Vision Payroll

This week’s question comes from Ben, a business owner. We received an e-mail from EFTPS stating that my federal tax payment had been rejected. Is there a problem with my EFTPS payment? Answer: On August 20, 2010, the Internal Revenue Service (IRS) issued a Problem Alert regarding this EFTPS scam.

Text of IRS Problem Alert

There is a fraud risk you need to be aware of. It is related to the Electronic Federal Tax Payment System (EFTPS).

The IRS recently became aware of a fraudulent scheme targeting EFTPS users, the scheme uses an e-mail that claims your tax payment was rejected and directs you to a website for additional information. The website contains malware that will attempt to infect your computer.

If you receive a message claiming to be from the IRS or EFTPS, please:

1. Do not reply to the sender, access links on the site or submit any information to them.
2. Forward the message immediately to us at phishing@irs.gov.
3. How to report and identify phishing, e-mail scams and bogus IRS websites.
4. If you receive a suspicious e-mail or discover a website posing as the IRS, please forward the e-mail or URL information to the IRS at phishing@irs.gov.
5. EFTPS is a tax payment system provided free by the US Department of Treasury. Pay federal taxes electronically via the Internet or phone 24/7. Visit EFTPS to enroll.

IRS and EFTPS Do NOT Send Unsolicited E-mails or Request Personal Information

Neither the IRS nor EFTPS sends unsolicited e-mails nor do they request personal or financial information in e-mails.

Stay Vigilant Against Attacks Aimed at Stealing Your Personal Information

Although no system is foolproof in preventing identity theft, Vision Payroll recommends vigilance in dealing with personal information, combined with a service such as LifeLock® to help detect certain types of identity theft.

This week’s question comes from Sylvia, a payroll manager. I thought I heard that the social security wage base would remain the same in 2011 as it was in 2010, but I can’t find anything official. Has the 2011 social security wage base been announced? Answer: Although the official announcement has not been made that for 2011 there will be no increase in the social security wage base, The 2010 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds has been released. In it, the Board of Trustees estimates that the 2011 social security wage base will remain unchanged at $106,800. The report includes the information about financial operations, legislative changes, and actuarial assumptions.

Second Straight Year with No Increase in Social Security Wage Base

If the prediction holds true, 2011 would be the third straight year that the wage base would be $106,800 and the maximum social security withholding would be $6,621.60. At this time, an increase in the wage base and maximum withholding is projected for 2012.

Social Security Wage Base Projected to Increase Over 40% by 2019

The Board of Trustees projects annual increases through 2019. Currently, the Board of Trustees estimates that the social security wage base will increase to $153,600 for the year 2019.

Vision Payroll Expects Official Announcement in October

When the Social Security Administration (SSA) makes the official announcement, most likely in October, Vision Payroll will provide updated amounts for 2011. Visit our Important Facts and Figures page for more details.

This week’s question comes from Bonnie, a business owner. We tested our multi-state employees for unemployment purposes based on Localization of Services, Base of Operations, and Place of Direction or Control. For some employees we were able to determine the appropriate state, but for some we weren’t. Now we need to test based on Place of Residence. What is Place of Residence? Answer: The general rule for employees who work in more than one state is that employees should be covered by only one state to prevent employers from paying tax in two or more states for the same employee. To determine which state, employers should look at four factors, in the following order:

1. Localization of Services
2. Base of Operations
3. Place of Direction or Control
4. Place of Residence

The employee is covered by the state under which that employee first qualifies using these factors. For example, if an employee is determined to be covered by a state under the Localization of Services test, the results of the remaining tests are irrelevant. Only if a determination cannot be made under the Localization of Services test does the employer consider the Base of Operations.

For the Place of Residence test, determine if the employee performs any service in the state in which the employee resides. If the employee performs some services in the state where the employee resides, that state is the state where the employee will be covered.

Contact Vision Payroll if you have further questions.

This week’s question comes from Kenneth, an HR Director. We tested our multi-state employees for unemployment purposes based on Localization of Services and Base of Operations. For some employees we were able to determine the appropriate state, but for some we weren’t. Now we need to test based on Place of Direction or Control. What is Place of Direction or Control? Answer: The general rule for employees who work in more than one state is that employees should be covered by only one state to prevent employers from paying tax in two or more states for the same employee. To determine which state, employers should look at four factors, in the following order:

1. Localization of Services
2. Base of Operations
3. Place of Direction or Control
4. Place of Residence

The employee is covered by the state under which that employee first qualifies using these factors. For example, if an employee is determined to be covered by a state under the Localization of Services test, the results of the remaining tests are irrelevant. Only if a determination cannot be made under the Localization of Services test does the employer consider the Base of Operations.

For the Place of Direction or Control test, determine if the employee performs any service in the state from which the services are directed and controlled. Services are directed or controlled in the place where basic authority resides and where general and immediate control originates. If the employee performs some services in the state that is the Place of Direction or Control for that employee, that state is the state where the employee will be covered. If not, go to the Place of Residence test.

Contact Vision Payroll if you have further questions.

This week’s question comes from Angela, an office manager. We tested our multi-state employees for unemployment purposes based on Localization of Services. For some employees we were able to determine the appropriate state, but for some we weren’t. Now we need to test based on Base of Operations. What is Base of Operations? Answer: The general rule for employees who work in more than one state is that employees should be covered by only one state to prevent employers from paying tax in two or more states for the same employee. To determine which state, employers should look at four factors, in the following order:

1. Localization of Services
2. Base of Operations
3. Place of Direction or Control
4. Place of Residence

The employee is covered by the state under which that employee first qualifies using these factors. For example, if an employee is determined to be covered by a state under the Localization of Services test, the results of the remaining tests are irrelevant. Only if a determination cannot be made under the Localization of Services test does the employer consider the Base of Operations.

For the Base of Operations test, determine if the employee performs some services in the state that is the base of operations for that employee. The base of operations is where the employee starts work, goes to receive instructions from the employer, replenishes supplies, maintains records, etc. Not all employees necessarily have a base of operations. If the employee performs some services in the state that is the base of operations for that employee, that state is the state where the employee will be covered. If not, go to the Place of Direction or Control test.

Contact Vision Payroll if you have further questions.

This week’s question comes from Matthew, a business owner. I read that we need to cover employees for unemployment purposes based on “Localization of Services”. What is Localization of Services? Answer: The general rule for employees who work in more than one state is that employees should be covered by only one state to prevent employers from paying tax in two or more states for the same employee. To determine which state, employers should look at four factors, in the following order:

1. Localization of Services
2. Base of Operations
3. Place of Direction or Control
4. Place of Residence

The employee is covered by the state under which that employee first qualifies using these factors. For example, if an employee is determined to be covered by a state under the Localization of Services test, the results of the remaining tests are irrelevant. Only if a determination cannot be made under the Localization of Services test does the employer consider the Base of Operations.

For the Localization of Services test, first determine if the employee performs all services entirely in one state. If yes, that state is the state where the employee will be covered. If not, determine if the services performed out of any state where the employee works are incidental (e.g., temporary or transitory) to the services performed in that state. If yes, that state is the state where the employee will be covered. If not, go to the Base of Operations test.

Contact Vision Payroll if you have further questions.

This week’s question comes from Julia, a business-owner. We have employees who work in more than one state. I understand how to determine which state’s income tax to withhold, but I don’t know what to do about unemployment tax. Where do I pay unemployment tax for employees who work in more than one state? Answer: The general rule for employees who work in more than one state is that employees should be covered by only one state to prevent employers from paying tax in two or more states for the same employee. To determine which state, employers should look at four factors, in the following order:

1. Localization of Services
2. Base of Operations
3. Place of Direction or Control
4. Place of Residence

The employee is covered by the state under which that employee first qualifies using these factors. For example, if an employee is determined to be covered by a state under the Localization of Services test, the results of the remaining tests are irrelevant. Only if a determination cannot be made under the Localization of Services test does the employer consider the Base of Operations test.

Contact Vision Payroll if you have further questions.

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.

This week’s question comes from Aaron, a business owner. We have several employees who work in Massachusetts, but live in neighboring states. Do I need to withhold state tax on wages paid to non-residents? Answer: Massachusetts requires employers to withhold state tax from wages paid to non-residents for services performed in Massachusetts. Most states have similar requirements that employers withhold tax on non-residents, but some states do not require withholding until a certain time or dollar limits are reached. Additionally, some states have setup reciprocal agreements with other states that allow the employees to be taxed in their home states. Massachusetts (and many other states) has special rules for unique occupations such as athletes, entertainers, and flight crewmembers. Contact Vision Payroll for further information on your unique situation.

This week’s question comes from Nikki, an LLC member. I am a member in an LLC. My neighbor is a member and receives a paycheck, but I’ve been told that I can’t receive a paycheck. Can an LLC member receive a paycheck from the LLC? Answer: For federal tax purposes, an LLC can make an election to be taxed in one of the following three ways:

• Sole proprietorship (if only one member in LLC)
• Partnership (if two members or more in LLC)
• Corporation (any number of members in LLC)

This election is generally made when the entity is formed and must be done by the time the entity files its first income tax return.

If your LLC has elected to be taxed as a sole proprietorship, the LLC cannot pay wages to the member and the member cannot have income tax, social security tax, or Medicare tax withheld, and cannot receive a Form W-2 from the LLC.

If your LLC has elected to be taxed as a partnership, the LLC cannot pay wages to the members and the members cannot have income tax, social security tax, or Medicare tax withheld, and cannot receive a Form W-2 from the LLC.

If your LLC has elected to be taxed as a corporation, the LLC can pay wages to the members and the members can have income tax, social security tax, and Medicare tax withheld, and can receive a Form W-2 from the LLC. This is true even if there is only a single member in the LLC.

As for LLCs that have elected to be taxed as a sole proprietorship or a partnership, members may receive a draw from the LLC and must pay quarterly federal estimated tax payments to cover the amount of federal income tax and self-employment tax liability they will have, unless covered by withholding on other income. Vision Payroll can work with you and your CPA to determine an appropriate draw and estimated tax payment schedule. You can then receive the draw as a check or direct deposit with each payroll and schedule appropriate deductions such as retirement plan contributions. Contact Vision Payroll today to get started.