Vision Payroll

The Internal Revenue Service (IRS) recently released 2009 Form W-5, Earned Income Credit Advance Payment Certificate. There are four criteria for claiming advance earned income credit (EIC) payments.

1. Taxpayer (and spouse if filing jointly) must have a valid social security number.
2. Taxpayer (or spouse if filing jointly) must have at least one qualifying child and be able to claim the credit using that child.
3. Taxpayer’s expected earned income and adjusted gross income must be less than $35,463 ($38,583 if filing jointly).
4. Taxpayer must expect to claim the EIC for 2009.

Eligible taxpayers must file a new Form W-5 for 2009. The 2008 Form W-5 expired December 31, 2008. Contact Vision Payroll if you have any question on Form W-5.

Employees who have provided a Form W-4, Employee’s Withholding Allowance Certificate claiming exemption from federal income tax withholding must file a new 2009 Form W-4 by February 16, 2009 in order to continue their exemption from federal income tax withholding. Employers must start withholding on February 16, 2009 if employees have not provided a 2009 Form W-4 claiming exemption. Even employees who are no longer claiming exemption should file a 2009 Form W-4 so that employers may calculate the proper amount of withholding. If an employee has not provided a 2009 Form W-4 by February 16, 2009, the employer should withhold based on a previously filed Form W-4 not claiming exemption, if available or using single, zero allowances, if not. Spanish-speaking employees may complete Formulario W-4(SP), Certificado de Exención de la Retención del Empleado. Upon request, Vision Payroll can provide employers with pre-printed 2009 Forms W-4 for all active employees. Vision Payroll will not automatically change any employee’s claimed withholding allowances. Employers should update the allowances claimed by logging in to their company file or providing Vision Payroll with the updated information.

The Internal Revenue Service has released an updated version of Publication 1494, Tables for Figuring Amount Exempt from Levy on Wages, Salary, and Other Income (Forms 668-W(C), 668-W(c)(DO) and 668-W(ICS)). The table is used to calculate the amount of wages and other income exempt from levies for delinquent taxes. In addition to levies issued in 2009, employers use the revised amounts to calculate the exempt amount if the employee should provide a revised statement showing a change in filing status or exemptions. Contact Vision Payroll for assistance in automating the calculation of the exemption and levy amounts on employees’ paychecks.

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 standard mileage rates for the use of automobiles beginning January 1, 2009 will be 55 cents per mile for business miles driven and 24 cents per mile driven for medical or moving purposes, the Internal Revenue Service announced yesterday in IR-2008-131. The new rates are changed from 58.5 cents per mile for business travel and 27 cents per mile for moving and medical travel for the second half of 2008. The rate for miles driven in service of charitable organizations has remained the same at 14 cents per mile. Contact Vision Payroll if you have any questions on 2009 mileage rates.

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:

• Training and experience
• Duties and responsibilities
• Time and effort devoted to the business
• Dividend history
• Payments to non-shareholder employees
• Timing and manner of paying bonuses to key people
• What comparable businesses pay for similar services
• Compensation agreements
• The use of a formula to determine compensation

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.

The Internal Revenue Service announced recently that certain taxpayers in Louisiana and Texas will have until January 5, 2009 to file most returns and pay most taxes. Additionally, failure to deposit penalties for employment and excise deposits due on or after September 11 and before September 26, 2008, will be waived as long as the deposits are made on or before September 26, 2008. Louisiana taxpayers who reside in or have a business in the parishes of Acadia, Beauregard, Calcasieu, Cameron, Iberia, Jefferson, Jefferson Davis, Lafourche, Plaquemines, Sabine, St. Mary, Terrebonne, Vermilion, and Vernon and Texas taxpayers who reside in or have a business in the counties of Angelina, Austin, Brazoria, Chambers, Cherokee, Fort Bend, Galveston, Grimes, Hardin, Harris, Houston, Jasper, Jefferson, Liberty, Madison, Matagorda, Montgomery, Nacogdoches, Newton, Orange, Polk, Sabine, San Augustine, San Jacinto, Trinity, Tyler, Walker, Waller, and Washington will qualify for relief. Contact Vision Payroll if you have been affected by Hurricane Ike and need details on the postponements.

Responding to a request from Senator Richard Shelby (R-Ala.), the IRS stated that there is no dollar limit imposed by law on de minimis fringe benefits. A constituent had written to Shelby and stated that the constituent’s employer required all non-cash gifts valued over $50 to be processed through payroll and all required taxes to be withheld. According to §132(e)(1) of the Internal Revenue Code of 1986 (as amended), “‘de minimis fringe’ means any property or service the value of which is (after taking into account the frequency with which similar fringes are provided by the employer to the employer’s employees) so small as to make accounting for it unreasonable or administratively impracticable.” Setting of a dollar limit would, in of itself, require accounting for items. Therefore, no dollar limit on de minimis fringe benefits is set by law. Treasury Regulations §1.132-6(e) gives examples of de minimis fringe benefits such as “occasional typing of personal letters by a company secretary; occasional personal use of an employer’s copying machine, provided that the employer exercises sufficient control and imposes significant restrictions on the personal use of the machine so that at least 85 percent of the use of the machine is for business purposes; occasional cocktail parties, group meals, or picnics for employees and their guests; traditional birthday or holiday gifts of property (not cash) with a low fair market value; occasional theater or sporting event tickets; coffee, doughnuts, and soft drinks; local telephone calls; and flowers, fruit, books, or similar property provided to employees under special circumstances (e.g., on account of illness, outstanding performance, or family crisis).” Contact Vision Payroll if you have any questions.