Vision Payroll

This week’s question comes from Brad, a sole proprietor. My 16-year-old daughter will be out of school soon and I’d like to hire her for the summer in my sole proprietorship. Does a sole proprietor have to pay payroll taxes on children’s wages? Answer: Sole proprietors who hire their own children under age 18 do not have to pay federal employment taxes on the children’s wages. The children are exempt from having to pay social security and Medicare taxes on their wages. These taxes are sometimes known as FICA (Federal Insurance Contributions Act) or OASDI (Old-Age, Survivors, and Disability Insurance). The employer is also exempt from paying the matching portion of these taxes. Additionally, the employer is not required to pay FUTA (Federal Unemployment Tax Act) tax on these wages. Most states also exempt such wages from state unemployment tax (SUTA). Depending on their expected income, children of sole proprietors may be subject to federal and state income tax withholding. Contact Vision Payroll if you have any questions on payroll taxes on children.

According to the US Department of Labor, in the week ending June 6, the advance figure for seasonally adjusted initial claims was 601,000, a decrease of 24,000 from the previous week’s revised figure of 625,000. The 4-week moving average was 621,750, a decrease of 10,500 from the previous week’s revised average of 632,250.

The advance seasonally adjusted insured unemployment rate was 5.1% for the week ending May 30, unchanged from the prior week’s revised rate of 5.1%.

The advance number for seasonally adjusted insured unemployment during the week ending May 30 was 6,816,000, an increase of 59,000 from the preceding week’s revised level of 6,757,000. The 4-week moving average was 6,750,500, an increase of 57,250 from the preceding week’s revised average of 6,693,250.

The fiscal year-to-date average for seasonally adjusted insured unemployment for all programs is 5.238 million.

In Notice 2009-46, Substantiating Business Use of Employer Provided Cell Phones, the Internal Revenue Service requested comments from the public on several proposals for simplifying employer documentation of an employee’s business use of an employer-provided cell phone. For this purpose, the term “cell phone” includes similar telecommunications devices such as iPhones, Blackberries, and Windows Mobile Devices. An employee’s business use of an employer-provided cell phone is excludible from the employee’s income, but the fair market value of any personal use is includible in the employee’s taxable income.

The IRS is considering three methods for an employer to use to value such use of a cell phone. First is the “Minimal Personal Use Method” which might require an employee to establish use of a personal cell phone for personal use during business hours or a showing that the business cell phone was used for less than a certain established limit for personal use. Secondly, the “Safe Harbor Substantiation Method” would require a certain amount, such as seventy-five percent (75%), to be treated as business use. Finally, under the “Statistical Sampling Method”, an employer could use a statistical sampling method (subject to IRS approval) to determine an average employee business use percentage.

The IRS is also looking for a method to value the employee’s personal use for tax purposes. The IRS states that the employer’s cost “is not determinative of the fair market value of an employee’s fringe benefit.”

Notice 2009-46 provides further details on how employers may comment on the proposals and lists a deadline of September 4, 2009. Contact Vision Payroll if you have any questions on Notice 2009-46.

The Internal Revenue Service (IRS) has released Notice 2009-27, Premium assistance for COBRA benefits. Pursuant to the American Recovery and Reinvestment Act of 2009 or ARRA, certain involuntarily terminated employees are eligible for employer-provided subsidies to help pay for their Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage. Employers may then claim a credit on their Form 941 to be reimbursed for the assistance provided.

In recently issued guidance, the IRS stated that when an employer makes a “reasonable interpretation of the applicable statutory provisions and IRS guidance” while determining that an employee was involuntarily terminated, the IRS won’t challenge the determination for purposes of deciding if the employer is entitled to the COBRA premium reduction credit. The employer is required to maintain the supporting documentation to support the determination. Contact Vision Payroll if you have any questions on the COBRA premium reduction credit.

Due to severe storms, tornadoes, flooding and mudslides in Kentucky on May 3, 2009, President Barack Obama declared the following counties a federal disaster area: Breathitt, Floyd, Owsley and Pike. Therefore, the Internal Revenue Service (IRS) announced recently that it will waive failure to deposit penalties for employment and excise taxes due after May 2, 2009 and before May 19, 2009 as long as the deposits were made by May 18, 2009. In addition, affected taxpayers will have until July 2, 2009 to file most tax returns. Contact Vision Payroll if you were affected by the severe storms, tornadoes, flooding and mudslides and need further information on the relief provided by the IRS.

Due to severe storms, flooding, tornadoes and straight-line winds in Florida on May 17, 2009, President Barack Obama declared the following county a federal disaster area: Volusia. Therefore, the Internal Revenue Service (IRS) announced recently that it will waive failure to deposit penalties for employment and excise taxes due after May 16, 2009 and before June 2, 2009 as long as the deposits were made by June 1, 2009. Also, affected taxpayers will have until July 16, 2009 to file most tax returns. Contact Vision Payroll if you were affected by the severe storms, flooding, tornadoes and straight-line winds and need further information on the relief provided by the IRS.

Nonfarm payroll employment fell by 345,000 in May, about half the average monthly decline for the prior 6 months, the Bureau of Labor Statistics of the US Department of Labor reported recently. The unemployment rate continued to rise, increasing from 8.9% to 9.4%. Steep job losses continued in manufacturing, while declines moderated in construction and several service-providing industries.

The number of unemployed persons increased by 787,000 to 14.5 million in May, and the unemployment rate rose to 9.4%. Since the start of the recession in December 2007, the number of unemployed persons has risen by 7.0 million and the unemployment rate has grown by 4.5 percentage points.

Unemployment rates rose in May for adult men (9.8%), adult women (7.5%), whites (8.6%), and Hispanics (12.7%). The jobless rates for teenagers (22.7%) and blacks (14.9%) were little changed over the month. The unemployment rate for Asians was 6.7% in May, not seasonally adjusted, up from 3.8% a year earlier.

Among the unemployed, the number of job losers and persons who completed temporary jobs rose by 732,000 in May to 9.5 million. This group has increased by 5.8 million since the start of the recession.

The number of long-term unemployed (those jobless for 27 weeks or more) increased by 268,000 over the month to 3.9 million and has tripled since the start of the recession.

This week’s question comes from Will, a restaurant owner. We’ve hired several students to work for us this summer. Most of them don’t expect to owe any income tax this year. How do students claim exemption from income tax withholding? Answer: Students or others who expect to owe no tax for 2009 should review the conditions on line 7 of Form W-4, Employee’s Withholding Allowance Certificate or the Spanish W-4, Formulario W-4(SP), Certificado de Exención de la Retención del Empleado. Employees who meet both conditions should write “Exempt” (or “Exento”) on line 7 and file the form with their employer. The employer should not withhold any federal income tax from these employees for the rest of 2009. Employees who wish to continue their exempt status in 2010 must a complete and provide to their employer a 2010 Form W-4 before February 16, 2010. These employees may also wish to file a state equivalent form to claim exemption from state withholding as well. The filing of Form W-4 claiming exempt status does not stop social security or Medicare withholding or the requirement that the employer match these withholdings. These taxes, sometimes known as FICA or OASDI, have their own rules for determining exemption which are much less likely to apply. Contact Vision Payroll if you have any questions on employees claiming exempt status.

According to the US Department of Labor, in the week ending May 30, the advance figure for seasonally adjusted initial claims was 621,000, a decrease of 4,000 from the previous week’s revised figure of 625,000. The 4-week moving average was 631,250, an increase of 4,000 from the previous week’s revised average of 627,250.

The advance seasonally adjusted insured unemployment rate was 5.0% for the week ending May 23, unchanged from the prior week’s revised rate of 5.0%.

The advance number for seasonally adjusted insured unemployment during the week ending May 23 was 6,735,000, a decrease of 15,000 from the preceding week’s revised level of 6,750,000. The 4-week moving average was 6,687,500, an increase of 88,750 from the preceding week’s revised average of 6,598,750.

The fiscal year-to-date average for seasonally adjusted insured unemployment for all programs is 5.184 million.

You may have heard news reports about the Employee Free Choice Act (EFCA), but aren’t sure how it might impact your company. All employers must be aware of what its passage would mean, how it would impact the rôle of the National Labor Relations Board (NLRB), and how it would change the National Labor Relations Act (NLRA). That’s because unlike the NLRA, no small business exemption exists in the current version of the EFCA.

How would the EFCA change the union certification process? Why have many business groups opposed the EFCA? Why do unions argue that the EFCA is necessary? How does the EFCA impact stalled negotiations? What penalties does the EFCA propose for certain unfair labor practices? What action items should employers consider as they deal with the EFCA, in whatever final form it takes?

To learn the answers to these and many other questions be sure to read this month’s featured article by the HR pros at MyHRSupportCenter, The Impending Impact of the Employee Free Choice Act. If you’re not yet signed up or would like a free trial of MyHRSupportCenter, contact Vision Payroll today.