Vision Payroll

The American Recovery and Reinvestment Act of 2009 (the Act) made changes to continuation health coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly known as COBRA. Employers are required to pay sixty-five percent of the premiums for certain eligible individuals, but may claim a credit on Form 941, Employer’s QUARTERLY Federal Tax Return, for these premiums.

If you need to claim a credit for COBRA premiums paid, contact Vision Payroll and we’ll update your payroll with the appropriate tax codes so that you will receive proper credit on your Form 941. If your credit exceeds your liability, no tax deposit will be due for that period and you may receive a refund when you file your Form 941.

Over the next several days, Vision Payroll will be posting additional articles on changes to payroll and HR by other sections of the Act. We’re also planning a seminar on implementing these changes, so contact Vision Payroll if you’d like to attend.

The American Recovery and Reinvestment Act of 2009 (the Act) made changes to continuation health coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly known as COBRA. Here are five fast facts on the changes related to employers:

1. Employers are required to pay the additional sixty-five percent of the premiums not paid by employees.
2. Employers may claim a credit on Form 941, Employer’s QUARTERLY Federal Tax Return, for their share of the COBRA premiums.
3. Payment of the premium subsidies by employers and the credits on Form 941 happen only after employees have paid their share of the premiums.
4. Supporting documentation for the credit must be maintained by employers, but need not be submitted with the Form 941.
5. Employers are required to pay the subsidy for eligible employees covered under COBRA or similar state laws.

Over the next several days, Vision Payroll will be posting additional articles on implementing the changes to COBRA continuation coverage required by the Act as well as other changes to payroll and HR by other sections of the Act. We’re also planning a seminar on implementing these changes, so contact Vision Payroll if you’d like to attend.

This week’s question comes from Doug, head of HR. I heard that the new tax law will impact employees eligible for COBRA. How does the American Recovery and Reinvestment Act of 2009 (the Act) change COBRA continuation health coverage? Answer: Under the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly known as COBRA, certain former employees are allowed to continue health care coverage under their former’s employer’s group plan. The former employees must pay the cost of the health care premiums.

The Act made significant changes to COBRA continuation coverage. Under the Act, certain covered employees are required to pay only thirty-five percent of the premiums and their former employers must pay the remaining sixty-five percent. Employers may claim a credit on Form 941, Employer’s QUARTERLY Federal Tax Return, for the premiums paid for eligible employees.

The Internal Revenue Service recently released an updated Form 941 to reflect this law change and will soon release other updated forms, such as Form 941-X Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund.

Over the next several days, Vision Payroll will be posting additional articles on implementing the changes to COBRA continuation coverage required by the Act as well as other changes to payroll and HR by other sections of the Act. We’re also planning a seminar on implementing these changes, so contact Vision Payroll if you’d like to attend.

Employers must file the 2008 Form W-3, Transmittal of Wage and Tax Statements, on or before March 2, 2009 if filing by paper or March 31, 2009 if filing by an approved electronic means.

Employers should check only one box in section b, Kind of Payer. The only exception is for Third-party sick pay, which should be checked along with one other box if third-party sick pay is reported on the Form W-3.

Box c should include only the total number of valid Forms W-2 filed, not including voids.

Box h should contain other EINs (employer identification numbers) used on Form 941, Form 943, Form 944, or Form CT-1 during the year. An example is a prior owner for whom the filer is a successor.

Boxes 1 through 11 should contain a simple arithmetic sum of all the Forms W-2 filed with this Form W-3 for the respective box.

Box 12 should also contain a sum of all the Forms W-2 filed with this Form W-3, but should be totaled irrespective of and without reference to any code.

Box 14 should contain the “federal income tax withheld on third-party payments of sick pay” even though the amount was already reported in box 2.

Box 15 should contain the two-character abbreviation for the state being reported, but if more than one state is reported, only an X should be entered. Likewise, boxes 16-19 should include the total for all such boxes, regardless of how many are reported.

Employers should reconcile Forms W-3 not only to the individual Forms W-2, but also to the sum of Forms 941, Forms 943, Forms 944, or Forms CT-1 filed for the year.

Vision Payroll files Forms W-3 for all clients electronically with the Social Security Administration. Contact Vision Payroll if you have any questions on Form W-3.

This week’s question comes from Scott, a small business owner. I have received notification from the Internal Revenue Service (IRS) that I should file Form 944. Should I file Form 944 instead of Form 941? Answer: Employers who are notified that they should file Form 944 must file Form 944 unless they opt out of filing Form 944. In TD 9440, the IRS issued revised “temporary regulations relating to the annual filing of Federal employment tax returns and requirements for employment tax deposits.” These regulations make participation in filing Form 944 voluntary, beginning in 2010. According to Rev. Proc. 2009-13, employers are eligible to opt out in 2009 if they meet one of the following conditions:

1. The employer anticipates that its employment tax liability for tax year 2009 will be more than $1,000; or
2. The employer wants to file electronically quarterly Forms 941 for tax year 2009.

Eligible employers who had previously filed Form 941 or Form 944 must either call the IRS before April 2, 2009 or have written correspondence postmarked no later than March 15, 2009 to opt out of filing the 2009 Form 944.

Businesses newly required to Form 941 or Form 944 have their due dates based on the month their first Form 941 will be due. Telephone calls must therefore be made before April 2, 2009, July 2, 2009, October 2, 2009, or January 2, 2010 if their filing requirement is effective for the first, second, third, or fourth quarter, respectively. Written correspondence must be postmarked no later than the fifteenth of the month prior to the month that the Form 941 is first due. For 2009, the postmark due dates are March 15, 2009, June 15, 2009, September 15, 2009, and December 15, 2009.

As with most federal tax deadlines, any due date that falls on a Saturday, Sunday, or legal holiday is extended to the next day that is not a Saturday, Sunday, or legal holiday. For example, the March 15, 2009 deadline is automatically extended to March 16, 2009.

Whether an employer files Form 941 or Form 944, the deposit rules are generally the same, although “the de minimis deposit amount may be different.”

Contact Vision Payroll if you have any questions on the filing of Form 941 or Form 944 and the related tax deposit requirements.

Employers often question whether employees who work in one year and are paid in the next year should have the wages reported in the year the work was performed or the year the wages were paid. Generally, wages are reported based on payment date. For example, if the pay period ends on December 27, 2008 and the wages are paid on Wednesday, December 31, 2008, those wages are included on the fourth quarter 2008 Form 941 (or equivalent) and reported to the employee on the 2008 Form W-2. Alternatively, if the pay period ends on December 27, 2008 and the wages are paid on Friday, January 2, 2009, those wages are included on the first quarter 2009 Form 941 (or equivalent) and reported to the employee on the 2009 Form W-2. Contact Vision Payroll if you have any questions on which year employees’ pay should be reported.

This is one in a continuing series on the 2008 Form W-2, Wage and Tax Statement, which employers must generally furnish to employees no later than February 2, 2009. Forms mailed on the due date are considered furnished if properly addressed. Employers unable to meet that deadline may file a request for extension of time to furnish the forms. Today we review general information regarding Form W-2.

Forms W-2 should be typed or machine-printed in black ink, using 12-point Courier font. Dollar signs and commas must be omitted, but decimal points and cents, even if zero, must be included. Forms W-2 must be prepared on a calendar year basis using pay dates, not work dates. Wages for work performed in 2007 and paid in 2008 is included and wages for work performed in 2008 and paid in 2009 is excluded.

Report the employee’s social security number (SSN) in box a. Employees who have applied for, but not received, an SSN should be reported with all zeroes and corrected on a Form W-2c. Enter in box b the employer’s employer identification number, not the owner’s SSN. Box c must contain the employer’s address as shown on Forms 941, 943, 944, CT-1 or Schedule H of Form 1040. Box d is an optional box for employer use to identify individual forms. Box e should report the employee’s name exactly as shown on the social security card. Suffixes such as Sr. or Jr. should only be included if on the social security card. Do not include professional and academic titles and degrees such as CPA or Ph.D. as part of the employee’s names. Names should not be changed on Form W-2 unless the employee has received a revised card from the Social Security Administration. The Address in box f should be the address where the employee receives mail. Foreign country names are not to be abbreviated.

The next topic in this continuing series will be Box 1, wages, tips, other compensation. Contact Vision Payroll with any questions on 2008 Form W-2.