Vision Payroll

November 7, 2011

IRS Rules on Deductibility of Accrued Bonuses

Filed under: News — Tags: , , , , — Vision @ 4:14 pm
IRS Rules on Deductibility of Accrued Bonuses
IRS Rules on Deductibility of Accrued Bonuses
In Revenue Ruling 2011-29, the Internal Revenue Service (IRS) ruled that a taxpayer can establish the “fact of the liability” under §461 for bonuses payable to a group of employees even though the employer does not know the identity of any particular bonus recipient and the amount payable to that recipient until after the end of the taxable year.

Bonus Deductibility a Three-Prong Test

For accrual-basis taxpayers, a liability is incurred, and is generally taken into account for federal income tax purposes, in the taxable year in which:

  1. All the events have occurred that establish the fact of the liability,
  2. The amount of the liability can be determined with reasonable accuracy, and
  3. Economic performance has occurred for the liability (collectively, the “all events test”).

Rev. Rul. 2011-29 Addresses First Prong Only

Revenue Ruling 2011-29 addresses only whether the first prong of the all events test is met. The first prong of the all events test requires that all the events have occurred that establish the fact of the liability. Generally, all events occur to establish the fact of a liability when:

  1. The event fixing the liability, whether that be the required performance or other event, occurs, or
  2. Payment is unconditionally due.

Liability Is Established by the End of the Tax Year

Under the employer’s plan, its liability to pay a minimum amount of bonuses to the group of eligible employees is fixed at the end of the year in which the services are rendered. The employer is obligated under the program to pay to the group the minimum amount of bonuses determined by the end of the taxable year. Any bonus allocable to an employee who is not employed on the date on which bonuses are paid is reallocated to other eligible employees. Thus, the fact of the employer’s liability for the minimum amount of bonuses is established by the end of the year in which the services are rendered.

Employers Should Consult Their Tax Advisors

Vision Payroll recommends that employers consult their tax advisor with questions as to the deductibility of bonuses in a year other than when they are paid.

November 5, 2011

Question of the Week: Why Did I Receive a Notice Titled “Your 2012 Federal Tax Deposit Requirements for Form 941”?

Filed under: News — Tags: , , — Vision @ 2:09 pm
Why Did I Receive a Notice Titled "Your 2012 Federal Tax Deposit Requirements for Form 941"?
Why Did I Receive a Notice Titled "Your 2012 Federal Tax Deposit Requirements for Form 941"?
This week’s question comes from Brad, a company owner.

Brad asks:

I recently received a notice from the IRS. Why did I receive a notice titled “Your 2012 Federal Tax Deposit Requirements for Form 941”?

Answer: The Internal Revenue Service (IRS) sends this notice to employers who have a change in deposit frequency.

Employers May Have One of Two Deposit Frequencies

Employers may have one of two deposit frequencies assigned. The first frequency is a semi-weekly frequency assigned to employers who had a tax liability of more than $50,000 during the lookback period. The second frequency is a monthly frequency assigned to employers who had a tax liability of $50,000 or less during the lookback period. For 2012, the lookback period is the period from July 1, 2010 to June 30, 2011.

Semi-Weekly Depositors Have Two Due Dates per Week

Employers assigned a semi-weekly deposit frequency generally must deposit taxes on one a two days each week. Any taxes accumulated for wages paid Saturday, Sunday, Monday, or Tuesday are due on Friday of that week and taxes accumulated for wages paid Wednesday, Thursday, or Friday are due Wednesday of the following week. Holidays or special rules may change those due dates.

Monthly Depositors Have One Due Date per Month

Employers assigned a monthly deposit frequency must deposit taxes accumulated for wages paid during a calendar month by the fifteenth of the following month. Weekends, holidays or special rules may change those due dates.

Weekends and Holidays Extend Due Date

If a due date falls on a weekend or a legal holiday in the District of Columbia, it extends the due date until the next day that is not a weekend or a legal holiday in the District of Columbia.

$100,000 Next-Day Deposit Rule May Apply

For taxpayers with a semi-weekly deposit frequency, if the total accumulated liability reaches $100,000 during any semi-weekly period, that deposit is due the next business day. For taxpayers with a monthly deposit frequency, if the total accumulated liability reaches $100,000 during any monthly period, that deposit is due the next business day. In addition, taxpayers with a monthly deposit frequency who accumulate a liability of $100,000 during a calendar month must deposit using the semi-weekly deposit rules for the remainder of that calendar year, unless the $2,500 rule applies.

$2,500 Rule May Reduce Deposit Frequency

Employers may pay their tax liability when filing Form 941 if their total Form 941 tax liability for either the current quarter or the preceding quarter is less than $2,500 and they did not incur a $100,000 next day obligation during the current quarter.

Vision Payroll Will Make Tax Deposits Following These Rules

Subscribers to Vision Payroll’s Tax Pay and File Service will have their taxes deposited by Vision Payroll in accordance with the above rules.

October 31, 2011

IRS to Present Webinar on Reporting of Employer Healthcare Coverage on Form W-2

Today at 2 pm, EDT, the Internal Revenue Service (IRS) will present a webinar titled, Reporting of Employer Healthcare Coverage on Form W-2

Several Topics to Be Covered in Form W-2 Webinar

The Reporting of Employer-Sponsored Health Plan Coverage on Form W-2 (Affordable Care Act Provision 9002) webinar will explain what employers and employees need to know about the provision including:

  • What changes employees will see in their Form W-2
  • When employers must begin reporting the benefits on the Form W-2
  • Transition relief for certain employers, plans, and situations
  • Which employers need to include the benefits on the Form W-2
  • How employers report the benefits on the Form W-2
  • What valuation methods employers can use to determine the amounts to report on the Form W-2

Systems Must Meet Certain Minimum Requirements

The IRS has certain minimum requirements for operating system, screen resolution, browser, Flash, Windows Media Player, connection, and audio. The IRS is recommending that interested parties browse to http://www.visualwebcaster.com/event.asp?id=82090 from their computer ahead of time to be sure it meets minimum system requirements.

Webinar Archive Is Available on the IRS Video Portal

Interested viewers may view an archive of the webinar by clicking here.

October 29, 2011

IRS Announces Increase in Qualified Transportation Benefits Exclusion for Qualified Parking

IRS Announces Increase in Qualified Transportation Benefits Exclusion for Qualified Parking
IRS Announces Increase in Qualified Transportation Benefits Exclusion for Qualified Parking
In IR-2011-104 and Revenue Procedure 2011-52, the Internal Revenue Service (IRS) announced that the monthly limit on the value of qualified transportation benefits exclusion for qualified parking provided by an employer to its employees for 2012 rises to $240, up $10 from the limit in 2011.

Other Exclusions Revert to Previous Levels

The IRS also announced that the temporary increase in the monthly limit on the value of the qualified transportation benefits exclusion for transportation in a commuter highway vehicle and transit pass provided by an employer to its employees expires and reverts to $125 for 2012. As previously reported, the American Recovery and Reinvestment Act of 2009, also known as ARRA, increased the monthly exclusion for transit passes and commuter highway vehicles under §132 of the Internal Revenue Code of 1986 (IRC) for part of 2009 and all of 2010 and 2011. Since this provision of ARRA expires December 31, 2011, the exclsuion reverts to the previous limit of $120, adjusted for inflation to $125 for 2012.

Contact Vision Payroll Today

Contac Vision Payroll today if you have further questions on the qualified transportation benefits exclusion.

October 28, 2011

Question of the Week: Do We Have to Report Health Insurance on Our W-2s?

Do We Have to Report Health Insurance on Our W-2s?
Do We Have to Report Health Insurance on Our W-2s?
This week’s question comes from Maria, an HR director.

Maria asks:

I keep hearing from our employees that we have to report the cost of health insurance on the Forms W-2 this year and that the employees will be taxed on it. Do we have to report health insurance on our W-2s?

Answer: As announced by the Internal Revenue Service in Notice 2010-69 and Notice 2011-28, reporting of the cost of health insurance has been postponed to at least 2012 for some employers and beyond that for the rest.

Notice 2010-69 Postponed Effective Date for All Employers

As previously reported, in Notice 2010-69 the Internal Revenue Service (IRS) postponed the requirement that health insurance be reported on Forms W-2. Originally, under the Patient Protection and Affordable Care Act of 2010, reporting was to begin on the 2011 Forms W-2, which are distributed to employees in January 2012. In order “to provide employers with additional time to make any necessary changes to their payroll systems or procedures in preparation for compliance with the reporting requirement,” the IRS postponed the reporting requirement until the 2012 Forms W-2, which are distributed to employees in January 2013.

Notice 2011-28 Further Postponed Deadline for Many Employers

In Notice 2011-28, the IRS further postponed the deadline for employers who are required to file less than 250 Forms W-2. Employers who are required to file fewer than 250 Forms W-2 for calendar year 2011 will not be required to report health insurance on Form W-2 in 2012. Furthermore, until further guidance is issued by the IRS, any employer required to file fewer than 250 Forms W-2 in a calendar year will not be required to report the health insurance on Form W-2 for the following year.

Notice 2011-28 Does not Cause Excludable Employer-Provided Health Care Coverage to Become Taxable

According to Notice 2011-28, nothing in §6051(a)(14), Notice 2011-28, or the additional guidance that is contemplated under §6051(a)(14), causes or will cause otherwise excludable employer-provided health care coverage to become taxable.

Contact Vision Payroll Today

Contact Vision Payroll today if you have further questions on 2011 Form W-2 reporting for health coverage.

October 23, 2011

IRS Announces Adjustments to SIMPLE Plan Limits for 2012

IRS Announces Adjustments to SIMPLE Plan Limits for 2012
IRS Announces Adjustments to SIMPLE Plan Limits for 2012
In IR-2011-103, the Internal Revenue Service (IRS) announced cost-of-living adjustments to the limits on SIMPLE plan contributions for 2012. The limitation for SIMPLE plans is codified in §408(p)(2)(E) of the Internal Revenue Code of 1986 (IRC). This section also requires annual adjustments as necessary to keep pace with inflation in a manner similar to that required by IRC §415 for retirement plans.

2012 Contribution Limits Remains Unchanged

For 2012, the SIMPLE plan regular limitation remains at $11,500. The age 50 and over catch-up contribution remains at $2,500 for individuals who plan to reach age 50 before the end of 2012.

Contact Vision Payroll for More Information on 2012 SIMPLE Plan Changes

Contact Vision Payroll if you have questions on the SIMPLE plan contribution limits or get further information at Important Facts and Figures.

October 22, 2011

IRS Announces 2012 Retirement Plan Contribution and Compensation Limitations

IRS Announces 2012 Retirement Plan Contribution and Compensation Limitations
IRS Announces 2012 Retirement Plan Contribution and Compensation Limitations
In IR-2011-103, the Internal Revenue Service (IRS) announced that for 2012 the compensation limitation will increase from $245,000 to $250,000 under §401(a)(17), §404(l), §408(k)(3)(C), and §408(k)(6)(D)(ii) of the Internal Revenue Code of 1986 (IRC).

2012 Contribution Limit Also Increases

The contribution limit under IRC §415(c)(1)(A) for defined contribution plans will increase from $49,000 to $50,000. This limit does not include the age 50 and over catch-up contribution of $5,500 when applicable; therefore the total limitation for eligible taxpayers age 50 or over in qualifying plans will be $55,500.

Contact Vision Payroll for More Information on 2012 Retirement Plan Changes

Contact Vision Payroll if you have questions on changes to the 2012 Retirement Plan Contribution and Compensation Limitations or get further information at Important Facts and Figures.

October 21, 2011

Question of the Week: What Are the 2012 Highly Compensated Employee Limits?

What Are the 2012 Highly Compensated Employee Limits?
What Are the 2012 Highly Compensated Employee Limits?
This week’s question comes from Carla, a company president.

Carla asks:

We’re doing some compensation planning for next year. What are the 2012 Highly Compensated Employee Limits?

Answer: The IRS has just released updated information for 2012.

IRS Releases 2012 Highly Compensated Employee Limits in IR-2011-103

In IR-2011-103, the Internal Revenue Service (IRS) announced that for 2012 the Highly Compensated Employee Limitation under §414(q)(1)(B) of the Internal Revenue Code of 1986 will increase to $115,000. Non-discrimination testing in some types of retirement plans limits the deferral rate of “highly compensated employees” (HCEs) based upon the deferral rate (ADP) of the “non-highly compensated employees”.

Highly Compensated Employee Compensation Limit Had Been $110,000

For 2012 plan year testing, an HCE is anyone who was a “5-percent owner” at any time during 2011 or 2012 or anyone who received in excess of $110,000 in compensation during 2011 and, if elected by the employer, is in the top twenty percent of employees based upon compensation. The HCE limit was also $110,000 for 2010 and 2011 plan year testing. The new $115,000 limit for 2012 is to be used for 2013 plan year testing.

Look-back Provision Impacts HCE Testing Period

Since the law includes a look-back provision, employees who earned more than $110,000 in 2010 are generally considered HCEs for 2011 plan year testing, employees who will earn more than $110,000 in 2011 are generally considered HCEs for 2012 plan year testing, and employees who will earn more than $115,000 in 2012 are generally considered HCEs for 2013 plan year testing.

Contact Vision Payroll for More Information on HCEs

Contact Vision Payroll if you have questions on changes to the HCE definition for 2012 to be used in 2012 plan year testing or get further information at Important Facts and Figures.

September 30, 2011

Question of the Week: What Are the IRS and DOL Doing About Workers Who Receive 1099s?

IRS Commissioner Douglas H. Shulman
IRS Commissioner Douglas H. Shulman
This week’s question comes from Steve, a small business owner.

Steve asks:

I’ve read about the Voluntary Classification Settlement Program (VCSP) and its application process with the Internal Revenue Service (IRS). What are the IRS and Department of Labor (DOL) doing about workers who receive 1099s?

Answer: The IRS and DOL are entering into agreements that include the IRS and DOL as well as several states to share information and coordinate enforcement of current laws and regulations.

Memoranda Signed at Washington Ceremony

Secretary of Labor Hilda L. Solis recently hosted a ceremony at DOL headquarters in Washington to sign a memorandum of understanding with the IRS that will improve departmental efforts to end the business practice of misclassifying employees in order to avoid providing employment protections. In addition, labor commissioners and other agency leaders representing seven states signed memoranda of understanding with the department’s Wage and Hour Division (WHD) and, in some cases, its Employee Benefits Security Administration, Occupational Safety and Health Administration, Office of Federal Contract Compliance Programs and Office of the Solicitor. The signatory states are Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah and Washington. Secretary Solis also announced agreements for the WHD to enter into memoranda of understanding with the state labor agencies of Hawaii, Illinois and Montana, as well as with New York’s attorney general.

DOL and IRS Will Share Information with Participating States

The memoranda of understanding will enable the DOL to share information and coordinate law enforcement with the IRS and participating states in order to level the playing field for law-abiding employers and ensure that employees receive the protections to which they are entitled under federal and state law.

Secretary Solis: We’re Standing United to End the Practice of Misclassifying Employees

“We’re here today to sign a series of agreements that together send a coordinated message: We’re standing united to end the practice of misclassifying employees,” said Secretary Solis. “We are taking important steps toward making sure that the American dream is still available for all employees and responsible employers alike.”

Commissioner Shulman: We Will Work Together More Efficiently to Address Worker Misclassification Issues

“This agreement takes the partnership between the IRS and DOL to a new level,” said IRS Commissioner Doug Shulman. “In this new phase of our relationship, we will work together more efficiently to address worker misclassification issues, and better serve the needs of small businesses and employees.”

Misclassification Can Create Economic Pressure for Law-Abiding Business Owners

Business models that attempt to change, obscure or eliminate the employment relationship are not inherently illegal, unless they are used to evade compliance with federal labor laws — for example, if an employee is misclassified as an independent contractor and subsequently denied rights and benefits to which he or she is entitled under the law. In addition, misclassification can create economic pressure for law-abiding business owners.

Memoranda Arose as Part of the Misclassification Initiative

These memoranda of understanding arose as part of the department’s Misclassification Initiative, which was launched under the auspices of Vice President Biden’s Middle Class Task Force with the goal of preventing, detecting and remedying employee misclassification.

Contact Vision Payroll Today

Contact Vision Payroll if you have further questions on the memoranda of understanding.

September 23, 2011

Question of the Week: How Do I Apply for the VCSP?

How Do I Apply for the VCSP?
How Do I Apply for the VCSP?
This week’s question comes from Allan, a small-business owner.

Allan asks…

I read about the Voluntary Classification Settlement Program (VCSP). I have some workers who might need to be classified as employees. How do I apply for the VCSP?

Answer: Employers may use Form 8952, Application for Voluntary Classification Settlement Program (VCSP), to apply for participation in the VCSP.

Eligibility Requirements

The instructions to Form 8952 list the following eligibility requirements to participate in the VCSP:

  1. Want to voluntarily reclassify certain workers as employees for federal income tax withholding, Federal Insurance Contributions Act (FICA), and Federal Unemployment Tax Act taxes (collectively, federal employment taxes) for future tax periods.
  2. Be presently treating the workers as non-employees.
  3. Have satisfied any Form 1099 requirements for each of the workers for the 3 preceding calendar years ending before the date Form 8952 is filed. A taxpayer will have satisfied its Form 1099 filing requirements if it provided Forms 1099 to the workers being reclassified for the period of time that the workers worked for the taxpayer. For example, a taxpayer who has only been in business for two years will have satisfied its Form 1099 filing requirements if it provided the workers being reclassified with Forms 1099 for those two years.
  4. Have consistently treated the workers as non-employees.
  5. Have no dispute with the Internal Revenue Service (IRS) as to whether the workers are non-employees or employees for federal employment tax purposes.
  6. Not be under examination by the IRS.
  7. Not be under examination by the Department of Labor (DOL) or any state agency for the proper classification of the workers.
  8. Not have been examined previously by the IRS or the DOL for the classification of workers; or,
  9. If the taxpayer has been examined previously by the IRS or the DOL for the classification of workers, taxpayer must have complied with the results of the prior examination.

In addition, as part of the VCSP, a taxpayer must agree to extend the period of limitations on assessment of employment taxes for 3 years for the first, second, and third calendar years beginning after the date the taxpayer elects to begin treating the workers as employees under the VCSP closing agreement. The taxpayer has the right to refuse to extend the period of limitations on assessment or to limit the extension to particular issues or to a particular period of time. However, if the taxpayer refuses to extend the period of limitations on assessment or provides only a limited extension, the IRS will not execute the VCSP closing agreement.

Filing Deadline for Form 8952

Although there is no absolute filing deadline for Form 8952, it should be filed at least 60 days before the date you want to begin treating the class or classes of workers as employees.

No Payment Due with Form 8952

Although you will be required to calculate the amount of the payment to be paid, the amount should not be sent with Form 8952. It must be sent with the signed closing agreement.

Contact Vision Payroll Today for Information on Form 8952

Contact Vision Payroll for further information on Form 8952.

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