Vision Payroll

November 20, 2013

Tip of the Week: IRS Says Restaurants Must Change Tip Reporting in 2014

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IRS Says Restaurants Must Change Tip Reporting in 2014

IRS Says Restaurants Must Change Tip Reporting in 2014

Effective January 1, 2014, restaurants and other employers with tipped employees must change the way certain tips are reported. Although Rev. Rul. 2012-18 took effect in 2012, examiners in some circumstances could apply it to amounts paid after December 31, 2013. Therefore, all employers must comply with Rev. Rul. 2012-18 starting in 2014.

Payments Traditionally Treated as Tips Must Now Be Treated as Service Charges

Certain payments that tipped employees receive and employers called tips must now be treated as wages. Since these wages are subject to withholding, they should be paid in the employee’s paycheck. Although there is a line on Form 941, Employer’s QUARTERLY Federal Tax Return, to report the uncollected employee share of social security and Medicare taxes on tips, there is no line to report such uncollected taxes on wages or service charges treated as wages. In order to collect and pay these taxes, therefore, the service charges should be paid on the employee’s paycheck.

Employer’s Characterization of Amounts as Tips Is Not Relevant

The Internal Revenue Service (IRS) states that it is irrelevant whether or not the payment is called a tip. According to the IRS, “the absence of any of the following factors creates a doubt as to whether a payment is a tip and indicates that the payment may be a service charge.” The four factors listed are the following:

  1. The payment must be made free from compulsion;
  2. The customer must have the unrestricted right to determine the amount;
  3. The payment should not be the subject of negotiation or dictated by employer policy; and
  4. Generally, the customer has the right to determine who receives the payment.

Mandated Tips and Suggested Tips

Examples provided by the IRS distinguish between mandated tips and “suggested” tips. In the former case, the menu dictates that an 18% gratuity will be added for parties of six or more. Since the amount is added to the charged amount by the employer and the customer did not have the unrestricted right to determine the amount, this payment is considered wages, not tips. Alternatively, if the check simply shows sample tips amounts of 15%, 18%, and 20% and the customer chooses one of the suggested tip amounts, the amount is still considered a tip for payroll tax purposes.

Service Charges Should Not Be Reported as Tips

Employees are generally required to report cash tips (including amounts paid on credit cards and received in a tip-sharing arrangement) to their employers, and those cash tips are included in gross income of the employees. Amounts determined to be wages and not tips under these provisions should not be included in the amounts reported to employers.

Contact Vision Payroll if You Have Questions on the New Rules on Tips

Be sure to contact Vision Payroll if you have further questions on Rev. Rul. 2012-18 and the new rules on tip reporting.

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.

August 24, 2011

Tip of the Week: Fourth Quarter Interest Rates Decrease

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In IR-2011-085, the Internal Revenue Service (IRS) announced that interest rates for the fourth quarter of 2011 would decrease from the third quarter. The rates are as follows:

Three (3) percent for overpayments [two (2) percent in the case of a corporation];

Three (3) percent for underpayments;

Five (5) percent for large corporate underpayments; and

One-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Revenue Ruling 2011-18 Contains Official Rate Announcement

The IRS will publish the rates in Revenue Ruling 2011-18. Contact Vision Payroll if you have any questions on the fourth quarter rates.

February 23, 2011

Tip of the Week: Second Quarter Interest Rates Increase

Filed under: News — Tags: , , , , , — Vision @ 6:19 pm

In IR-2011-017, the Internal Revenue Service (IRS) announced that interest rates for the second quarter of 2011 would increase from the first 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.

Revenue Ruling 2011-5 Contains Official Rate Announcement

The IRS will publish the rates in Revenue Ruling 2011-5. Contact Vision Payroll if you have any questions on the second quarter rates.

December 15, 2010

Tip of the Week: First Quarter Interest Rates Decrease

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In IR-2010-120, the Internal Revenue Service (IRS) announced that interest rates for the first quarter of 2011 would decrease from the fourth quarter. The rates are as follows:

  • Three (3) percent for overpayments [two (2) percent in the case of a corporation];
  • Three (3) percent for underpayments;
  • Five (5) percent for large corporate underpayments; and
  • One-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Revenue Ruling 2010-31 Contains Official Rate Announcement

The IRS will publish the rates in Revenue Ruling 2010-31. Contact Vision Payroll if you have any questions on the first quarter rates.

September 3, 2010

Question of the Week: How Does Health Care Reform Affect Reimbursements for Over-the Counter Medicines in FSAs?

Over-the-Counter Medicines Generally Are No Longer Reimbursable
Over-the-Counter Medicines Generally Are No Longer Reimbursable
This week’s question comes from Eric, an HR manager. I know there are changes to flexible spending arrangements (FSAs) because of health care reform. How does health care reform affect reimbursements for over-the-counter medicines in FSAs? Answer: The Patient Protection and Affordable Care Act (PPACA) made changes to reimbursements for over-the-counter medicines in the following types of accounts:

  • Flexible Spending Arrangements (FSAs),
  • Health Reimbursement Arrangements (HRAs),
  • Health Savings Accounts (HSAs), and
  • Archer Medical Savings Accounts (Archer MSAs).

Over-the-Counter Medicines Generally Are No Longer Reimbursable

Generally, the cost of an over-the-counter medicine or drug cannot be reimbursed from the account unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eyeglasses, contact lenses, co-pays and deductibles.

Change Is Effective for 2011

The new standard applies only to purchases made on or after Jan. 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer’s plan.

IRS Provides Guidance on New Rules

The Internal Revenue Service (IRS) recently released Notice 2010-59 to provide guidance to employers and employees on the impact of PPACA and how it revises the definition of medical expenses as it relates to over-the-counter drugs.

Rev. Rul. 2003-102 Obsoleted

In conjunction with this change, the IRS also released Rev. Rul. 2010-23, which obsoletes Rev. Rul. 2003-102. This ruling provided guidance on employer reimbursements of amounts paid by an employee to purchase nonprescription medicines or drugs.

Employees Need to Plan for Changes When Making 2011 Elections

Vision Payroll recommends employees start to plan now to account for the impact of these changes on how they will make their elections under these types of plans.

August 25, 2010

Tip of the Week: Fourth Quarter Interest Rates Remain Unchanged

Filed under: News — Tags: , , , , , — Vision @ 10:11 am

Fourth Quarter Interest Rates Remain Unchanged at 4 PercentIn IR-2010-090, the Internal Revenue Service (IRS) announced that interest rates for the fourth quarter of 2010 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.

Revenue Ruling 2010-21 Contains Official Rate Announcement

The IRS will publish the rates in Revenue Ruling 2010-21. Contact Vision Payroll if you have any questions on the fourth quarter rates.

May 26, 2010

Tip of the Week: Third Quarter Interest Rates Remain Unchanged

Filed under: News — Tags: , , , , , — Vision @ 9:58 am

In IR-2010-065, the Internal Revenue Service (IRS) announced that interest rates for the third quarter of 2010 would remain unchanged from the second 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 2010-14. Contact Vision Payroll if you have any questions on the third quarter rates.

May 5, 2010

Tip of the Week: IRS and HHS Release Average Premium for Small Group Market for Determining the Small Employer Health Insurance Credit

In Rev. Rul. 2010-13, Average Premium for Small Group Market for Determining the Small Employer Health Insurance Credit, the Internal Revenue Service (IRS) and the Department of Health and Human Services (HHS) released the chart containing the small group market in each state for the 2010 taxable year. Under the health care reform, employers are allowed a credit in certain situations if they pay a portion of their employees’ health insurance premiums. The credit is limited to the lesser of:

  1. The amount of nonelective contributions paid by the eligible small employer on behalf of employees under the arrangement during the taxable year, and
  2. The amount of nonelective contributions the employer would have paid under the arrangement if each such employee were enrolled in a plan that had a premium equal to the average premium for the small group market in the state (or in an area in the state) in which the employer is offering health insurance coverage.

The State of Idaho had the lowest rates at $4,215 for employee-only coverage and $9,365 for family coverage while the Commonwealth of Massachusetts had the highest rates at $5,700 and $14,138, respectively. Family coverage includes any coverage other than employee-only (or single) coverage.

According to Rev. Rul. 2010-13:

HHS recognizes that there may be areas in some States with meaningfully higher premium rates. For the 2010 taxable year, HHS may provide additional average premium rates for the small group market in certain areas within States. However, in no case will any such additional sub-State rates be lower than the applicable rate for each State that is set forth in this Revenue Ruling.

Contact Vision Payroll for further information on the average premium for the small group markets during 2010.

March 3, 2010

Tip of the Week: Second Quarter Interest Rates Remain Unchanged

Filed under: News — Tags: , , , , , — Vision @ 9:20 am

In IR-2010-022, the Internal Revenue Service (IRS) announced that interest rates for the second quarter of 2010 would remain unchanged from the first 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 2010-9. Contact Vision Payroll if you have any questions on the second quarter rates.

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