The Internal Revenue Service recently released an updated version of Publication 15-B, Employer’s Tax Guide to Fringe Benefits. Publication 15-B provides an overview of fringe benefits as well as sections on fringe benefit exclusion rules and fringe benefit valuation rules. In addition, guidelines for withholding, depositing, and reporting taxable non-cash fringe benefits are also provided. Contact Vision Payroll if you any questions on Publication 15-B.
The Internal Revenue Service recently released an updated version of Publication 15, (Circular E) Employer’s Tax Guide. In addition to providing information on classifying employees, determining which types of payments are considered wages for federal employment tax purposes, and depositing taxes, Circular E also provides updated tables for use in calculating the amount of federal income tax to be withheld using either the percentage method or the wage bracket method. Tables for both the percentage method and the wage bracket method of calculating the amount of any Advance Earned Income Credit Payment are also provided. Vision Payroll has already incorporated the updated tables into its tax calculations for paychecks and will begin using the updated tables for all wages paid during 2009. Contact Vision Payroll if you any questions on Publication 15.
The US Court of Appeals for the 7th Circuit ruled recently in Jefferson v. US, 06-4082 (7th Cir. 10/8/2008) that the IRS rightfully imposed an Internal Revenue Code of 1986 (IRC) §6672 penalty against a former president of the board of directors of a tax-exempt day care facility since he was a responsible person whose behavior was willful. Charles E. Jefferson was president of the board of directors of New Zion Day Care Center, Inc. (Center) in Rockford, Illinois. Although Jefferson’s position was voluntary and uncompensated, he had check-signing authority and had previously secured loans for, among other things, payment of overdue payroll taxes for the Center. He was aware of the Center’s unpaid payroll tax liabilities from monthly reports and monthly meetings of the directors. Although he was uncompensated, Jefferson did not qualify for relief under IRC §6672(e) since it was determined that he participated in the day-to-day operations of the Center. The court agreed that the Internal Revenue Service (IRS) has failed to comply with §904(b) of Public Law 104-168 (Taxpayer Bill of Rights 2) in that it did not provide the explanatory materials required, but concluded Jefferson did not show “any prejudice from the IRS’s failure”. Finally, even though the IRS may have failed to turn over evidence and lost other documents relevant to the case, the court indicated that the documents would not have had any impact on the outcome of the case. Vision Payroll strongly recommends that all volunteer directors in tax-exempt organizations review the exemption under §6672(e) with their attorney. If the exemption does not apply, directors must ensure themselves all trust fund liabilities are being paid, regardless of their actual involvement with the organization’s daily activities.
The Internal Revenue Service (IRS) recently issued Fact Sheet FS-2008-25, which discusses S corporation officer compensation. Corporate officers, whether in S corporations or C corporations, are generally considered employees of the corporation. Officers who perform only minor services or no services and are not entitled to and do not receive compensation are not considered employees.
As an employee, officers who are also shareholders must receive a reasonable salary to the extent that distributions or other payments are made to the officer-shareholder. Factors considered when determining when compensation was reasonable have included the following:
The S corporation should deduct as fringe benefits any health and accident insurance premiums paid for so-called “2% shareholders”. The amount of the premiums is taxable to these shareholders for income tax purposes, but not for FICA or FUTA.
Pursuant to IRS Notice 2008-1, a medical plan is “established by the S corporation” even if the plan is in the name of the shareholder as long as the S corporation pays the premium or reimburses the shareholder for the premium payment.
Box 14 on the Form W-2 may be used to provide the shareholder with the amount of the premiums paid, but the income should only be reported on Form W-2 and not on either Form 1099 or Schedule K-1. Contact Vision Payroll if you have any questions on Fact Sheet FS-2008-25.
This week’s question comes from Larry, a business owner. I own a business in Indiana. I was late making a federal tax deposit due to the storms. Is there anything I can do? Answer: On September 12, 2008, the federal government declared Clark, Crawford, Dearborn, Floyd, Franklin, Gibson, Harrison, Jackson, Jasper, Jefferson, Jennings, Knox, Lake, LaPorte, Lawrence, Martin, Ohio, Orange, Perry, Pike, Porter, Posey, Ripley, Scott, Spencer, St. Joseph, Switzerland, Vanderburgh, Warrick, and Washington counties presidential disaster areas qualifying for individual assistance. Therefore, the IRS will waive the failure to deposit penalties for employment and excise deposits due on or after September 12, 2008 and on or before September 29, 2008 as long as the deposits were made by September 29, 2008. Also, the IRS is postponing until November 12, 2008 certain deadlines for return filing, tax payment and certain other time-sensitive acts otherwise due between September 12, 2008 and November 12, 2008. Contact Vision Payroll if you have been affected by these storms and need details on the postponements.
In IR-2008-118, the Internal Revenue Service (IRS) announced an increase for 2009 to the compensation limitation for Simplified Employee Pension (SEP) plans. Under §408(k)(2) of the Internal Revenue Code of 1986, SEP contributions are generally required for any employee of an employer with a SEP plan who has attained age 21, has performed service for the employer during at least three of the immediately preceding five years, and received at least a certain level of “compensation” from the employer for the year. For 2009, the compensation limit will increase to $550 from $500 in 2008. Contact Vision Payroll if you have questions on changes to the 2009 SEP Compensation Limitation or visit our Important Facts and Figures page for further information.
In IR-2008-118, the Internal Revenue Service (IRS) announced an increase for 2009 to the Highly Compensated Employee Limitation under §414(q)(1)(B) of the Internal Revenue Code of 1986. 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 2009, an HCE is anyone who was a “5-percent owner” at any time during 2008 or 2009 or anyone who received in excess of $105,000 in compensation during 2008 and, if elected by the employer, is in the top twenty percent of employees based upon compensation. The HCE limit was $100,000 for 2007 and 2008 plan testing. Since the law includes a look-back provision, employees who earned more than $100,000 in 2007 are generally considered HCEs for 2008 plan year testing, employees who will earn more than $105,000 in 2008 are generally considered HCEs for 2009 plan year testing, and employees who will earn more than $110,000 in 2009 are generally considered HCEs for 2010 plan year testing. Contact Vision Payroll if you have questions on changes to the HCE definition for 2008 and 2009, visit Important Facts and Figures, or get updated information for 2009 and 2010.
In TD 9356, the Internal Revenue Service made final the regulations on disregarded entities effective August 16, 2007. In order to allow taxpayers sufficient time to make the changes required by the regulations, the IRS delayed the effective date for the payroll tax changes until January 1, 2009. Under the new regulations, qualified subchapter S subsidiaries (QSubs) (under §1361(b)(3)(B) of the Internal Revenue Code of 1986) and single-owner eligible entities (under §301.7701-1, §301.7701-2, and §301.7701-3 of the Procedure and Administrative Regulations) that are treated as disregarded entities for most federal tax purposes will be treated as corporations for employment tax purposes. Therefore, owners of single-member LLCs who are treated as sole proprietors for income tax purposes must treat their LLCs as separate entities for employment tax and related reporting purposes. The final regulations clarify that an owner of a disregarded entity will continue to be treated as self-employed and not as an employee of the entity. The regulations also clarify that disregarded entities that are owned solely by a §501(c)(3) organization will maintain the organization’s exemption from federal unemployment tax or FUTA. Contact Vision Payroll if you have questions on changes to the payroll tax reporting procedures for single-owner eligible entities and QSubs.
In IR-2008-118, the Internal Revenue Service (IRS) announced an increase for 2009 in the compensation limitation from $230,000 to $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 increased from $46,000 to $49,000. This limit does not include the age 50 and over catch-up contribution when applicable, thereby increasing the total limitation for eligible taxpayers in qualifying plans from $51,000 to $54,500. Contact Vision Payroll if you have questions on changes to the 2009 Retirement Plan Contribution and Compensation Limitations.
In IR-2008-118, the Internal Revenue Service (IRS) announced increases to the limits on deferral contributions for 2009 under §401(k), §403(b), and §457(e)(15). These limitations are codified in those sections of the Internal Revenue Code of 1986 (IRC). Under IRC §415, the Commissioner of the IRS is required to adjust the plan limitations to keep pace with inflation. For 2009, the deferral contribution limitation will increase from $15,500 for 2008 to $16,500 for 2009. The age 50 and over catch-up contribution will also increase from $5,000 for 2008 to $5,500 for 2009 for individuals who plan to reach age 50 before the end of 2009. Contact Vision Payroll if you have questions on changes to these deferral contribution limits.
Vision Payroll