In News Release IR-2009-091, the Internal Revenue Service (IRS) announced the release of its new web-based IRS Retirement Plans Navigator to help small businesses find retirement plan information. The website offers assistance in the following areas:
Although some plans are meant to be maintained by an employer with little or no assistance, Vision Payroll strongly recommends the services of a qualified third-party administrator for employers maintaining more complex plans. Contact Vision Payroll if you need further information.
In IR-2009-094, the Internal Revenue Service (IRS) announced that for 2010 the compensation limitation will remain at $245,000 under §401(a)(17), §404(l), §408(k)(3)(C), and §408(k)(6)(D)(ii) of the Internal Revenue Code of 1986 (IRC). The contribution limit under IRC §415(c)(1)(A) for defined contribution plans also remained at $49,000. This limit does not include the age 50 and over catch-up contribution of $5,500 when applicable; therefore the total limitation for eligible taxpayers age 50 or over in qualifying plans is $54,500. Contact Vision Payroll if you have questions on changes to the 2010 Retirement Plan Contribution and Compensation Limitations or get further information at Important Facts and Figures.
In IR-2009-094, the Internal Revenue Service (IRS) announced that for 2010 the Highly Compensated Employee Limitation under §414(q)(1)(B) of the Internal Revenue Code of 1986 will remain unchanged. Non-discrimination testing in some types of retirement plans limits the deferral rate of “highly compensated employees” (HCEs) based upon the deferral rate (ADP) of the “non-highly compensated employees”. For 2010, an HCE is anyone who was a “5-percent owner” at any time during 2009 or 2010 or anyone who received in excess of $110,000 in compensation during 2009 and, if elected by the employer, is in the top twenty percent of employees based upon compensation. The HCE limit was $100,000 for 2008 plan testing and $105,000 for 2009 plan testing. Since the law includes a look-back provision, employees who earned more than $105,000 in 2008 are generally considered HCEs for 2009 plan year testing, employees who will earn more than $110,000 in 2009 are generally considered HCEs for 2010 plan year testing, and employees who will earn more than $110,000 in 2010 are generally considered HCEs for 2011 plan year testing. Contact Vision Payroll if you have questions on changes to the HCE definition for 2009 and 2010 or get further information at Important Facts and Figures.
In IR-2009-094, the Internal Revenue Service (IRS) announced cost-of-living adjustments to the limits on SIMPLE plan contributions for 2010. The limitation for SIMPLE plans is codified in §408(p)(2)(E) of the Internal Revenue Code of 1986 (IRC). This section also requires annual adjustments as necessary to keep pace with inflation in a manner similar to that required by IRC §415 for retirement plans. Because the cost-of-living index in 2009 is lower than in 2008, there will be no increases to the amounts. For 2010, the SIMPLE plan regular limitation remains at $11,500. The age 50 and over catch-up contribution remains at $2,500 for individuals who plan to reach age 50 before the end of 2010. Contact Vision Payroll if you have questions on the SIMPLE plan contribution limits or get further information at Important Facts and Figures.
This week’s question comes from Kevin, a sole proprietor. I am forming an LLC and will be converting from a sole proprietorship to a single member LLC, but still taxed as a sole proprietor. Do I need a separate EIN for my single member LLC? Answer: As explained earlier, in TD 9356, the IRS announced that single member LLCs would be treated as corporations for employment tax purposes, but that the single member would still be treated as self-employed and not an employee of the LLC. Therefore, sole proprietors forming an LLC should apply for and obtain a new Employer Identification Number (EIN) using Form SS-4, Application for Employer Identification Number. Contact Vision Payroll if you have any further questions on single member LLCs.
The Internal Revenue Service (IRS) recently released Notice 2009-68, Safe Harbor Explanation – Eligible Rollover Distribution. Notice 2009-68 contains two safe harbor explanations that employers may use to provide recipients the written explanation of distributions eligible for rollover treatment required under §402(f) of the Internal Revenue Code of 1986 (IRC). These explanations update the previously released explanations first published in Notice 2002-3, 2002-1 CB 289 for recent law changes.
The first safe harbor explanation applies to a distribution not from a designated Roth account (as described in IRC §402A). The second safe harbor explanation applies to a distribution from a designated Roth account.
Contact Vision Payroll if you have any further questions on Notice 2009-68.
The Internal Revenue Service (IRS) recently released Notice 2009-67, Adding Automatic Enrollment to SIMPLE IRA Plans – Sample Amendment. Notice 2009-67 facilitates automatic enrollment by providing a sample plan amendment that a prototype sponsor of a SIMPLE IRA plan (using a designated financial institution) can use in drafting an amendment to add an automatic contribution arrangement to the SIMPLE IRA plan. The IRS plans to issue a revised Form 5305-SIMPLE, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) — for Use With a Designated Financial Institution, that includes an automatic contribution arrangement.
Contact Vision Payroll if you have any further questions on Notice 2009-67.
The Internal Revenue Service (IRS) recently released Notice 2009-66, Automatic Enrollment in SIMPLE IRAs. Notice 2009-66, in question-and-answer format, provides rules for employers that maintain SIMPLE IRA plans. It confirms that SIMPLE IRAs may do the following:
- Include an automatic contribution arrangement;
- Provide that default salary reduction contributions made under an automatic contribution arrangement are made only for employees who are first eligible under the SIMPLE IRA plan on or after the effective date of the automatic contribution arrangement and who do not make an affirmative election;
- Provide that the percentage of compensation at which default salary reduction contributions under an automatic contribution arrangement are made for an employee increases based on the number of years or portions of years for which default salary reduction contributions have been made for the employee.
Notice 2009-66 also reviews the changes in notice requirements for SIMPLE IRAs that include an automatic contribution arrangement, explains the transfer rights that employees must receive during their 60-day election period, and confirms that if the requirements of the regulations under §404(c)(5) of the Employee Retirement Income Security Act of 1974 (“ERISA”) are met, fiduciary relief will apply with respect to the investment of default salary reduction contributions in default investments.
Contact Vision Payroll if you have any further questions on Notice 2009-66.
The Internal Revenue Service (IRS) recently released Notice 2009-65, Adding Automatic Enrollment to Section 401(k) Plans – Sample Amendments. The Notice contains two sample amendments that allow employers to change existing §401(k) plans as late as the last day of the first plan year beginning after December 31, 2008. For government plans, the amendment may be adopted as late as the last day of the first plan year beginning after December 31, 2010. Plan sponsors are not required to adopt the amendments and may need to tailor the amendments to match provisions of their specific plans.
The first sample amendment can be used to add an automatic contribution arrangement to a §401(k) plan. The second sample amendment can be used to add an automatic contribution arrangement described in §414(w) of the Internal Revenue Code of 1986 (permitting 90-day withdrawals) to a §401(k) plan.
Contact Vision Payroll if you have any further questions on Notice 2009-65.
This week’s question comes from Brian. We need more help in our business. We’re not sure if the person who’ll provide us services should be considered an employee. How do I know if someone is an employee or independent contractor? Answer: In Summertime Tax Tip 2009-20, the Internal Revenue Service (IRS) listed ten items a business should consider when deciding whether an individual is an employee or independent contractor. They are:
- Three characteristics are used by the IRS to determine the relationship between businesses and workers: Behavioral Control, Financial Control, and the Type of Relationship.
- Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
- Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.
- The Type of Relationship factor relates to how the workers and the business owner perceive their relationship.
- If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.
- If you can direct or control only the result of the work done — and not the means and methods of accomplishing the result — then your workers are probably independent contractors.
- Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.
- Workers can avoid higher tax bills and lost benefits if they know their proper status.
- Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8 – Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding – with the IRS.
- You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link. Additional resources include IRS Publication 15-A, Employer’s Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee, and Publication 1976, Do You Qualify for Relief under Section 530? These publications and Form SS-8 are available on the IRS Web site or by calling the IRS at 800-829-3676 (800-TAX-FORM).
Contact Vision Payroll if you need further information.
Vision Payroll