From IRS

WASHINGTON ― The Internal Revenue Service today released instructions to help employers implement the 2011 cut in payroll taxes, along with new income-tax withholding tables that employers will use during 2011.

Millions of workers will see their take-home pay rise during 2011 because the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 provides a two percentage point payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid. This reduced Social Security withholding will have no effect on the employee’s future Social Security benefits.

The new law also maintains the income-tax rates that have been in effect in recent years.

Employers should start using the new withholding tables and reducing the amount of Social Security tax withheld as soon as possible in 2011 but not later than Jan. 31, 2011. Notice 1036, released today, contains the percentage method income tax withholding tables, the lower Social Security withholding rate, and related information that most employers need to implement these changes. Publication 15, (Circular E), Employer’s Tax Guide, containing the extensive wage bracket tables that some employers use, will be available on IRS.gov in a few days.

The IRS recognizes that the late enactment of these changes makes it difficult for many employers to quickly update their withholding systems. For that reason, the agency asks employers to adjust their payroll systems as soon as possible, but not later than Jan. 31, 2011.

For any Social Security tax over withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2011.

Employers and payroll companies will handle the withholding changes, so workers typically won’t need to take any additional action, such as filling out a new W-4 withholding form.

As always, however, the IRS urges workers to review their withholding every year and, if necessary, fill out a new W-4 and give it to their employer. For example, individuals and couples with multiple jobs, people who are having children, getting married, getting divorced or buying a home, and those who typically wind up with a balance due or large refund at the end of the year may want to consider submitting revised W-4 forms. Publication 919, How Do I Adjust My Tax Withholding?, provides more information to workers on making changes to their tax withholding.

by Stephen Miller from shrm.org

The Bush-era tax cuts are set to expire at the close of 2010. While Congress could pass a partial or full extension before year-end 2010, U.S. employers must adjust their payroll deduction systems for 2011 well before the end of 2010. That could mean setting their payroll systems to anticipate no extension; then if Congress acts, they would need to readjust these systems again in 2011.

Setting payroll systems to reflect the higher tax rates that were in effect a decade ago will mean more money being withheld from workers’ paychecks, according to CCH, a provider of employment and payroll law information and software. And that will present a communications challenge for employers.

Change, and Change Again

“The tax cuts—now known as the ‘Bush tax cuts’—were signed on June 7, 2001,” noted John W. Strzelecki, senior payroll analyst at CCH, which is part of Wolters Kluwer Law & Business. “The IRS then issued new withholding tables, effective July 1, 2001, that incorporated the new tax cuts. In addition, the new tables took into account the fact that too much money was taken from paychecks that were issued in the first half of the year.”

Strzelecki foresees a similar pattern this time, with the Internal Revenue Service (IRS) issuing tax withholding tables for 2011 in November 2010 and subsequently issuing revised tables if Congress extends the Bush-era tax rates. “If the tax cuts are passed and signed, the IRS will revise the withholding tables with an effective date that allows just enough time for the payroll industry to implement the changes, just as in June 2001,” Strzelecki said. “The tables will take into account the fact that too much money was withheld from the paychecks that were issued prior to the tax cuts, also just like in 2001,” he explained.

“What it all boils down to is workers will see less take-home pay beginning in 2011 and more take-home pay later in the year, just as we saw in 2001,” said Strzelecki.

For employers, this highlights the importance of keeping employees informed of why their tax withholding will be higher, at least initially—even if Congress should act before the end of 2010.

More Information at shrm.org article

by BHZ

Payroll legal obligations can put companies and managers at great risk in many ways. If you have anything to do with employee payroll and related matters, be aware of the following 11 mistakes and corresponding penalties.

Mistake #1: Failing to deposit withheld income taxes, Social Security and Medicare contributions, and employer matching amounts on time. The government wants its money by strict deadlines. Penalties accrue quickly if your business or organization misses deposit deadlines.

The penalty for not making deposits on time is:

• 1 to 5 days late, 2 percent of amounts due.
• 6 to 15 days late, 5 percent.
• 16 or more days, 10 percent.
• 15 percent if notice from the IRS is ignored, plus interest on the amount not deposited, plus 100 percent of the uncollected amounts if the failure to deposit is willful.

Note this grave, personal danger: These penalties can be levied personally against all responsible individuals in a business or organization. The corporate veil is no shield in these situations. Any individual with a responsibility for getting the money to the government on time faces possible exposure to penalties and fines.

Mistake #2: Under-withholding and failing to match required amounts.

The employer’s obligation is to withhold income tax, Social Security, and Medicare contributions from employees’ pay, as well as match the Social Security and Medicare contributions. Failure to do so subjects the employer to late deposit penalties of up to 15 percent of the under-withheld and under-deposited amounts. If the IRS deems the under-reporting or under-depositing willful, the penalties can be up to 100 percent of the uncollected amounts.

As with failing to make deposits in a timely manner, under-withholding and failing to match amounts creates a personal risk to individuals with a responsibility for getting the correct sums of money to the government on time.

Mistake #3: Failing to pay — or under-paying — state and federal unemployment taxes. The greatest portion of unemployment insurance (UI) taxes is levied by the state. And state-levied penalties vary. Since state UI funds are being exhausted in this period of high unemployment, states are aggressive in collection efforts.

Mistake #4: Failing to process wage garnishments correctly. Federal and state laws obligate employers to accurately withhold from employee pay, and remit, court-ordered garnishments, levies, and child support.

Violating these laws can result in penalties, depending on state laws. Also, federal law limits the amount of earnings that can be garnished, and protects employees from being terminated from their jobs because of a first-time garnishment. A violation can mean reinstatement of a discharged employee, payment of back wages, and restoration of improperly garnished amounts. Employers who willfully violate the discharge provisions of the law can be prosecuted criminally and fined up to $1,000, imprisoned for not more than one year – or both.

Mistake #5: Making unauthorized deductions from an employee’s pay. Employers can legally deduct from an employee’s pay only amounts authorized or required by law (such as tax withholding), by court order (such as garnishments), and amounts authorized by the employee (such as the employee’s share of health insurance).

What are unauthorized deductions? State laws vary and it can be tricky. In addition, federal wage and hour law requires payment of agreed upon and earned wages (with the allowed deductions listed above.)

Do you ever feel compelled to dock an employee’s pay if he or she breaks or damages company products or equipment? Check first with your attorney to see if this is permitted by your state law — even with the employee’s permission

Mistake #6: Treating some workers as independent contractors when they’re not. Misclassifying employees as independent contractors exposes employers to substantial legal costs and penalties.

In an effort to increase collections, the IRS and state agencies have ramped up investigations of misclassified employees. When a misclassification is discovered, the employer becomes obligated for unreported and undeposited withholding taxes, Social Security and Medicare contributions, penalties, and possible liability for employee benefits. When the IRS deems the misclassification to be negligent, the penalties can be up to 100 percent of the uncollected taxes.

And the payment of unreported taxes and contributions isn’t just for the past year. When the IRS and state agencies discover the misclassification of just one or two employees, this can trigger audits of the employer’s employment for prior years.

Mistake #7: Failing to include the value of awards, bonuses, and fringe benefits (when required) in employees’ taxable incomes. This action then results in the failure to withhold sufficient amounts from the total reportable income and not reporting the total reportable income to the IRS. The risk: The employer is subject to under-reporting penalties of up to 15 percent of the under-withheld and under-deposited taxes. If the failure is willful, the penalties can be up to 100 percent. And the employer could also be subject to information return penalties for incorrect W-2 forms (up to $50 penalty for each incorrect W-2).

Mistake #8: Using bogus or incorrect Social Security numbers for employees on their W-2 Forms and failing to accurately complete I-9 Forms. The risk: The employer can be subject to information return penalties for incorrect W-2 Forms, of up to $50 for each incorrect W-2. This mistake or failure by the employer also creates issues for the employees involved because they aren’t receiving proper earnings credits through the Social Security Administration.

Mistake #9: Failing to pay at least the higher of the federal or state minimum wage to non-exempt employees… as well as overtime in any seven-day workweek in which they work more than 40 hours. The risk: If this error is discovered, the employer is required to compensate the employee for back pay, plus fines and penalties. In addition to the fines and penalties imposed by the Department of Labor, the employer likely will be subject to federal and state wage and hour audits and owe additional amounts

Mistake #10: Not preparing and filing W-2 forms, and failing to send them to employees. The risk: The employer can be subject to information return penalties for incorrect W-2 forms, penalties of up to $100 for each incorrect or unreported W-2. For intentional failure, the penalties can go up to $200 for each incorrect statement.

Mistake #11: Failing to abide by state laws. It’s not just the federal wage and hour rules that employers must comply with. Employers need to be aware of, and comply with, the laws in the states where they have employees.

PEOs can help prevent these mistakes

To help avoid these costly blunders, more companies are turning to a professional employer organization (PEO), like Staff One.  A PEO serves as a human resources department for small and medium-sized businesses.  By entering into a co-employment relationship with a PEO, companies have access to experienced specialists who can help with many time-consuming activities in areas such as Human Resources Management, Payroll Management (including 940 and 941 filings), Employer Liability Management, Risk and Safety Management and Benefits Management.

The federal Internal Revenue Service, on May 18, released a revised Form 941, “Employer’s Quarterly Federal Tax Return” that employers can use to take advantage of a Social Security payroll tax exemption under the federal Hiring Incentives to Restore Employment Act. The HIRE Act provides employers the exemption and a tax credit for certain new hires who begin employment between Feb. 4 and Dec. 31, 2010. Employers can use the new form to claim the exemption for wages paid beginning with the second calendar quarter of 2010; a credit for wages paid in the first quarter (from March 19 through March 31, 2010) can be claimed on the second quarter return.

Additional Information:

• IRS notice of revised Form 941
• Form 941, “Employer’s Quarterly Federal Tax Return”
• Instructions for Form 941

Employers with cafeteria plans can now allow employees to make pretax contributions to cover benefits under the company’s heath plan for dependent children up to age 27, the Internal Revenue Service said April 27 (Notice 2010-38).  The change is related to the new health reform law, IRS said.  The notice will appear in the May 17 edition of the Internal Revenue Bulletin 2010-20.

House Democrats, meanwhile, asked health insurers to stop canceling coverage for policyholders who become sick before a provision in the new law takes effect in 2014.  The chairmen of three House committees urged seven insurers in a letter April 27 to stop the rescissions, a move that they said would be consistent with changes allowing older dependents to remain on a parent’s health plan.  Separately, WellPoint said it would implement a nonrescission provision May 1.

by MHA

The Internal Revenue Service (IRS) recently completed two examinations under its Learn, Educate, Self-Correct, and Enforce (LESE) initiative to test and measure the compliance levels of defined contribution retirement plans. Using randomly selected Form 5500 returns, the projects produced findings in two major areas: small plans with assets from $100,000 to $250,000 and top-heavy plan errors.

One of the top errors found for small plans was the failure to secure adequate bonding of plan fiduciaries who handle retirement plan assets. Under ERISA, the amount of bonding should not be less than 10 percent of the amount of funds handled (not less than $1,000 or more than $500,000) with exceptions. Other top errors included failing to amend plans on a timely basis to comply with statutory and regulatory changes, failure to timely submit Form 1099-R, failure to timely deposit elective deferrals, top-heavy failures, joint and survivor waiver failures, impermissible distributions, and failure to include into income “deemed distributions” relating to defaulted loans from the plan.

The second project examined approximately 50 plans with between three and eight participants which were expected to have top heavy plan errors. In general, a 401(k) plan is top heavy when more than 60 percent of the present value of benefits goes to key employees. If a plan is deemed top-heavy, it must apply certain accelerated vesting and contributions to all eligible non-key employees. The most common errors the IRS found were failure to test for top heaviness, improper exclusion of eligible employees, and allocation errors related to compensation and contributions.

In all of the errors found, the IRS has addressed correction procedures within the 401(k) “Fix-it Guide.” Additionally, the LESE project report also contains tips on avoiding the common errors found by the IRS.

Click here to view the project report.

Click here to view the “Fix-it Guide.”

adapted from the IRS

Getting ready to file your tax return?  Make sure you have all your documents before you start. You should receive a Form W-2, Wage and Tax Statement from each of your employers.  Employers have until February 1, 2010 to send you a 2009 Form W-2 earnings statement. For employers who are clients of Staff One, W-2 were sent out during the first week in January.

If you haven’t received your W-2, follow these four steps:

1. Contact your employer (if your employer is a client of Staff One, contact us) If you have not received your W-2, contact your employer to inquire if and when the W-2 was mailed.  If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address.  After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.

2. Contact the IRS If you do not receive your W-2 by February 16th, contact the IRS for assistance at 800-829-1040. When you call, you must provide your name, address, city and state, including zip code, Social Security number, phone number and have the following information:

• Employer’s name, address, city and state, including zip code and phone   number
• Dates of employment
• An estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2009. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.

3. File your return You still must file your tax return or request an extension to file by April 15, even if you do not receive your Form W-2. If you have not received your Form W-2 by April 15th, and have completed steps 1 and 2, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible.  There may be a delay in any refund due while the information is verified.

4. File a Form 1040X On occasion, you may receive your missing W-2 after you filed your return using Form 4852, and the information may be different from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.

Form 4852, Form 1040X, and instructions are available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).

The Internal Revenue Service (IRS) issued Notice 2010-15 addressing provisions of the Heroes Earnings Assistance and Relief Tax (HEART) Act of 2008 which relates to qualified retirement plans, including 401(k), 403(b) and governmental 457(b) plans. The guidance includes 20 questions and answers, and discusses topics such as survivor and disability retirement benefits with respect to military service, differential wage payments, and in-service distributions. Major provisions in the law include:

• A survivor of a deceased service member is allowed tax-free rollover of certain funds to a Roth IRA or Education Savings Account.
• Employers who pay all or some of the compensation that an employee would have normally been paid to those on active duty (“differential pay”) must recognize that compensation when calculating pension benefits. These wages paid were previously not treated as wages for federal employment tax purposes, but the HEART Act amended the Code to now treat differential pay as wages for income tax withholding purposes.
• Reservists who request distributions from defined contribution plans (including 401(k) plans) while serving at least six months of active duty on or after Dec. 31, 2007 will not be subject to the 10 percent withdrawal penalty, regardless of the participant’s age.
• The HEART Act requires plans to consider an employee who dies while on active duty to be considered a “deemed rehired employee” in order to provide the employee with any additional benefits that would have been provided to an active employee. These benefits may include accelerated vesting, life insurance and other survivor’s benefits.

The notice provides that an amendment regarding the applicable HEART Act provisions should be effective on or before the last day of the first plan year beginning on or after Jan. 1, 2010. For calendar year plans this date is Dec. 31, 2010. Governmental plans need to make the applicable amendments on or before the last day of the first plan year beginning on or after Jan. 1, 2012 (Dec. 31, 2012, for calendar year plans).

Click here for more information.

The Internal Revenue Service, in Revenue Procedure 2010-10, set the maximum vehicle values below which the ‘‘vehicle cents-per-mile’’ valuation rule and the ‘‘fleet-average’’ valuation rule may be employed in valuing the personal use of vehicles provided in 2010 by an employer to an employee.

The maximum value of employer provided vehicles first made available to employees for personal use in calendar year 2010 for which the vehicle cents-per-mile valuation rule (Treas. Reg. § 1.61-21(e)) may be applicable is $15,300 for a passenger automobile and $16,000 for a truck or van, IRS said.

The maximum value of employer provided vehicles first made available to employees for personal use in calendar year 2010 for which the fleet average valuation rule pertaining to 20 or more automobiles (Treas. Reg. § 1.61-21(d)) may be applicable is $20,300 for a passenger automobile and $21,000 for a truck or van.

According to the IRS, if an employer provides an employee with a vehicle that is available
to the employee for personal use, the value of the personal use must generally be included in the employee’s income and wages pursuant to Internal Revenue Code § 61.

While the tax filing deadline is more than three months away, it always seems to be here before you know it. Here are the Internal Revenue Service’s top 10 tips that will help your tax filing process run smoother than ever this year.

1.     Start gathering your records Round up any documents or forms you’ll need when filing your taxes: receipts, canceled checks and other documents that support an item of income or a deduction you’re taking on your return.

2.     Be on the lookout W-2s and 1099s will be coming soon from your employer; you’ll need these to file your tax return.

3.     Try e-file When you file electronically, the software will handle the math calculations for you. If you use direct deposit, you will get your refund in about half the time it takes when you file a paper return. E-file is now the way the majority of returns are filed. In fact, last year, 2 out of 3 taxpayers used e-file.

4.     Check out Free File If your income is $57,000 or less you may be eligible for free tax preparation software and free electronic filing. The IRS partners with 20 tax software companies to create this free service. Free File is for the cost conscious taxpayer who wants reliable question-and-answer software to help them prepare a return. Visit IRS.gov to learn more.

5.     Consider other filing options There are many different options for filing your tax return. You can prepare it yourself or go to a tax preparer. You may be eligible for free face-to-face help at an IRS office or volunteer site. Give yourself time to weigh all the different options and find the one that best suits your needs.

6.     Consider Direct Deposit If you elect to have your refund directly deposited into your bank account, you’ll receive it faster than waiting for a paper check.

7.     Visit IRS.gov again and again The official IRS Web site is a great place to find everything you’ll need to file your tax return: forms, tips, answers to frequently asked questions and updates on tax law changes.

8.     Remember this number: 17 Check out Publication 17, Your Federal Income Tax on IRS.gov. It’s a comprehensive collection of information for taxpayers highlighting everything you’ll need to know when filing your return.

9.     Review! Review! Review! Don’t rush. We all make mistakes when we rush. Mistakes will slow down the processing of your return. Be sure to double-check all the Social Security Numbers and math calculations on your return as these are the most common errors made by taxpayers.

10.   Don’t panic! If you run into a problem, remember the IRS is here to help. Try IRS.gov or call our customer service number at 800-829-1040.

Links:

• Forms and Publications
• E-filing
• 1040 Central