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 the past several weeks, Vision Payroll has provided information on the Small Business Health Care Tax Credit. Today’s topic is Transition Relief for Employers That Do Not Pay at Least Fifty Percent of the Premium.

The Internal Revenue Service (IRS) expects to issue transition relief that will allow employers that otherwise qualify to claim the credit even if those employers do not pay at least 50% of the premium cost for all employees. Employers are required to pay at least 50% of the cost for single coverage. For employees with more expensive coverage, such as family coverage, employers that otherwise qualify to claim the credit will qualify as long as they pay at least 50% of the premium cost for single coverage toward the more expensive coverage. Therefore, employers might still qualify even if they pay less than 50% of the cost of the more expensive coverage.

This concludes this series on the Small Business Health Care Tax Credit. Contact Vision Payroll if you have further questions on Transition Relief for Employers That Do Not Pay at Least Fifty Percent of the Premium or the Small Business Health Care Tax Credit.

This week’s question comes from Cliff, a sole proprietor. I am forming a corporation and will be converting from a sole proprietorship to a corporation. Do I need a separate EIN for my corporation? Answer: The new corporation is a distinct entity from the sole proprietorship and will require the corporation to apply for a new employer identification number (EIN). Taxpayers may use Form SS-4, Application for Employer Identification Number, to apply for a new EIN or visit the IRS website to apply online. Contact Vision Payroll if you have any further questions on the payroll tax implications of forming a corporation.

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 Transition Relief for Employers That Do Not Pay a Uniform Percentage.

The Internal Revenue Service (IRS) expects to issue transition relief that will allow employers that otherwise qualify to claim the credit even if those employers do not pay a uniform percentage for all enrolled employees. As long as the employer pays at least 50% of the premium cost for each enrolled employee, the percentage paid will not need to be uniform for all employees.

The final topic to be covered in this series is Transition Relief for Employers That Do Not Pay at Least Fifty Percent of the Premium. Contact Vision Payroll if you have further questions on Transition Relief for Employers That Do Not Pay a Uniform Percentage.

In IR-2010-078, the Internal Revenue Service (IRS) released guidance based on current law that explains how the government can help BP oil spill-impacted taxpayers.

“This is a very difficult time for many people affected by the oil spill in the Gulf of Mexico. As residents of the region cope with the evolving situation, I want to assure them that the IRS will be doing everything it can to provide tax help to those who need it,” IRS Commissioner Doug Shulman said. “We encourage anyone who has an issue with the IRS to contact us and explain their hardship, and we will work with them to find a solution. We’ll do everything we can under current law to help taxpayers.”

In the guidance, the IRS explains that generally payments received from BP for lost income should be treated “in the same way that the wages or business income these payments are replacing would have been.” There are new sections on the IRS website including Gulf Oil Spill Information Center and Gulf Oil Spill: Question and Answers. The IRS will also hold Gulf Coast Assistance Day on July 17. IRS employees will be available to meet with taxpayers and their representatives in Mobile, Alabama, Panama City, Florida, Pensacola, Florida, New Orleans, Louisiana, Houma, Louisiana, Baton Rouge, Louisiana, and Gulfport, Mississippi.

Further information will be available in the coming days and weeks so be sure to visit Vision Payroll for updated information.

In Notice 2010-48, the Internal Revenue Service (IRS) provided administrative “relief to sponsors of defined contribution pre-approved plans (i.e., master and prototype (‘M&P’) and volume submitter (‘VS’) plans).” Notice 2010-48 extended the following from April 30, 2010 to July 30, 2010:

• Deadline for restating affected pre-approved defined contribution plans,
• Deadline for submitting determination letters to the Service, and
• The § 401(b) remedial amendment period with respect to these plans.

The notice lists how a plan is considered in an affected area and lists the eight affected areas, all of which received previous relief from the IRS. The areas are the following:

1. Connecticut
2. Tennessee
3. Alabama
4. Mississippi
5. New Jersey
6. Massachusetts
7. Rhode Island
8. West Virginia

Contact Vision Payroll for further information on Notice 2010-48.

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.

The Internal Revenue Service (IRS) recently released a revised Form 941, Employer’s QUARTERLY Federal Tax Return, to be used by employers to claim payroll tax forgiveness under the HIRE Act for qualifying new hires. Newly added lines on Form 941 include the following:

• Line 6a – Number of qualified employees first paid exempt wages/tips this quarter
• Line 6b – Number of qualified employees paid exempt wages/tips this quarter
• Line 6c – Exempt wages/tips paid to qualified employees this quarter
• Line 6d – Payroll tax forgiveness this quarter
• Line 12c – Number of qualified employees paid exempt wages/tips March 19–31
• Line 12d – Exempt wages/tips paid to qualified employees March 19–31
• Line 12e – Payroll tax forgiveness March 19-31

Lines 12c, 12d, and 12e will be on the Form 941 for the third and fourth quarters, but are applicable only for the second quarter. Contact Vision Payroll if you have any questions on the revised Form 941.