Vision Payroll

December 28, 2010

2010 Form W-2 Tips, Part 2, Box 1 Wages, Tips, Other Compensation

2010 Form W-2 Tips, Part 2, Box 1 Wages, Tips, Other Compensation
2010 Form W-2 Tips, Part 2, Box 1 Wages, Tips, Other Compensation
This is one in a continuing series on the 2010 Form W-2, Wage and Tax Statement, which employers must generally furnish to employees no later than January 31, 2011. Forms mailed on the due date are considered furnished if properly addressed. Employers unable to meet that deadline may file a request for extension of time to furnish the forms. Today we review Box 1, wages, tips, other compensation.

Box 1 May Include Several Adjustments To Gross Wages

Box 1 shows the amount employees must enter on line 7 of Form 1040, US Individual Income Tax Return. It may be, but is not necessarily, equal to gross wages. Common adjustments that increase or decrease gross wages include the following:

  • Employee elective deferral to qualified retirement plans such as §401(k) plans, SIMPLE plans, and §403(b) plans (decrease).
  • Amounts withheld for non-taxable benefits elected under §125 plans (decrease).
  • Taxable non-cash fringe benefits, such as personal use of company automobile (increase).
  • Certain clergy housing allowances (decrease).
  • Reported tips (increase).
  • Expense reimbursements paid under a non-accountable plan (increase).
  • Accident and health insurance premiums for so-called 2% S corporation shareholders (increase).
  • Cost of group-term life insurance in excess of $50,000 (increase).

Box 2, Federal Income Tax Withheld Is the Next Topic

The next topic in this continuing series will be Box 2, federal income tax withheld. Contact Vision Payroll with any questions on the 2010 Form W-2.

December 3, 2010

Question of the Week: Where Can I Find Due Dates for Tax Payments and Filings?

Where Can I Find Due Dates for Tax Payments and Filings?
Where Can I Find Due Dates for Tax Payments and Filings?
This week’s question comes from Julian, a sole-proprietor. After being laid-off from my job, I have decided to open my own business as a sole proprietor. Where can I find due dates for tax payments and filings? Answer: Each year, the Internal Revenue Service (IRS) releases Publication 509, Tax Calendars, for use during the following tax year.

Publication 509 Gives Due Dates for Many Items

A tax calendar is a 12-month calendar divided into quarters. The calendar gives specific due dates for the following.

  • Filing tax forms.
  • Paying taxes.
  • Taking other actions required by federal tax law.

Publication 509 Is not Just a Tax Calendar

Though the title of Publication 509 is Tax Calendars, it includes more than just a single tax calendar. It contains:

  • A section on how to use the calendars.
  • A general tax calendar.
  • An employer’s tax calendar.
  • An excise tax calendar.
  • A table showing the semi-weekly deposit due dates for 2011.

Four Advantages of Using a Tax Calendar

  1. You do not have to figure the due dates yourself.
  2. You can file or pay timely and avoid penalties.
  3. You do not have to adjust the due dates for Saturdays, Sundays, and legal holidays.
  4. You do not have to adjust the due dates for special banking rules if you use the Employer’s Tax Calendar or Excise Tax Calendar.

Vision Payroll Has Implemented the 2011 Due Dates in Its Tax Calculation Software

Contact Vision Payroll for further information on Publication 509.

July 28, 2010

Tip of the Week: IRS Provides Six Tax Tips for New Business Owners

Starting a new business can be an exciting and challenging time. Writing a business plan, picking a name, deciding how to finance, choosing a location, hiring your employees, and many more decisions can be stressful for entrepreneurs. If you’re starting a new business, the Internal Revenue Service (IRS), in IRS Summertime Tax Tip 2010-05, lists the following six tax tips:

  1. First, you must decide what type of business entity you are going to establish. The type of business entity will determine which tax form you have to file. The most common types of business are the sole proprietorship, partnership, corporation and S corporation.
  2. The type of business you operate determines what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
  3. An Employer Identification Number is used to identify a business entity. Generally, businesses need an EIN. Visit IRS.gov for more information about whether you will need an EIN. You can also apply for an EIN online at IRS.gov.
  4. Good records will help you ensure successful operation of your new business. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.
  5. Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.
  6. Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.

Vision Payroll works with clients as diverse as brand new start-ups and billion dollar companies. If you’re starting a new business, contact us today for all your payroll and human resources needs.

December 28, 2009

2009 Form W-2 Tips, Part 2, Box 1 Wages, Tips, Other Compensation

This is one in a continuing series on the 2009 Form W-2, Wage and Tax Statement, which employers must generally furnish to employees no later than February 1, 2010. Forms mailed on the due date are considered furnished if properly addressed. Employers unable to meet that deadline may file a request for extension of time to furnish the forms. Today we review Box 1, wages, tips, other compensation.

Box 1 shows the amount employees must enter on line 7 of Form 1040, US Individual Income Tax Return. It may be, but is not necessarily, equal to gross wages. Common adjustments that increase or decrease gross wages include the following:

  • Employee elective deferral to qualified retirement plans such as §401(k) plans, SIMPLE plans, and §403(b) plans (decrease).
  • Amounts withheld for non-taxable benefits elected under §125 plans (decrease).
  • Taxable non-cash fringe benefits, such as personal use of company automobile (increase).
  • Certain clergy housing allowances (decrease).
  • Reported tips (increase).
  • Expense reimbursements paid under a non-accountable plan (increase).
  • Accident and health insurance premiums for so-called 2% S corporation shareholders (increase).
  • Cost of group-term life insurance in excess of $50,000 (increase).

The next topic in this continuing series will be Box 2, federal income tax withheld. Contact Vision Payroll with any questions on the 2009 Form W-2.

December 21, 2008

2008 Form W-2 Tips, Part 2, Box 1 Wages, Tips, Other Compensation

This is one in a continuing series on the 2008 Form W-2, Wage and Tax Statement, which employers must generally furnish to employees no later than February 2, 2009. Forms mailed on the due date are considered furnished if properly addressed. Employers unable to meet that deadline may file a request for extension of time to furnish the forms. Today we review Box 1, wages, tips, other compensation.

Box 1 shows the amount employees must enter on line 7 of Form 1040, US Individual Income Tax Return. It may be, but is not necessarily, equal to gross wages. Common adjustments that increase or decrease gross wages include the following:

  • Employee elective deferral to qualified retirement plans such as §401(k) plans, SIMPLE plans, and §403(b) plans (decrease).
  • Amounts withheld for non-taxable benefits elected under §125 plans (decrease).
  • Taxable non-cash fringe benefits, such as personal use of company automobile (increase).
  • Certain clergy housing allowances (decrease).
  • Reported tips (increase).
  • Expense reimbursements paid under a non-accountable plan (increase).
  • Accident and health insurance premiums for so-called 2% S corporation shareholders (increase).
  • Cost of group-term life insurance in excess of $50,000 (increase).

The next topic in this continuing series will be Box 2, federal income tax withheld. Contact Vision Payroll with any questions on 2008 Form W-2.

December 19, 2008

Question of the Week: Do I Need to Withhold Tax on Distributions to Partners and S Corporation Shareholders?

This week’s question comes from Nicole, an office manager. Our business is formed as two entities, an S corporation and a partnership. We’re located in Massachusetts. Do I now need to withhold income tax on distributions to partners and S corporation shareholders? Answer: All pass-through entities subject to pass-through withholding in Massachusetts must withhold unless the partner or shareholder to whom the distribution is paid has timely filed Form PTE-EX. The filing of Form PTE-EX with the entity certifies that the member is exempt from pass-through withholding. The deadline for filing Form PTE-EX the last day of the fourth month of the entity’s taxable year or within thirty days of the day that the member joins the entity, whichever is later. The form is now valid until changing circumstances invalidate the form, in which case the member must notify the entity within thirty days. Vision Payroll is ready to help its clients deal with the changes required by this new law. Please call us for our recommendations for a smooth transition to the new withholding requirements.

November 24, 2008

IRS Issues Fact Sheet on S Corporation Officer Compensation

The Internal Revenue Service (IRS) recently issued Fact Sheet FS-2008-25, which discusses S corporation officer compensation. Corporate officers, whether in S corporations or C corporations, are generally considered employees of the corporation. Officers who perform only minor services or no services and are not entitled to and do not receive compensation are not considered employees.

As an employee, officers who are also shareholders must receive a reasonable salary to the extent that distributions or other payments are made to the officer-shareholder. Factors considered when determining when compensation was reasonable have included the following:

  • Training and experience
  • Duties and responsibilities
  • Time and effort devoted to the business
  • Dividend history
  • Payments to non-shareholder employees
  • Timing and manner of paying bonuses to key people
  • What comparable businesses pay for similar services
  • Compensation agreements
  • The use of a formula to determine compensation

The S corporation should deduct as fringe benefits any health and accident insurance premiums paid for so-called “2% shareholders”. The amount of the premiums is taxable to these shareholders for income tax purposes, but not for FICA or FUTA.

Pursuant to IRS Notice 2008-1, a medical plan is “established by the S corporation” even if the plan is in the name of the shareholder as long as the S corporation pays the premium or reimburses the shareholder for the premium payment.

Box 14 on the Form W-2 may be used to provide the shareholder with the amount of the premiums paid, but the income should only be reported on Form W-2 and not on either Form 1099 or Schedule K-1. Contact Vision Payroll if you have any questions on Fact Sheet FS-2008-25.

July 19, 2008

Massachusetts Now Requires Withholding on Partnership and S Corporation Distributions

In TIR 08-8: Sales/Use Tax, Withholding and Administrative Changes Contained in Chapter 182 of the Acts of 2008, the Massachusetts Department of Revenue (DOR) commented on the changes required by the new law. For withholding purposes, the law allows the DOR to require withholding by S corporations and entities treated as partnerships for tax purposes on distributions to shareholders or partners. In Proposed 830 CMR 62B.2.2: Pass-Through Entity Withholding, the DOR listed which entities would be required to withhold and which shareholders and partners would be exempt from withholding. It also addressed several administrative issues related to registration, payment, and reporting. TIR 08-8 confirmed that a final form of the proposed regulation will soon be promulgated effective for tax years beginning on or after January 1, 2009. Vision Payroll is ready to help its clients deal with the changes required by this new law. Please call us for our recommendations for a smooth transition to the new withholding requirements.

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