Vision Payroll

The new health reform law gives a tax credit to certain small employers that provide health care coverage to their employees, effective with tax years beginning in 2010. Over several weeks, Vision Payroll will be providing further information on the Small Business Health Care Tax Credit. Today’s topic is Impact of the Small Business Health Care Tax Credit on Estimated Tax Payments.

The amount of the credit that will be allowed may be used in determining the amount of estimated tax payments that must be made in accordance with the rules for making such payments.

The next topic to be covered in this series is Impact of the Small Business Health Care Tax Credit on Deductions for Health Insurance Premiums. Contact Vision Payroll if you have further questions on Impact of the Small Business Health Care Tax Credit on Estimated Tax Payments.

The new health reform law gives a tax credit to certain small employers that provide health care coverage to their employees, effective with tax years beginning in 2010. Over the next several weeks, Vision Payroll will be providing further information on the Small Business Health Care Tax Credit. Today’s topic is Claiming the Small Business Health Care Tax Credit Without Taxable Income for Tax-Exempt Employers.

The Small Business Health Care Tax Credit will be claimed by tax-exempt employers as a refundable credit. As such, the only limit is the previously discussed limit of federal income tax withholding and Medicare tax liability.

The next topic to be covered in this series is Impact of  the Small Business Health Care Tax Credit on Estimated Tax Payments. Contact Vision Payroll if you have further questions on Claiming the Small Business Health Care Tax Credit Without Taxable Income for Tax-Exempt Employers.

This week’s question comes from Beverly, a small-business owner. We pay health insurance costs for our employees. I heard there was a change in reporting health insurance costs under the new law. Are health insurance costs required to be reported on Form W-2? Answer: Under the Patient Protection and Affordable Care Act (PPACA), beginning in the 2011 tax year (reported to Social Security Administration (SSA) in 2012), employers will be required to start including the aggregate cost for “applicable employer-sponsored coverage” for each employee on that employee’s Form W-2, Wage and Tax Statement. There is no requirement to include this information on the 2010 Form W-2, to be reported to the SSA in 2011. Contact Vision Payroll if you have any further questions on Form W-2.

According to the US Department of Labor, in the week ending June 12, the advance figure for seasonally adjusted initial claims was 472,000, an increase of 12,000 from the previous week’s revised figure of 460,000. The 4-week moving average was 463,500, a decrease of 500 from the previous week’s revised average of 464,000.

The advance seasonally adjusted insured unemployment rate was 3.6% for the week ending June 5, an increase of 0.1 percentage points from the prior week’s unrevised rate of 3.5 percent.

The advance number for seasonally adjusted insured unemployment during the week ending June 5 was 4,571,000, an increase of 88,000 from the preceding week’s revised level of 4,483,000. The 4-week moving average was 4,601,500, a decrease of 21,250 from the preceding week’s revised average of 4,622,750.

The fiscal year-to-date average of seasonally adjusted weekly insured unemployment, which corresponds to the appropriated AWIU trigger, was 5.097 million.

The Internal Revenue Service (IRS) recently released an information sheet attached to 2009 Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips. The note on the information sheet relates to employers that have claimed payroll tax forgiveness under the Hiring Incentives to Restore Employment Act of 2010 (HIRE Act).

According to the note, employers should do the following (all line references are to Form 8846):

If any tipped employee’s wages are exempt from social security taxes, check the box on line 4 and attach a separate computation showing the amount of tips subject to only the Medicare tax rate of 1.45%. Subtract these tips from the line 3 tips, and multiply the difference by .0765. Then, multiply the tips subject only to the Medicare tax by .0145. Enter the sum of these amounts on line 4.

Contact Vision Payroll if you have any further questions on the revision to Form 8846.

The new health reform law gives a tax credit to certain small employers that provide health care coverage to their employees, effective with tax years beginning in 2010. Over the next several weeks, Vision Payroll will be providing further information on the Small Business Health Care Tax Credit. Today’s topic is Claiming the Small Business Health Care Tax Credit Without Taxable Income.

The Small Business Health Care Tax Credit will be claimed by employers, other than tax-exempt employers, only to the extent of income tax liability or alternative income tax liability. For 2010, unused credits may generally be carried forward twenty years, in accordance with the general business credit rules. For 2011 and beyond, the credit may also be carried back one year.

The next topic to be covered in this series is Claiming the Small Business Health Care Tax Credit Without Taxable Income for Tax-Exempt Employers. Contact Vision Payroll if you have further questions on Claiming the Small Business Health Care Tax Credit Without Taxable Income.

In a response to Representative Jeff Miller (R-FL), the Internal Revenue Service (IRS), in Information Letter 2010-0010, outlines the process to use after the close of the payroll tax year to correct errors that result in overwithholding of federal payroll taxes. The ability to correct such errors depends on when the errors are discovered and the type of tax that was overwithheld.

An employer may correct an error of overwithholding of Federal Insurance Contributions Act (FICA) tax within the statute of limitations for such taxes by using Form 941-X, Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund, to claim a refund or make an interest-free adjustment.

An employer can correct an overpayment of income tax withholding using either the interest-free adjustment process or the claim for refund process. “An interest-free adjustment for an overcollection of income tax withholding can only be made if the employer discovers the error and repays or reimburses the employee within the same calendar year as the payment of the wages.” Notwithstanding this rule, an overpayment due to an administrative error may be corrected after the calendar year. The claim for refund process is available only “if the employer did not actually withhold the amount from the employee.”

Further details are available in the instructions for Form 941-X.

Contact Vision Payroll immediately if you need to file Form 941-X in order to maximize available amendment options.

Due to the severe storms and flooding in Connecticut on March 12, 2010, President Barack Obama declared the following counties a federal disaster area: Fairfield, Middlesex, New Haven, New London and Windham. Therefore, the Internal Revenue Service (IRS) announced recently that it will waive failure to deposit penalties for employment and excise taxes due after March 11, 2010 and before March 30, 2010 as long as the deposits were made by March 29, 2010. In addition, affected taxpayers had until May 11, 2010 to file most tax returns. Contact Vision Payroll if you were affected by the severe storms and flooding and need further information on the relief provided by the IRS.

In a response to Senator Dianne Feinstein (D-CA), the Internal Revenue Service (IRS), in Information Letter 2010-0001, explains how to determine if a worker is an employee for federal income tax withholding purposes.

The determination of employee or independent contractor status is a question of facts and circumstances. According to the IRS response, “[t]he regulations that provide the criteria for determining an individual’s status as an employee or independent contractor for income tax withholding purposes are found in section 31.3401(c)-1 of the Employment Tax Regulations.

The designation of a worker as an employee or independent contract by either or both parties is not relevant to the determination of the worker’s status. The determination comes down to who has the right to direct and control the individual performing the work not only to the result, “but also as to the details and means by which that result is accomplished.” Relevant facts to make the determination generally fall into one these three categories:

1. Behavioral controls,
2. Financial controls, and
3. The relationship of the parties.

The IRS recommends preparing and filing Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, if a determination is needed of a particular worker’s status.

State laws for income tax withholding, unemployment taxes, or workers’ compensation may have different rules for determining if an employer-employee relationship exists. Due to increased enforcement and significant penalties for misclassification, Vision Payroll strongly recommends employers consult with a competent labor law attorney to help determine status of workers as employees or independent contractors.

This week’s question comes from Paul, a business owner. I have an ex-employee who qualifies for payroll tax forgiveness under the HIRE Act. We haven’t been able to get the signed Form W-11 yet. What is the deadline for obtaining Form W-11? Under the HIRE Act, for otherwise qualifying employees, employers are not required to pay the matching portion of OASDI or social security tax. Qualified employees must sign Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, to allow employers to claim the payroll tax forgiveness. Employers must obtain the signed Form W-11 before claiming any payroll tax forgiveness. Therefore, to claim the exemption for the second quarter of 2010, employers must obtain the signed Form W-11 before August 3, 2010 in order to file by the deadline of August 2, 2010. Employers that made timely deposits in full payment of their taxes for a quarter have ten more days after the due date to file Form 941, Employer’s QUARTERLY Federal Tax Return. Employers that do not receive signed Form W-11 until after they’ve filed Form 941 may not claim the payroll tax forgiveness on Form 941, but must file Form 941-X, Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund, to claim the exemption. Contact Vision Payroll if you have further questions on the deadline for obtaining Form W-11.