Vision Payroll

This week’s question comes from Will, a restaurant owner. We’ve hired several students to work for us this summer. Most of them don’t expect to owe any income tax this year. How do students claim exemption from income tax withholding? Answer: Students or others who expect to owe no tax for 2009 should review the conditions on line 7 of Form W-4, Employee’s Withholding Allowance Certificate or the Spanish W-4, Formulario W-4(SP), Certificado de Exención de la Retención del Empleado. Employees who meet both conditions should write “Exempt” (or “Exento”) on line 7 and file the form with their employer. The employer should not withhold any federal income tax from these employees for the rest of 2009. Employees who wish to continue their exempt status in 2010 must a complete and provide to their employer a 2010 Form W-4 before February 16, 2010. These employees may also wish to file a state equivalent form to claim exemption from state withholding as well. The filing of Form W-4 claiming exempt status does not stop social security or Medicare withholding or the requirement that the employer match these withholdings. These taxes, sometimes known as FICA or OASDI, have their own rules for determining exemption which are much less likely to apply. Contact Vision Payroll if you have any questions on employees claiming exempt status.

This week’s question comes from Burt, an office manager. An employee filled out a Form W-4 and now is not having any federal income tax (FIT) withheld from his check. He wants to have $20 withheld each week since he thinks he’ll owe about $1,000 in FIT. How does an employee increase the amount of FIT withholding? Workers who wish to adjust their withholding should file a revised Form W-4, Employee’s Withholding Allowance Certificate or its Spanish equivalent, Formulario W-4(SP), Certificado de Exención de la Retención del Empleado to adjust their withholding. Line 6 may be used to increase the amount withheld for FIT from each paycheck. If the employee files Form W-4 and claims the same exemption and enters $20 on line 6, $20 will be withheld each paycheck unless earnings increase such that FIT must be withheld. In that case, the withholding will be the calculated amount, plus $20. Contact Vision Payroll if you have any question on FIT withholding.

This week’s question comes from Elizabeth, a small-business owner. We just hired a part-time employee who is seventy years old. He’s already collecting social security benefits so I’m not sure if I should still withhold it from his wages. At what age does social security withholding stop? Answer: There is no age beyond which employers are no longer required to withhold social security or Medicare taxes, which are also known as FICA or OASDI. Employers must continue to withhold social security and Medicare taxes and pay the employer’s portion even if the employee is collecting social security or is eligible for Medicare. The Social Security Administration will recalculate benefits and may increase them after retirement if the additional earnings result in a benefits increase. Contact Vision Payroll if you have any questions on social security and Medicare tax withholding.

This week’s question comes from Joel, an HR director. We just implemented a Health Savings Account plan at our company. We know the amounts employees can contribute for 2009. What are the 2010 Health Savings Account inflation adjustments? Answer: the Internal Revenue Service recently released Rev. Proc. 2009-29 which contained the 2010 inflation adjusted amounts for Health Savings Accounts or HSAs.

The annual limitation on deductions will increase from $3,000 in 2009 to $3,050 in 2010 for those with self-only coverage. Those with family coverage will have the deduction limitation increase from $5,950 to $6,150.

The definition of a high deductible health plan will change from one with a minimum deductible of $1,150 in 2009 to $1,200 in 2010 for self-only coverage and from $2,300 to $2,400 for family coverage.

The annual out-of-pocket limitation for 2010 will also increase from $5,800 in 2009 to $5,950 for those with self-only coverage; the out-of-pocket limitation for family coverage will increase from $11,600 to $11,900.

Contact Vision Payroll if you have any questions on Rev. Proc. 2009-29 and the changes to HSAs for 2010.

This week’s question comes from Rosa, a business owner. I paid over $5,000 in premiums for former employees who are eligible for the COBRA premium subsidy. The reduction in the federal tax deposit was only about $3,000. Why is my COBRA credit limited? Answer: Pursuant to the American Recovery and Reinvestment Act of 2009 or ARRA, certain involuntarily terminated employees are eligible for employer-provided subsidies to help pay for their Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage. Employers may then claim a credit on their Form 941 to be reimbursed for the assistance provided. Vision Payroll will limit the amount of the credit utilized to offset any particular payroll’s liability to the total of the federal tax deposit for that payroll. Credits in excess of that payroll’s federal tax deposit will be limited and the overage will be used to offset future liabilities for that quarter, unless the payroll is the last of the quarter. Contact Vision Payroll if you have any questions on the COBRA premium subsidy.

This week’s question comes from Matt, a business owner. I received my unemployment rate from the Commonwealth of Massachusetts, but don’t remember receiving my rate for Massachusetts Health Insurance Contribution Act Tax. How do I determine my tax rate for Massachusetts Health Insurance Contribution Act Tax? Answer: Under Massachusetts General Laws c. 151A, §14G, Unemployment health insurance contribution; medical security trust fund, employers are effectively exempt from the tax for the first two calendar years they become subject to the tax, regardless of employee count. For the third calendar year, the rate is 0.04%, for the fourth calendar year, the rate is 0.08%, and for the fifth and subsequent years, the rate is 0.12%. Employers must pay this tax on subject wages up to $14,000 per year per covered employee. Contact Vision Payroll if you have questions on the Massachusetts Health Insurance Contribution Act.

This week’s question comes from Carolyn, a business owner. I recently hired some new employees. Am I required to file Massachusetts Form 1700-HI? Answer: Employers in Massachusetts should count the number of employees who worked or received pay for any part of the pay period that includes the twelfth of the month for each of the three months in the quarter. If the sum of those three numbers is eighteen or more, then the employer is required to file Form 1700-HI and pay tax at the rate assigned by the Massachusetts Division of Unemployment Assistance. Contact Vision Payroll if you have any questions on Form 1700-HI, Health Insurance Quarterly Contribution Report.

This week’s question comes from Rocco, a plant manager. We pay employees on active military duty a differential wage that makes up for wages that they would have earned had they not been on active military duty. Which payroll taxes do we need to pay on differential pay to active military duty employees? Answer: Under the Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART Act), differential wage payments are now subject to income tax withholding. The Internal Revenue Service recently released an advance copy of Revenue Ruling 2009-11, covering §3401(h) of the Internal Revenue Code of 1986, Differential Wage Payments to Active Duty Members of the Uniformed Services and is effective for differential wage payments made after December 31, 2008. The holdings of Rev. Rul. 2009-11 are:

1. Differential wage payments made to an individual while on active duty in the United States uniformed services for more than 30 days are subject to income tax withholding, but are not subject to FICA or FUTA taxes.
2. Employers may use either the aggregate method or optional flat rate withholding to calculate the amount of income tax required to be withheld on differential wage payments which do not exceed $1,000,000 when added to all other supplemental wages paid by the same employer to the individual during the calendar year.
3. The amounts of the differential wage payments must be reported by the employer on the employee’s Form W-2.

Contact Vision Payroll if you have any questions on Rev. Rul. 2009-11.

This week’s question comes from Renai, an office manager. We don’t have enough employees to be covered under federal COBRA laws. We are covered by Cal-COBRA. Are employees covered under Cal-COBRA eligible for the ARRA subsidy? Answer: Pursuant to the American Recovery and Reinvestment Act of 2009 or ARRA, certain involuntary terminated employees are eligible for employer-provided subsidies to help pay for their Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage. Employers may then claim a credit on their Form 941 to be reimbursed for assistance provided. Cal-COBRA is a California law that applies to employers and group health plans that cover from 2 to 19 employees. Eligible employees may elect to continue their coverage for 36 months. Since ARRA applies to both federal COBRA and similar state laws, the California EDD recently confirmed that employees who have elected Cal-COBRA coverage who meet the ARRA requirements are eligible to receive the subsidy. Contact Vision Payroll if you have any questions on Cal-COBRA.

This week’s question comes from Toni, an office manager. In February, you wrote that implementation of the new Form I-9, Employment Eligibility Verification, had been delayed. When do I need to start using the new Form I-9? Answer: The United States Citizenship and Immigration Services (USCIS), a component of the United States Department of Homeland Security (DHS), has released the revised Form I-9, and its Spanish equivalent, Formulario I-9, Verificación de Elegibilida para el Empleo. Employers are required to use the revised forms starting today, April 3, 2009. The list of documents eligible for the employment verification process has also been revised, including the elimination of expired documents as acceptable verification documents.

Contact Vision Payroll or click the Form I-9 tag if you have any questions on the revised Form I-9.