eligible for the credit, so if the temp agency claims the credit for a given employee, the employer can not; employers should negotiate with temp agencies to pass the exemption saving through to them.  The credit is only for wages actually paid (not earned) during March 19, 2010 and December 31, 2010. 

In other unemployment news, the COBRA subsidy has been expanded to included employees laid off through May 31, 2010 and goes through December 31, 2010.  Former employees are still only eligible for 18 months of COBRA assistance, but for newly laid off workers, this subsidy is some good news. 

Also the time to close on a home, get an occupancy certificate, and qualify for the Home Buyer’s Credit is extended to August 31, 2010-however the contract still must have been entered into by April 30, 2010. 

As always, small business services and taxation are our business.  If you need help Please give Art & Business Consulting a call.  We would love to engage you as a client.

The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in. The content of this blog generally applies to business and individual taxation in the United States of America.  Internal Revenue Service Circular 230 Disclosure:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein.  Art & Business Consulting LLC currently does not have a certified public accountant, human resource specialist, financial plan advisor or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice. Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.

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More Changes For AZ Taxpayers

Friday, June 25th, 2010

July 1 is the start of the Arizona State fiscal year which is why several changes are going into effect on that date. 

AZ Withholding Tax Change: On July 1, 2010 an employer must withhold Arizona state income tax according to the new A4s, which they should have obtained from all of their employees prior to that date. We have prevously  blogged about the change coming to the Arizona A4. On July 1st Arizona’s state income tax withholding rate will decouple from the federal withholding rate. Every employee needs to do a new A4. An employer should not advise employees about how to complete the form except to point out the form comes with worksheet to assist them. That said, a quick and dirty calculation would be to see how much tax you owed to the state last year and divide it by your Arizona state income; but of course this assumes that your income, expenses, marital status, dependents, items of credit and deduction, etc. are similar to last year, which it may not be.

AZ Child Support Garnishments Change: If you are an employer who does garnishments for things like child support in Arizona through CLEARINGHOUSE, please be advised that the fee will increase from $2.25 to $5.00  starting July 1.

In addition to these changes that go into effect in less than a week, there are other things you should aware of. 

Transaction Privilege Tax License Change:  You are probably aware that the Arizona “sales tax” increased 1% statewide on June 1st, and you should have already adjusted your software, point of sales systems and registers.  However sometime in September the AZ DOR is going to be sending out Transaction Privilege Tax renewal forms.  The only people who won’t have to renew their licenses are those who got their licenses on or after July 1, 2009.  The law increases the fee to obtain, change or renew a license to $40 up from $12 for a period of 1 year and 2 weeks starting June 15, 2010;  means the change will be in effect for the state’s entire upcoming fiscal year.  It’s not expected to be a big revenue raiser, but the AZ DOR hopes to get people who have never filed a TPT return or who haven’t filed in a long time off the sales tax rolls.  If you’e had your license a year or longer, you will need to pay for the renewal if you want to keep it.

Nonconformity with Federal 2009 tax forms: This change quietly went into effect on April 27, 2010.  The State of Arizona decided not to conform to the Federal Tax code after the first tax deadline had passed.  If you filed your tax form on or before April 15, 2010 and you had any of the following items of income, deduction or credit on your tax return-you may need to file an amended Arizona tax return and pay additional tax.  You do not need to amend your federal tax return, just Arizona’s. 

  • Unemployment: you need to add the $2400 the federal government exempted from gross income back into your Arizona income and pay the additional tax.
  • Automobile Sales Tax deduction: you need to remove the automobile sales tax from your deductions, which will increase your income and you may owe additional tax.
  • Haiti Contributions made between January 11 and before March 1, 2010 that were taken as a charitable deduction in 2009.  These contributions will be eligible charitable deductions on your Arizona taxes in 2010.  Again this will increase your income and you may owe additional tax.
  • Discharge of Indebtedness (DOI) Income From Business Indebtedness Discharged by the Reacquisition of a Debt Instrument-the feds allowed it to be added ratably over 5 years, AZ did not. 
  • Original Issue Discount (OID) on Reacquisition of Debt Instrument-the feds allowed the income to be deferred, AZ did not. 
  • Special Federal Net Operating Loss (NOL) Carryback Rules for 2008 and 2009 Losses-the feds allowed a special longer carryback period of 3, 4, or 5 years, instead of 2, AZ did not. 

 The amended tax form is 140X for individual taxpayers and it can be found on the AZ DOR website.  There is more information about AZ 2009 nonconformity here. These links take you to the Arizona Department of Revenue website and you will be subject to their privacy policies etc.; Art and Business Consulting LLC is not affilicated with the AZ DOR. 

If you live in another state, check with your state’s department of revenue regarding conformity issues with respect to your state. 

As always Art and Business Consulting is here to help.  If you need help filing an amended Arizona tax return, or any other with a small business and or tax issue, please give us a call.

The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in. The content of this blog generally applies to business and individual taxation in the United States of America.  Internal Revenue Service Circular 230 Disclosure:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein.  Art & Business Consulting LLC currently does not have a certified public accountant, human resource specialist, financial plan advisor or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice. Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.

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Posted in Business Taxes, General Business, General Individual, HR Info, Individual Taxes, Other Information | No Comments »

Medical Plans for Small/Micro Business Owners

Monday, June 14th, 2010

In general Group Health insurance including dental & qualified long-term care insurance is deductible as a business expense, but there are very specific issues with respect to small business owners.  A sole proprietor, partner or 2% or more shareholder of an S-corporation cannot deduct more than they earned from self-employment and cannot deduct medical insurance under self-employment for any time they are covered under any other employer’s plan including their spouse’s employer.

  • Payments made by a partnership on behalf of a partner are deductible as Guaranteed Payments to the partners, not as medical insurance expense/employee benefits.  The partnership must reimburse the partner if the partner pays for the insurance in their own name. 
  • For 2% shareholders such payments must be included in their wages subject to the usual withholding taxes. 2% shareholders must be reimbursed by their S-corporations in order for the insurance to be considered established under the business to qualify for the adjustment.
  • Self-employed persons, AKA Sole Proprietors, can take the Medical Insurance Adjustment to 1040 Income, whether they purchase the insurance in their own name or the name of the business. 

However there is a way to obtain medical insurance for business owner that is deductible as a business expense.  Based on Section 105 of the Internal Revenue Code, a small business owner who can demonstrate employable interest in the business can become eligible for an employee benefit program. All business filing types are eligible including sole proprietors, partnerships, C- and S- corporations. Section 105 HRA plans are designed specifically for small business owners that can legitimately hire their spouse. Because the spouse/employee can be reimbursed for family expenses the employer indirectly benefits as well. This type of plan is made possible by Section 105 of the Internal Revenue Code, Revenue Ruling 71-588 and IRS Letter Ruling 9409006. For C-corporation and S-corporation owners it will not be necessary to use the spouse/employee method. The corporation becomes the employer and the owner is an employee as long as they are an employee receiving a regular paycheck.

So you are saying, “So what.  If I can take the deduction on my personal tax forms why would I care?”  Whereas it is true that up to 100% of the payments made for health insurance maybe deductible on your 1040, which saves on the associated income tax, all those premiums will be subject to Self-employment taxes as well.  Under a section 105 Plan, the amounts paid for the plan premiums will not be, a tax savings of 15.3% of those premium costs.  Furthermore out-of-pocket medical expenses are only deductible if you itemize, subject to the 7.5% limitation of income; under a section 105 it may be possible to write off 100% of out-of-pocket medical expenses too. 

Setting up a Section 105 Plan is not a trivial exercise.  Care must be taken when establishing a Section 105 HRA to ensure that a legitimate employer/employee relationship exists with the family member. In 1999 the IRS Industry Specialization Program issued a paper that said: “The extent and nature of a spouse’s involvement in the business operations is critical. Although, part-time work does not negate employee status, the performance of nominal or insignificant services that have no economic substance or independent significance may be challenged. Merely calling a spouse an “employee” is not sufficient to qualify a non-working spouse as an employee”.

If you are going the employee/spouse route, the spouse must provide meaningful services to the company, those services must be necessary (have economic substance), and the spouse’s compensation, which includes the Section 105 plan, must be reasonable. Furthermore it is essential that business and personal funds not be co-mingled.  e.g. If you hire your spouse to do filing for 4 hours a week and then pay them $10/per hour and provide them with family medical plan costing $800 per month, you can bet the IRS is going to look askance at compensation which is 82% benefits and 18% hourly wages.  It probably won’t fly. 

How do I establish a section 105 plan?  If you are a business owner, you are going to have to hire your spouse.  Really, we are talking the whole employment enchilada here. Your business will need an EIN for payroll purposes.  You will need an employment application, w-4, I-9, New Hire paperwork and other items from your spouse, just as you would for any other employee.  You will need to keep a record tracking hours your spouse worked and a description of your spouse’s duties.  You will need to pay reasonable compensation for those duties on a regular payroll schedule.  The household account and the business account must be separate so that paychecks and reimbursed medical expenses won’t be deposited back into the account they came out of.  Your spouse/employee will need to be the policy holder.  Finally you will need the Section 105 plan documents. 

In order for a Section 105 plan to work there are a lot of rules that must be followed, which is why Art and Business Consulting LLC recommends you get help if you think your business might qualify for a one.  Section 105 plans are really outside Art and Business Consulting LLC’s bailiwick, although we could certainly advise you on the related tax issues.  So we have found someone who does do Section 105 plans.

Art and Business Consulting LLC is not affiliated with the following entity, Total Administrative Service Corporation (TASC), but we did meet with Todd Kuehn, Regional Sales Director-Scottsdale Region Office TASC  at an Arizona Society of Enrolled Agents event.  TASC’s bailiwick does include Section 105 Plans; they are a third-party benefits administrator based out of Madison, Wisconsin, can simplify compliance and the administrative procedures associated with Section 105. According to their website, TASC has been doing just that for over 30 years with BizPlan. They even offer a savings guarantee and a full Audit Guarantee!

For more information see http://www.tasconline.com/buytasc/affiliate/bizplan/460163769708.  Please note if you click on this link you will be navigating away from our website; you will be subject to their policies and we have no idea what those policies are. Art and Business Consulting LLC has not received any gifts or other compensation for mentioning these folks, and we are not specifically endorsing them. 

As always Art and Business Consulting is here to help.  If you need help with a small business and or tax issue, please give us a call.

The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in. The content of this blog generally applies to business and individual taxation in the United States of America.  Internal Revenue Service Circular 230 Disclosure:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein.  Art & Business Consulting LLC currently does not have a certified public accountant, human resource specialist, financial plan advisor or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice. Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.

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Posted in Business Taxes, General Business, HR Info, Other Information | 3 Comments »

Restaurants, Form 8027 & Tips Reporting For Employers & Employees

Friday, May 21st, 2010

An independent contractor suggested that although the IRS receives about 50,000 Form 8027’s in a given year it should be receiving around 3 times that amount.  As a result, the IRS will focus exams on firms that failed to file form 8027.

What is Form 8027? It’s the Employer’s Annual Information Return of Tip Income and Allocated Tips.  It’s required of employers who operate large food or beverage establishments.  If more than one establishment operates under 1 roof each establishment must provide a Form 8027 if receipts are recorded separately, and file form 8027-T, Transmittal of Employer’s Annual Information Return of Tip Income and Allocated Tips as well along with the form 8027.

What is a large food or beverage establishment?

  • It serves food or beverages to be consumed on the premises.
  • Tipping is customary
  • More than 10 employees, who worked more than 80 hours, were typically employed on the premises in a typical business day.  The number of employees includes those who are not necessarily tipped, such as bussers, cooks, kitchen staff, wine stewards, seat persons etc.  but it does not include a person who owns 50% or more of the stock in a corporation while working in the business.

The Instructions for Form 8027 includes a worksheet to determine if Form 8027 is required.  You will take ½ the average of the number of hours worked/per day in the month with the greatest gross receipts and add it to ½ the average of the number of hours worked/per day in the month with the lowest gross receipts.  If this number s more than 80 hours then your firm is required to file Form 8027.

If business is a new business, and has more than 10 employees who worked more than 80 hours that were typically employed on the premises in a typical business day for 2 consecutive months, the business will be required to file form 8027 covering the remainder of the year starting with the next pay period after they meet the requirement.

Businesses not required to file form 8027:

  • Establishments that operated less than 1 month during the year.
  • Establishments where tipping is not customary such as fast food where 95% of the sales are carryout or cafeterias with a 10% or more service charge.

Forms 8027 are due on March first of the following year, or March 31 if filed electronically.  An extension of time to file is requested using form 8809, Application of Extension of Time to File Information Returns, and can be filed no later than March 1.  There are penalties for failure to file unless the firm can show reasonable cause for the delay.

You will be reporting Gross Receipts.  You may have Non-allocable Receipts for carryout and items for with a 10% or more service charge that are not included in Gross Receipts.  Complimentary Items for which tipping is customary must be included in the Gross Receipts; e.g. drinks at a casino, tipping is customary – include them in Gross Receipts, fruit basket in hotel room, tipping is not customary – do not include them in Gross Receipts.   You must allocate tips among employees if total tips reported to you during any payroll period are less than 8% (or the approved lower rate; the burden of proof for a lower rate rests with the petitioning employer). Employers-you need employees to report tips to you. When you allocated tips you must include the allocated tips on the employee’s W-2, which is due to the employee by January 31 of the year following.  The instructions for Form 8027 provide specific instructions for completing the form.

Tips Reporting-Employees

  • The employee must report ALL tips if the employee receives more than $20 per month in tips. The employee may have heard all they need to do is report tips equal to 8% of sales, or 10%, or just charge-card tips. That’s a big myth, and could get the employee in legal trouble if they earn more.
  • Employees should keep a daily tip diary, so they have a record to show to the IRS to prove earnings.
  • Employees need to report tips to their employers if they earn more than $20/month.  They must report these tips by the 10th day of the month following.  The employer can require reporting more often….
  • The employer needs to know this tip income so they can properly withhold Social Security, Medicare and other payroll taxes from the employee’s paychecks.
  • Failing to report tip income can resulting in penalties, interest, a big bill for the unpaid FICA taxes and possible jail time.
  • Sometimes the employee owes more payroll taxes than the wages on their paycheck will cover.  The employee may either pay their employer money out of their tips to cover the unpaid Social Security Taxes avoiding underpayment of estimate tax penalties, OR they may pay estimated taxes. The employee also may need to set aside some money to cover their taxes come tax time.

Tips Reporting-Employers

  • Employers are required to gather tip reports from their employees.
  • The employer is required to pay the employer’s share of taxes on employee tips, and withhold all payroll taxes for tips and wages, from the wages actually paid to the employee.
  • Some employers must file form 8027 and allocate tips.
  • Sometimes the employee owes more payroll taxes than the wages on their paycheck will cover.  In this case the government requires the employer to pay withholding taxes in a certain order. The employer needs to report Uncollected Social Security Taxes on the employee’s w-2.

Are you required to file Form 8027? Are you properly recording and withholding taxes for employee tips?  As always, small business services and taxation are our business.  If you need help Please give Art & Business Consulting a call.  We would love to engage you as a client.

The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in. The content of this blog generally applies to business and individual taxation in the United States of America.  Internal Revenue Service Circular 230 Disclosure:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein.  Art & Business Consulting LLC currently does not have a certified public accountant, human resource specialist, or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice. Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.

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Posted in Business Taxes, HR Info, Individual Taxes, Other Information | 2 Comments »

Time to HIRE?

Wednesday, May 12th, 2010

The Hiring Incentives to Restore Employment Act (HIRE) was signed in to law by President Obama on March 18, 2010.  Under the new laws certain employers may benefit from hiring certain kinds of new employees.  The first break eliminates the employer’s portion of the Social Security tax of 6.2%.  If the new employee is kept for 52 weeks a second tax credit kicks in.  The new tax breaks apply to employees hired after February 3, 2010 and before January 1, 2011.

The FICA tax break only applies to the Employer’s Social Security portion – the employer must still pay the Medicare Tax and collect both the Social Security and Medicare employee portions.

  • The newly hired employee cannot have worked more than 40 hours in the last 60 days  in order to be eligible for this tax credit.
  • The employer cannot replace current employees unless those employees are discharged for cause or the employee quits voluntarily.
  • The newly hired employee cannot be related to the employer.
  • The newly hired employee cannot directly or indirectly own more than 50% of the company.
  • A qualified employee may work any number of full-time or part-time hours.

The tax break for March will show up as a credit on the Q2 941; for the rest of the year the employer can take the break into account when making regular payroll deposits.  This tax credit CANNOT be taken in conjunction with the Work Opportunity Tax Credit (WOTC).  Employers also CANNOT double up using the FICA Tip Credit either.   The second half of the credit kicks in after the employer has retained the employee for a year; the tax credit is the lesser of 6.2% of the employee’s wages or $1000.

As eager as an employer might be to take advantage of this tax credit, they should not use it as a condition of hire, which would probably be a discriminatory hiring practice.   If an employer decides to hire someone they should be careful about when and whether they ask the employee if they are long-term unemployed until after making a hiring decision.  Once they decide to hire someone then they can ask them to certify that they have not been employed for more than 40 hours in the last 60 days.

As always, small business services and taxation are our business.  If you need help Please give Art & Business Consulting a call.  We would love to engage you as a client.

The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in. The content of this blog generally applies to business and individual taxation in the United States of America.  Internal Revenue Service Circular 230 Disclosure:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein.  Art & Business Consulting LLC currently does not have a certified public accountant, human resource specialist, or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice. Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.

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Another Change Coming to Arizona’s State Withholding Form A4

Friday, April 30th, 2010

Last year the federal government decided to give a tax break to workers in the middle of the year by reducing the amount of tax withheld from each paycheck.

Unfortunately, this meant the Arizona state income tax withheld went down, as AZ withholding is based on a percentage of the Federal income tax withheld.  So somewhere in the middle of the year, Arizona changed its withholding rates and required employers to get new A4′s from their employees selecting a new higher withholding tax rate.

This year the tax break is spread out over the entire year, therefore Federal withholding went up just a smidgeon.  So at the beginning of the year, all employers were required to new A4s from their employees selecting slightly lower withholding tax rates as Arizona had to adjust its withholding percentages again.

But hold on, we are not done yet.  The Arizona Department of Revenue (AZ DOR) has been tasked with coming up with a state withholding tax rate that is independent of the federal amount withheld.  The AZ DOR has now posted the new AZ A-4s at their website: http://www.azdor.gov/LinkClick.aspx?fileticket=9_U8ufG2wH8%3d&tabid=265&mid=884 If this link is broken you can find it by going to the AZDOR.gov forms pages.  

Arizona employers will need to get their employees to complete new A-4s before July 1, 2010 and start withholding amounts in accordance with those new A-4s on July 1, 2010.  The new A-4s list  AZ Withholding amounts as a percentage of income; they are not valid until July 1, 2010. 

A good starting place for an employee would be to see what percentage of income taxes were in 2009.   For example if an employee had an AZ adjusted gross income of 70,000 and was required to pay 1,700 in AZ taxes in 2009 their tax was about 2.4 % of their income.  They might opt for the 2.7% check box on their AZ A-4 assuming their situation in 2010 is similar to their situation in 2009.   For a taxpayer that had $30,000 in AZ adjusted gross income for 2009 and paid $500 in taxes, their tax was about 1.7 % of their adjusted gross income in 2009. They might opt for the 1.8% check box on their AZ A-4 assuming their situation in 2010 is similar to their situation in 2009. The new A-4 on-line the form actually has a worksheet to help them figure out what their withholding should be.  NOTE:  As an employer you should not advise employees as to what amounts to withhold, but you can suggest they use the worksheet that is part of the new AZ witholding form.

In other news as a fund-raising measure AZ DOR will now require businesses, which have a Transaction Privilege, Use and Severance Tax License (TPT)  issued before July 1. 2009 to “renew” them and pay a fee AND they are raising the fee for a license and updates effective June 15, 2010.  Art & Business Consulting LLC has an inquiry out to the AZ DOR as further information about this change to TPT did not appear to be located on their website as of the day we received notice of the change.   We will update you when we receive further information, such as how much the new license fee will be, are they going to mail the “renewal notices” out to current license holders, how often the license will need to be renewed, etc.

If you need help with this issue or any other, remember, small business services and taxation are our business.  Please give Art & Business Consulting a call.  We would love to engage you as a client.

The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in.  Internal Revenue Service Circular 230 Disclosure:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein.  Art & Business Consulting LLC currently does not have a certified public accountant or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice.  Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.

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Posted in Business Taxes, HR Info, Individual Taxes, Other Information | 1 Comment »

Health Care Reform, What Does It Mean To You?

Wednesday, March 24th, 2010

As I look over the information flooding in I realize, it doesn’t affect me much for the next  four years, except perhaps my insurance rates may go up and the threshold for itemized medical expenses is going to increase. I am currently shopping for health insurance and the prospects are grim. For the first time I am actually considering going without coverage.  Why?  Because the policies I can afford right now will not prevent me from going bankrupt in a medical emergency and do not pay for anything until an outrageous family deductible is satisfied.  I understand having insurance may make the difference between a doctor seeing me and not seeing me, but as a basically healthy person I am seriously considering rolling the dice, mostly because I just can’t afford it anymore. I know I am not alone. Update: I did finally get some family coverage-a plan with a high deductible that doesn’t qualify as an HDHP-go figure, but the price is less than half of the ghastly and expensive plan offered by my mate’s new employer.

Does health care reform help with my current dilemma? No.  I have to wait until 2014 then maybe it helps… or not. My crystal ball doesn’t see that far into the future.

In my opinion Health Care Reform does nothing to address the reasons why health care costs have skyrocketed. According to some analysts insurance costs will continue to rise.  As look what happened with credit cards in advance of that reform being enacted, I expect health insurance providers are going to keep raising rates and messing around with Joe-average consumer until 2014 as well.

Getting down off my soap box and moving along… Since the House Reconciliation Act strikes out or modifies a number of provisions in the Senate’s Patient Protection Act to which House members had objected, the Senate now must pass the “sidecar” House Reconciliation Act before it becomes law. Who knows how long that will take and what the final result will be.

Update: The Senate passed a sidecar that the House signed off on; President Obama is signed off on it March 30, 2010.  In the “new” version – banks are being stripped of the power to do student loans-in the past the loans were guaranteed by the government anyway, so the taxpayers were taking all the risk and the banks were making all the interest.  This bill will not change the status of existing student loans. What does this have to do with health care? Not much. Why did the banks get such a sweetheart deal in the first place? Dunno.  Weird how congress works.

The entire health care reform law rests on the idea that if everybody is paying into the pool, costs for sicker people will come down, therefore the law requires all individuals to have health insurance coverage by 2014; those who choose not to have insurance would pay a tax. Individuals who currently have coverage and wish to retain that coverage can do so under a “grandfather” provision in the heath care package and the coverage will be deemed to meet the individual’s responsibility to have health coverage. A similar grandfather provision applies to employers that currently offer coverage. Individuals covered by Medicare, Medicaid, Veteran’s affairs and other government programs would be regarded as having essential coverage.  The IRS will oversee much of the implementation of health care reform.

The health care reform bill means new obligations for insurance companies, new responsibilities for employers and eventually every individual will be required to have coverage or pay a tax. Some of the new law’s provisions take effect in a matter of weeks. Many other features of the health care overhaul won’t take effect until 2014 or even later.

  • The law doesn’t require employers to provide health insurance benefits; however, large employers (organizations with 50 or more employees) that don’t offer insurance will have to pay an annual tax of $2,000 per full-time worker. Businesses with more than 200 employees must automatically enroll workers into their health insurance plans.  Employees would then be able to opt out if they choose.
  • Small-business tax credits of up to 35% will take effect this year to help organizations with 25 or fewer employees pay for affordable employer-provided insurance. Update: Qualified Small Business: those with 25 or fewer employees and average annual wages of $50,000 or less. Starting in 2014 the small business will have to pay 50% to be eligible for the credit.
  • Qualified small businesses will be able to purchase insurance for employees through state-based exchanges known as Small Business Health Options Programs (SHOPs).  They will be designed to allow small employers to pool risk together, ideally lowering coverage costs.  SHOPs must be in place by 2014. If you’re a small business and even one of your employees opts out of employer-provided coverage in favor of insurance available through the state-based exchanges, you could be required to provide a voucher worth the value of the per-employee premiums you pay under your plan.
  • 2011: Employees will no longer be able to use FSA funds to pay for over-the-counter medications. The penalty for using HSA for non health care related expenses goes from 10% to 20%. 2103: The law also caps employee contributions to health-related flexible spending accounts (FSAs) at $2,500 per year & indexed to inflation thereafter.
  • All health plans must maintain dependent coverage for insured employees’ children until they turn age 26.  This rule takes effect in September. If your business provides health insurance coverage, get ready to re-enroll many young people who left their parents’ family coverage sometime within the last few years.
  • A high-risk insurance pool will be set up this spring and summer to provide affordable coverage for uninsured people with pre-existing conditions. Even if your company does not offer insurance, you may get questions from workers seeking coverage; refer them to your state’s insurance commission.
  • 2011: Large employers that pay for retiree drug coverage (Medicare part D) must declare for accounting purposes whether they intend to keep doing so; your accountants will have to wait for the IRS to set the final rules first.  Also employers must begin reporting the value of health care benefits on employee W2s
  • There are new rules limit how and for whom insurance companies can deny coverage.  The health care reform law prohibits insurers from denying coverage to children based on pre-existing conditions, putting lifetime dollar limits on coverage and canceling coverage retroactively except in cases of fraud. Similar rules for adults won’t kick in until 2014.
  • For some low income individuals and families, their premiums will be capped at a percentage (2-9.5%) of their income.

How do they pay for it?

  • There will be a 40 percent excise tax on high-dollar health insurance plans, to begin in 2018 payable by the insurer, which they can pass along to their customers
  • 2013: an increase in Medicare payroll taxes starting in 2013 on taxpayers in the $200,000- plus income category ($250,000 for joint filers)
  • There will be an 10% indoor tanning tax beginning July 1, 2010.
  • New fees on certain health-related industries &  a dozen other “revenue raisers” are also included in the final bill.
  • 2013: While not exactly a revenue raiser, taxes for some will increase as the itemized medical expense deduction threshold is raised from 7.5% of AGI to 10% of AGI in 2013. For individuals 65 and older the change doesn’t occur until 2016.

Other Items in the act:

  • Denies Biofuel Credit for “Black Liquor,” presumably because of abuses of this tax credit.
  • Codifies the Economic Substance Doctrine, the taxpayer’s economic position other than their tax position must change in a meaningful way in engaging in a transaction-mostly affects tax-shelter partnerships & S-Corporations. Violations are subject to stiff, automatically-applied penalties of 20 or 40 percent, depending on the underlying transaction and level of disclosure.
  • Increased corporate estimated tax payments on corporations with $1 Billion dollars in assets.
  • 2012: Adds corporations to information reporting; businesses will be need to get taxpayer identification info from corporations they pay more than $600 a year to for services and property (that’s a lot more 1099-MISCs folks) and report those payments.

Advice to businesses: Stay in contact with your health insurance broker or carrier.  They’ll have information as soon as it’s available. Talk to your FSA provider about implementing changes the FSAs as soon as possible as employees are going to start want to know what they need to do now.  It’s up to you to provide your employees about how the new mandates affect them, ask your benefits carrier for materials you can pass along to your employees.

Individuals should also stay in touch with their insurance broker or carrier.

And hang on. It’s going to be a bumpy ride.

What do you think about health care reform? What does health care reform mean to you?  Do you expect to receive any benefit or experience any harm in the near-term, or long-run?

As always, small business services and taxation are our business.  If you need help Please give Art & Business Consulting a call.  We would love to engage you as a client.

The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in. The content of this blog generally applies to business and individual taxation in the United States of America.  Internal Revenue Service Circular 230 Disclosure:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein.  Art & Business Consulting LLC currently does not have a certified public accountant, human resource specialist, or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice. Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.

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Home Based Technology Workers May Be Statutory Employees.

Monday, March 22nd, 2010

There are several different kinds of workers and employees.  A worker can be an Independent Contractor, Employee, Statutory Employee or Statutory Non-employee.

The rules for Statutory Employees were written for

  • drivers (other than milk men-don’t ask me why) such as those that deliver meat, fruit, vegetables, bakery products & pick-up and drop laundry
  • full-time insurance agents whose principal business is selling life insurance and annuity contracts
  • full-time traveling sales people who solicit and transmit orders from wholesalers, retailers, contractors or operators of hotels, restaurants and other similar establishments
  • individuals who work at home on materials or goods supplied by an employer that must be returned to an employer when the employer furnishes specifications regarding the work.

Why would a business care?  Some employers maybe classifying these workers as Independent Contractors and think they do not need to withhold employment taxes, but an employer could be wrong.  The penalties for a misclassified a worker can be severe.  Under the rules for Statutory Employees, the employer must withhold Social Security and Medicare, and pay Federal Unemployment Tax (FUTA) but does not need to withhold Federal Income Tax.  Also, if the employee is a full-time insurance agent the employer does not have to pay FUTA. If a home worker is defined as a Statutory Employee by the IRS the employer must pay employment taxes.

The home worker rules were originally written for the garment industry, where home workers would assemble dresses and the like at home from materials supplied by the manufacturer/empoyer and to the manufacturer/employer’s specifications.  However the IRS is seeking to expand the definition of Statutory Employees to include certain computer programmers, graphic artists, and other technology workers.

The key is whether such a worker could be called an independent contractor or not.  For home workers, three factors come into play:

  1. Whether the work has to be substantially performed by the home worker or can they delegate the work to someone else.
  2. Whether the worker has a substantial investment in facilities  in connection with the services to be performed
  3. Whether the services are performed as part of a continuing relationship or as a single transaction

When talking about these technology workers, the IRS has determined that the technology these home workers provide: Telephone, computer, printer, online access etc. does not constitute a substantial investment unless the worker spends thousands of dollars on this technology.  Also the return of materials rules that originally applied to garment workers also applies here – the goods the worker modifies, or assembles & is required to return to the employer can include software templates and other electronic information, that can be returned electronically.

If you have any questions regarding whether have independent contractors or employees, or need help with any other business or individual tax question, Please give Art & Business Consulting a call.  We would love to engage you as a client.

The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in.  Internal Revenue Service Circular 230 Disclosure:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein.  Art & Business Consulting LLC currently does not have a certified public accountant or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice.  Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.

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March Madness-Does Your Company Need a Gaming Policy?

Tuesday, March 16th, 2010

March Madness is upon us and office pools are popping up everywhere.  It is estimated business will lose $3.5 billion in employee productivity as Internet Tracker Hitwise stated that employees spent an average of 13.5 minutes a day at ESPN.com filing out their brackets.  While office pools are fun, they also present risks to employers. Anti-gaming groups urge employers not to sanction gambling.  Gambling especially on college games is illegal in nearly every state, yet an estimated $6 billion dollars will be illegally wagered during March Madness. 

 Despite this, most office pools do not affect productivity unless they get out of hand.  Although an employer who looks the other way when office pools are circulating faces little risk of criminal charges, they should considered having a gambling policy in place which defines: What gambling is, prohibited behavior, and sanctions for violating the policy.  Unofficially employers should remind employees to keep amounts low and NOT to use company resources.  An employer’s policy may want to make an exception for sports pools, raffles or company-sponsored events that support a charity.  An employer may face criticism for allowing office pools from employees whose religious beliefs prohibit gambling etc.

 If an employer decides to allow office pools, be wary of a hostile work environment claim if other employees pick on employees who don’t join in the “fun”.  If someone does file a hostile work environment complaint due to an office pool treat the matter as you would any other and discipline according to your policy. 

 March Madness can present a problem for gambling-addicted employees.  As of today the ADA does not recognize gambling addition, pyromania or kleptomania as disabilities under ADA although that could change.  Employers should be on the look-out for signs of gambling addiction and be prepared to raise this issue in a nonjudgmental way should it begin to affect employee productivity. Gambling-addicted employees may start missing work, showing up late, taking long lunches, be irritable, use the office phone a lot, start asking for frequent pay advances and may resort to fraud, theft or embezzlement to feed their habit. 

 As always, small business services and taxation are our business.  If you need help Please give Art & Business Consulting a call.  We would love to engage you as a client.

The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in.  Internal Revenue Service Circular 230 Disclosure:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein.  Art & Business Consulting LLC currently does not have a certified public accountant, human resource specialist, or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice.  Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.

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Managing electronic records and email purging guidelines

Friday, March 12th, 2010

Smart companies educate their employees about acceptable email use and follow a policy of regular computer-file purging to keep the business network free of unnecessary data storage.

If your organization thinks it may be the target of a lawsuit your company should not follow a regular purging policy as email can be summoned in litigation.  Email messages are official company records so, your company may have to put a litigation hold on email deletion if those messages could be important to the case.  The same goes for instant messages (IM).  Many businesses don’t have a policy to handle electronic discovery requests and when notified of a lawsuit, the companies rarely or never take steps to preserve electronic data according to the American Bar Association.

Two court rulings send a strong message on this issue: Employers who don’t take the right steps to preserve electronic data can face big financial penalties.

  • Soon after an equities trader filed a sex-bias lawsuit, the company’s in-house counsel warned employees not to destroy relevant documents.  But that warning didn’t mention email messages stored on backup tapes, which the company regularly recycled. As a result, relevant emails were deleted and lost forever. A federal district court said the company was at fault because it had a duty to preserve email and other electronic files, as well as backups of those documents.  (Zubulake v.  UBS Warburg LLC, No.  02-Civ 1243, S.D.N.Y.)
  • A federal court penalized a company for failing to prevent 11 of its top-level employees from deleting key emails during pending litigation.  The company kept up its practice of automatically deleting emails even after litigation began, and despite a court order to preserve evidence;  the court imposed a hefty $2.75 million fine. (USA v.  Philip Morris USA Inc., No.  99-2496, D.D.C.)

These cases act as a strong reminder that courts will get tough with organizations that treat electronic discovery, retention and preservation lightly.

The safest way to dispose of electronic HR records is to ask questions before actually disposing of electronic documents. First and foremost, suspend regular data destruction if litigation is likely.  A business is required to impose a litigation hold on routine data destruction in certain circumstances.  This duty to preserve comes into play when the business receives notice that an administrative or judicial claim has been filed against the organization and, even sooner, if the organization has reason to believe that a lawsuit is on the horizon.  But the duty to preserve doesn’t extend to every document and bit of data.  A company only has to save data only if it’s been prepared by or for employees who will be key players in the litigation.  Rule of thumb: When in doubt, don’t throw it out. Before purging email or other files, sort through them to determine which items could have legal significance.  Print them out and file the hard copies.  A business should consult with their IT experts about procedures to protect data from being arbitrarily deleted or overwritten.

Other measures a company should take:

  • Companies should establish document-retention periods.  An organization must retain certain documents even without the threat of litigation.  For example, all employers must retain federal payroll tax records for at least four years from the due date of the tax return they are likely to be used on.  e.g. 2009 payroll tax records need to be retained through April 15, 2014.  Trucking companies must hold onto employee alcohol test results for five years.  There are other government mandated retention rules for tax records, property disposal records, and other employment records.  A company should know what they are and follow them.
  • Companies should apply a time limit on retentions of data not regulated by government rules. Key business documents should likely be retained indefinitely.  Email in accessible format, however, should be subject to a short retention period of about 30 days.
  • Companies should have an electronic communications policy and training.  Businesses should train managers and employees on their electronic communication policy and make them aware that emails are official correspondence that can be called into evidence during a lawsuit.  FAQs are a good way to describe such a policy.
  • Companies should apply and enforce their policy consistently.  Inconsistency, say, for example, letting high-level employees destroy data more frequently than policy states, could put the company at risk of a charge of bad-faith evidence destruction.

As always, small business services and taxation are our business.  If you need help Please give Art & Business Consulting a call.  We would love to engage you as a client.

The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in.  Internal Revenue Service Circular 230 Disclosure:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein.  Art & Business Consulting LLC currently does not have a certified public accountant or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice.  Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.

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