Vision Payroll

This week’s question comes from Eric, an HR manager. I know there are changes to flexible spending arrangements (FSAs) because of health care reform. How does health care reform affect reimbursements for over-the-counter medicines in FSAs? Answer: The Patient Protection and Affordable Care Act (PPACA) made changes to reimbursements for over-the-counter medicines in the following types of accounts:

• Flexible Spending Arrangements (FSAs),
• Health Reimbursement Arrangements (HRAs),
• Health Savings Accounts (HSAs), and
• Archer Medical Savings Accounts (Archer MSAs).

Over-the-Counter Medicines Generally Are No Longer Reimbursable

Generally, the cost of an over-the-counter medicine or drug cannot be reimbursed from the account unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eyeglasses, contact lenses, co-pays and deductibles.

Change Is Effective for 2011

The new standard applies only to purchases made on or after Jan. 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer’s plan.

IRS Provides Guidance on New Rules

The Internal Revenue Service (IRS) recently released Notice 2010-59 to provide guidance to employers and employees on the impact of PPACA and how it revises the definition of medical expenses as it relates to over-the-counter drugs.

Rev. Rul. 2003-102 Obsoleted

In conjunction with this change, the IRS also released Rev. Rul. 2010-23, which obsoletes Rev. Rul. 2003-102. This ruling provided guidance on employer reimbursements of amounts paid by an employee to purchase nonprescription medicines or drugs.

Employees Need to Plan for Changes When Making 2011 Elections

Vision Payroll recommends employees start to plan now to account for the impact of these changes on how they will make their elections under these types of plans.

According to the US Department of Labor, in the week ending August 28, the advance figure for seasonally adjusted initial claims was 472,000, a decrease of 6,000 from the previous week’s revised figure of 478,000. The 4-week moving average was 485,500, a decrease of 2,500 from the previous week’s revised average of 488,000.

Advance Seasonally Adjusted Insured Unemployment Rate Remains Unchanged

The advance seasonally adjusted insured unemployment rate was 3.5% for the week ending August 21, unchanged from the prior week’s unrevised rate of 3.5%.

Advance Seasonally Adjusted Insured Unemployment Decreases

The advance number for seasonally adjusted insured unemployment during the week ending August 21 was 4,456,000, a decrease of 23,000 from the preceding week’s revised level of 4,479,000. The 4-week moving average was 4,485,250, a decrease of 28,500 from the preceding week’s revised average of 4,513,750.

Seasonally Adjusted Weekly Insured Unemployment

The fiscal year-to-date average of seasonally adjusted weekly insured unemployment, which corresponds to the appropriated AWIU trigger, was 4.994 million.

Many employers are aware of the new requirement under the Patient Protection and Affordable Care Act (PPACA), soon to be implemented, that an employer’s health insurance costs be included on an employee’s Form W-2.

Reporting Health Care Costs on Form W-2 Does NOT Make Them Taxable

Many have misunderstood this requirement to mean that an employer’s health insurance costs are taxable to the employee. To help clarify this, the Internal Revenue Service (IRS) recently released the following explanation:

Starting in tax year 2011, the [PPACA] requires employers to report the value of the health insurance coverage they provide employees on each employee’s annual Form W-2. This reporting is for informational purposes only, to show employees the value of their health care benefits so they can be more informed consumers. The amount reported does not affect tax liability, as the value of the employer contribution to health coverage continues to be excludible from an employee’s income and it is not taxable.

Health Care Costs That Were Already Taxable Are Still Taxable

In some circumstances, the employer’s cost of health insurance is included in an employee’s income, e.g., certain S corporation shareholders. This change does not affect the taxability of employer’s costs that were already taxable.

Vision Payroll Is Ready to Implement This Change

Contact Vision Payroll if you have any further questions on Form W-2.

Administrator Roy Mulvaney of the Montana Department of Labor and Industry has announced a 1% increase in the taxable wage base for 2011.

$300 Increase Is the Lowest in Recent History

The wage base will increase from $26,000 for 2010 to $26,300 for 2011.

Find Out the Wage Base for All States by Visiting the Vision Payroll Unemployment Taxable Wage Base Page

Contact Vision Payroll if you have any questions on Montana unemployment taxable wage base or visit our Unemployment Taxable Wage Base page.

According to the California Employment Development Department (EDD), there are significant payroll tax changes in 2011.

Change to Quarterly Reporting

Starting with the first quarter of 2011, employers will begin filing new:

• Quarterly Contribution Return and Report of Wages (DE 9)
• Quarterly Contribution Return and Report of Wages (Continuation) (DE 9C).

Employers will report their Unemployment Insurance, Employment Training Tax, and State Disability Insurance contributions, along with the Personal Income Tax withholdings, quarterly on the DE 9 instead of annually on the Annual Reconciliation Statement (DE 7). Detailed wage items for each worker will be reported on the DE 9C instead of the Quarterly Wage and Withholding Report (DE 6). Employers will still use the DE 6 and DE 7 for years prior to 2011.

The change to quarterly reporting will allow EDD and employers to identify overpayments more quickly, which will result in faster refunds. In addition, EDD will be able to promptly notify employers of any amounts due.

Registered employers will receive the new forms automatically by mail starting in 2011. The new forms will also be available online and at local EDD offices in December 2010.

Employers will continue to make deposits using the Payroll Tax Deposit (DE 88ALL) form. The quarterly reporting change will not affect deposit and return due dates. Please refer to the California Employer’s Guide (DE 44) for deposit and reporting requirements.

NOTE: This quarterly reporting change does not affect Annual Household employers, Disability Insurance Voluntary Plan filers, or Disability Insurance Elective Coverage filers.

Expanded e-Services for Business

Beginning in the spring of 2011, EDD will significantly expand its e-Services for Business. Employers will be able to conduct more business online with EDD including:

• Viewing account information
• Filing reports
• Paying tax deposits and liabilities

Vision Payroll to Implement Changes

Vision Payroll is in the process of updating its policies and procedures to assist its clients filing and paying in California. All necessary changes will be made for 2011.

President Barack Obama recently signed the Education Jobs and Medicaid Assistance Act of 2010 (HR 1586) into law. As part of the legislation, the advance earned income credit, claimed by eligible employees by filing 2010 Form W-5, Earned Income Credit Advance Payment Certificate, is repealed for 2011 and thereafter.

Non-Refundable Portion Still Available by Adjusting Withholding

Eligible taxpayers will be able to claim the refundable portion of their credit on their individual income tax returns and can claim the non-refundable portion either on their individual income tax returns or by adjusting their federal income tax withholding on Form W-4, Employee’s Withholding Allowance Certificate or its Spanish equivalent, 2010 Formulario W-4(SP), Certificado de Exención de la Retención del Empleado.

Contact Vision Payroll if you have further questions on the advance earned income credit.

According to the California Employment Development Department (EDD), employers in the county of Kern directly affected by the fires may request up to a 60-day extension of time from EDD to file their State payroll reports and/or deposit State payroll taxes without penalty or interest. This extension may be granted under Section 1111.5 of the California Unemployment Insurance Code (CUIC).

Second Consecutive Month Kern County Employers Have Been Allowed to Apply for an Extension

Written request for extension must be received within 60 days from the original delinquent date of the payment or return to file/pay.

Vision Payroll Can Assist Kern County Clients with Extension Application

Contact Vision Payroll if you’ve been affected and need to file the extension request.

This week’s question comes from Ben, a business owner. We received an e-mail from EFTPS stating that my federal tax payment had been rejected. Is there a problem with my EFTPS payment? Answer: On August 20, 2010, the Internal Revenue Service (IRS) issued a Problem Alert regarding this EFTPS scam.

Text of IRS Problem Alert

There is a fraud risk you need to be aware of. It is related to the Electronic Federal Tax Payment System (EFTPS).

The IRS recently became aware of a fraudulent scheme targeting EFTPS users, the scheme uses an e-mail that claims your tax payment was rejected and directs you to a website for additional information. The website contains malware that will attempt to infect your computer.

If you receive a message claiming to be from the IRS or EFTPS, please:

1. Do not reply to the sender, access links on the site or submit any information to them.
2. Forward the message immediately to us at phishing@irs.gov.
3. How to report and identify phishing, e-mail scams and bogus IRS websites.
4. If you receive a suspicious e-mail or discover a website posing as the IRS, please forward the e-mail or URL information to the IRS at phishing@irs.gov.
5. EFTPS is a tax payment system provided free by the US Department of Treasury. Pay federal taxes electronically via the Internet or phone 24/7. Visit EFTPS to enroll.

IRS and EFTPS Do NOT Send Unsolicited E-mails or Request Personal Information

Neither the IRS nor EFTPS sends unsolicited e-mails nor do they request personal or financial information in e-mails.

Stay Vigilant Against Attacks Aimed at Stealing Your Personal Information

Although no system is foolproof in preventing identity theft, Vision Payroll recommends vigilance in dealing with personal information, combined with a service such as LifeLock® to help detect certain types of identity theft.

According to the US Department of Labor, in the week ending August 21, the advance figure for seasonally adjusted initial claims was 473,000, a decrease of 31,000 from the previous week’s revised figure of 504,000. The 4-week moving average was 486,750, an increase of 3,250 from the previous week’s revised average of 483,500.

Advance Seasonally Adjusted Insured Unemployment Rate Decreases

The advance seasonally adjusted insured unemployment rate was 3.5% for the week ending August 14, a decrease of 0.1 percentage points from the prior week’s revised rate of 3.6%.

Advance Seasonally Adjusted Insured Unemployment Decreases

The advance number for seasonally adjusted insured unemployment during the week ending August 14 was 4,456,000, a decrease of 62,000 from the preceding week’s revised level of 4,518,000. The 4-week moving average was 4,508,750, a decrease of 28,000 from the preceding week’s revised average of 4,536,750.

Seasonally Adjusted Weekly Insured Unemployment

The fiscal year-to-date average of seasonally adjusted weekly insured unemployment, which corresponds to the appropriated AWIU trigger, was 5.001 million.

In IR-2010-090, the Internal Revenue Service (IRS) announced that interest rates for the fourth quarter of 2010 would remain unchanged from the third quarter. The rates are as follows:

• Four (4) percent for overpayments [three (3) percent in the case of a corporation];
• Four (4) percent for underpayments;
• Six (6) percent for large corporate underpayments; and
• One and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000.

Revenue Ruling 2010-21 Contains Official Rate Announcement

The IRS will publish the rates in Revenue Ruling 2010-21. Contact Vision Payroll if you have any questions on the fourth quarter rates.