Vision Payroll

In IR-2009-107, the Internal Revenue Service (IRS) announced that interest rates for the first quarter of 2010 would remain unchanged from the fourth quarter. The rates are as follows:

• Four (4) percent for overpayments [three (3) percent in the case of a corporation];
• Four (4) percent for underpayments;
• Six (6) percent for large corporate underpayments; and
• One and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000.

The IRS will publish the rates in Revenue Ruling 2009-37. Contact Vision Payroll if you have any questions on the first quarter rates.

The Internal Revenue Service (IRS) recently released Revenue Ruling 2009-32, Paid Time Off Contributions at Termination of Employment. This Revenue Ruling addressed two issues:

1. Do the amendments described [in the ruling] to an existing qualified profit sharing plan requiring or permitting certain contributions to the plan of the dollar equivalent of unused paid time off at a participant’s termination of employment cause the plan to fail to meet the requirements of §401(a) and, if applicable, §401(k) of the Internal Revenue Code of 1986 (IRC)?
2. When is a participant required to recognize gross income with respect to the contributions to the qualified profit-sharing plan and payments to the participant as described [in the ruling]?

In situation 1, the IRS concludes as follows:

Under the facts presented, the amendments requiring or permitting certain contributions of the dollar equivalent of unused paid time off to a qualified profit-sharing plan do not cause the plan to fail to meet the qualification requirements of IRC §401(a), provided that the contributions satisfy the applicable requirements of IRC §401(a)(4) and IRC §415(c) and, where applicable, IRC §401(k) and IRC §401(a)(30).

In situation 2, the IRS concludes as follows:

Under the facts presented, assuming the applicable qualification requirements are satisfied, a participant does not include in gross income contributions of the dollar equivalent of unused paid time off to the profit sharing plan in accordance with IRC §402(a) until distributions are made to the participant from the plan and does not include in gross income an amount paid for the dollar equivalent of unused paid time off that is not contributed to the profit-sharing plan until the taxable year in which the amount is paid to the participant.

Contact Vision Payroll if you have any further questions on annual paid time off contributions.

The Internal Revenue Service (IRS) recently released Revenue Ruling 2009-31, Annual Paid Time Off Contributions. This Revenue Ruling addressed two issues:

1. Do the amendments described [in the ruling] to an existing qualified profit sharing plan requiring or permitting certain annual contributions of the dollar equivalent of unused paid time off cause the plan to fail to meet the requirements of §401(a) and, if applicable, §401(k) of the Internal Revenue Code of 1986 (IRC)?
2. When is a participant required to recognize gross income with respect to the contributions to the qualified profit-sharing plan and payments to the participant as described [in the ruling]?

In situation 1, the IRS concludes as follows:

Under the facts presented, the amendments requiring or permitting certain contributions of the dollar equivalent of unused paid time off to a qualified profit-sharing plan do not cause the plan to fail to meet the qualification requirements of IRC §401(a), provided that the contributions satisfy the applicable requirements of IRC §401(a)(4) and IRC §415(c) and, where applicable, IRC §401(k) and IRC §401(a)(30).

In situation 2, the IRS concludes as follows:

Under the facts presented, assuming the applicable qualification requirements are satisfied, a participant does not include in gross income contributions of the dollar equivalent of unused paid time off to the profit sharing plan in accordance with IRC §402(a) until distributions are made to the participant from the plan and does not include in gross income an amount paid for the dollar equivalent of unused paid time off that is not contributed to the profit-sharing plan until the taxable year in which the amount is paid to the participant.

Contact Vision Payroll if you have any further questions on annual paid time off contributions.

The Internal Revenue Service (IRS) recently released Revenue Ruling 2009-30, Automatic Contribution Increases under Automatic Contribution Arrangements. This Revenue Ruling addressed two issues:

1. Will default contributions to a profit-sharing plan fail to be considered elective contributions merely because they are made pursuant to an automatic contribution arrangement under which an eligible employee’s default contribution percentage automatically increases in plan years after the first plan year of the eligible employee’s participation in the automatic contribution arrangement based in part on increases in the eligible employee’s plan compensation?
2. Will default contributions under an automatic contribution arrangement fail to satisfy the qualified percentage requirement (including uniformity and minimum percentage requirements) relating to a “qualified automatic contribution arrangement” under §401(k)(13) of the Internal Revenue Code of 1986 (IRC) (providing an automatic enrollment nondiscrimination safe harbor) or the uniformity requirement relating to an “eligible automatic contribution arrangement” under IRC §414(w) (permitting 90-day withdrawals) merely because default contributions are made pursuant to an arrangement under which the default contribution percentage for all eligible employees increases on a date other than the first day of a plan year?

In situation 1, the IRS concludes as follows:

Default contributions to a profit-sharing plan will not fail to be considered elective contributions merely because they are made pursuant to an automatic contribution arrangement under which an eligible employee’s default contribution percentage automatically increases in plan years after the first plan year of the eligible employee’s participation in the automatic contribution arrangement based in part on increases in the eligible employee’s plan compensation.

In situation 2, the IRS concludes as follows:

Default contributions under an automatic contribution arrangement will not fail to satisfy the qualified percentage requirement (including uniformity and minimum percentage requirements) relating to a qualified automatic contribution arrangement or the uniformity requirement relating to an eligible automatic contribution arrangement merely because default contributions are made pursuant to an arrangement under which the default contribution percentage for all eligible employees increases on a date other than the first day of a plan year.

Contact Vision Payroll if you have any further questions on automatic contribution increases under automatic contribution arrangements.

The Treasury Department recently released the following statement by Treasury Secretary Tim Geithner:

“[Recently], the Administration announced steps we are taking to make it easier for working families to save, particularly for retirement. Working Americans should be able to retire with dignity and security, but nearly half of the nation’s workforce has little or nothing beyond Social Security benefits to get by on in old age. The measures we are announcing today will give more choices to families who want to save, and will complement the Administration’s legislative proposals to expand retirement savings. Just as the Administration is dedicated to reviving the economy and getting people back to work, so too it is dedicated to helping put retirement security within the reach of all Americans.”

The IRS also issued the following related technical guidance:

1. Revenue Ruling 2009-30
2. Revenue Ruling 2009-31
3. Revenue Ruling 2009-32
4. Notice 2009-65
5. Notice 2009-66
6. Notice 2009-67
7. Notice 2009-68

Vision Payroll will be providing further information over the next several days. Be sure to click the links above for the original documents and further analysis.

In IR-2009-73, the Internal Revenue Service (IRS) announced that interest rates for the fourth quarter of 2009 would remain unchanged from the third quarter. The rates are as follows:

• Four (4) percent for overpayments [three (3) percent in the case of a corporation];
• Four (4) percent for underpayments;
• Six (6) percent for large corporate underpayments; and
• One and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000.

The IRS will publish the rates in Revenue Ruling 2009-27. Contact Vision Payroll if you have any questions on the fourth quarter rates.

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.

Revenue Ruling 2009-11, Differential Wage Payments to Active Duty Members of the Uniformed Services, §3401(h)

In Rev. Rul. 2008-45, the IRS ruled that the transfer of the sponsorship of a retirement plan from an employer to an unrelated entity when not connected “with a transfer of business assets, operation, or employees” is a violation of the exclusive benefit rule of §401(a). The plan would no longer be maintained by an employer for its employees since the transfer was to an entity that did not employ the plan participants. The IRS also announced that it was proposing a framework for legislation that would allow transfers of so-called frozen plans, “provided certain conditions are met.” The requirements proposed by the IRS are:

• Plan participants, their representatives, and ERISA regulators would be required to receive advance notice of a plan transfer, and the parties to the transaction would be required to provide regulators information necessary to review and approve the proposed transaction.
• Only financially strong entities in well-regulated sectors would be permitted to acquire a pension plan in a plan transfer transaction.
• The parties to the transaction would be required to demonstrate that participants’ benefits and the pension insurance system would be exposed to less risk as a result of the transfer, and that the transfer would be in the best interests of the participants and beneficiaries.
• Limitations on transfers would be imposed to limit undue concentration of risk.
• Transferees and members of their controlled groups would assume full responsibility for the liabilities of transferred plans and would comply with post-transaction reporting and fiduciary requirements.
• Subsequent transfer transactions would be subject to the rules applicable to original transfer transactions.

In Revenue Ruling 2008-29, the IRS clarified the amount of federal income tax to be withheld on certain supplemental wages. Situations covered include sales commissions, draws, signing bonuses, severance pay, annual leave, vacation and sick pay, and sick pay paid at a different rate. Contact Vision Payroll if you have any questions on this ruling.