Information, News and Updates for Business Owners

Good News for Employees, Payroll Tax Cut to be Extended

  

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Their is some good news for taxpayers.  Congress has come to an agreement on the payroll tax and this week will likely pass an extension of the payroll tax cut through the end of 2012.

We first posted information about the Payroll tax cut last January.  The payroll tax cut was originally implemented in January, 2011 as part of the Job Creations Act, passed in December, 2011.  As part of that law, the Social Security tax for employees was reduced from 6.2% to 4.2% for one year. The rate for employers was left unchanged at 6.2%. 

This past December a two month extension of the payroll tax cut was passed.  It was set to expire on February 29, 2012.  The latest compromise in Congress will extend the tax cut through December 31, 2012. 

Last month we posted an article on payroll changes for 2012, that can be found here.  Employees, in 2012, will have their paycheck reduced by 1.45% for the Medicare tax, 4.2% for the social security tax and by whatever amount is withheld for federal income taxes.  For those that work in states or locales with with either state or local income tax, they will have their check further reduced by those taxes as well. 

In addition to Congress working out a compromise on the payroll tax cut extension, they will also be extending jobless benefits.  A provision that prevents a pay cut for doctors of Medicare patients is also included.

For additional information about payroll taxes, download our Payroll Tax Guide Summary for 2012.

Key Resources for Small Business Owners

  

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As a small business owner it can be frustrating trying to find trustworthy resources and support for your business. Fortunately, there are numerous resources that small business owners can take advantage of. 

Best of all, many of the resources that business owners can tap into have either minimal charge or are free. 

One place to start is the Small Business Administration.  The SBA web site, http://sba.gov has a wealth of information for business owners.  Included on the web sites is information about starting and managing your business, loans and grants and counseling and training resources.   

Most cities have a Chambers of Commerce that will provide members access to business resources, contacts, business mentors, an opportunity to network and other resources. 

In some cities, local colleges will work with the local business community to develop courses and training sessions focused on teaching the principles of starting and running businesses.  For example, in Charlotte, NC Central Piedmont Community College (CPCC) has the Institute for Entrepreneurship (www.cpcc.edu/e-institute).  Through North Carolina's statewide university system, business owners can tap into the Small Business and Technology Development Center (SBTDC).  The SBTDC business counseling service (www.sbtdc.org) provides business counseling services to resident businesses without fee.

SCORE is another organization whose mission is to assist small business owners with starting and managing their business. SCORE (www.score.org) provides free business counseling services, courses and training sessions on applicable business topics.  They are staffed with volunteers who have extensive knowledge and experience starting and running businesses. 

If you are a small business owner there are resources available to you to access and assist you with starting or managing your business.  Best of all many of these resources are either free or can be accessed at minimal cost.  

We have assmebled a list of resources for small business owners that can be downloaded for free.  

What You Should Know About Payroll Taxes for 2012

  

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Another year is upon us and with that are some of the 2012 changes and events that businesses need to be aware of and monitor.

Social Security Wage Limits and Tax Rates

For 2012 the wage limit for Social Security tax is $110,100.  This means that the first $110,100 of wages are subject to the Social Security tax.  Any earned income over $110,100 is not subject to any Social Security tax.

For employers, the Social Security tax rate is 6.2%.  For employees, the Social Security tax rate for the first two months of 2012 is 4.2%.  It is widely expected that this rate will be extended for the balance of 2012, however it is not given.   

Medicare Wage Limits and Tax Rates

Unlike Social Security wages that have a wage limit, Medicare taxes have no limit.  All earned income is subject to the 1.45% Medicare tax.  This tax rate has not changed and remains at 1.45% for the employer and 1.45% for the employee.

 Below is a table that summarizes the taxes an employer and an employee owe. 

Note:
The FUTA rate is set at 6.0% with an off-setting state tax credit of up to 5.4%.  This off-setting state tax credit brings the effective FUTA rate down to 0.6% in most cases. 

For a more comprehensive summary of Payroll taxes for 2012, download our 2012 Payroll Tax Guide Summary.

Independent Contractors and the IRS, A New Start for Your Business?

  

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From the HR Pros at Richard A. Beauchemin, CPA /

Carolina Accounting & Tax Services, PLLC

In pursuit of employers who misclassify their workers, the U.S. Department of Labor (DOL) has been aggressively ramping up the number of investigations and its employment law enforcement efforts.  We highlighted that in a previous post, which can be found here. 

In alignment, the Internal revenue Service (IRS) announced its Voluntary Classification Settlement Program (VCSP), which may offer relief for employers from unpaid employment taxes, penalties, and interest resulting from worker misclassifications.  To determine whether or not joining the VCSP would be a smart move, an employer needs to consider some key factors.

Under the VCSP, an employer may voluntarily reclassify their workers as employees for future tax periods for employment tax purposes.  To participate in the program, the employer must meet specific eligibility requirements, apply for the VCSP, and enter an agreement with the IRS.  An employer may be considered eligible for the program if it:

• Is not subject to a worker misclassification audit currently engaged by a federal or state agency.
• Has consistently treated the workers in question not as employees (i.e., as independent contractors).
• Has filed for the past three years the required Form 1099s regarding the workers.

If the IRS approves the employer's eligibility and participation into the VCSP, then the employer must establish a "closing agreement" with the IRS.  The agreement's provisions include, but are not limited to:

• A three-year extension of the statute of limitations for collection of employer back taxes during the first three years upon participating in the program.
• A limit of 10 percent of the employer's employment tax liability that may have been owed on compensation paid to the workers for the most recent tax year, without interest and penalties.
• No audit for employment tax purposes for prior years with respect to the classification of the workers in question.
• Treatment of the identified workers as employees moving forward.

While the VCSP appears attractive at face value, other factors require employers like you to recognize potential risks and, if deciding to participate in the program, to proceed with caution:

• First of all, the IRS is not obligated to accept an employer's application (IRS Form 8952) to the program.  So, if an application is rejected, the employer may have in essence, admitted to worker misclassification fault, thus creating a potential case for wage and hour lawsuit claims. 
• The IRS relief does not apply to other federal or state agencies (i.e., the DOL) which have similar responsibilities for worker classification compliance enforcement.  As established through recent "memorandums of understanding" with participating agencies, IRS information-sharing would likely increase exposure of an employer's liabilities related to worker misclassifications.
• The employer must account for and remedy any previously avoided expenses (i.e., due to failure of complying with minimum wage and overtime laws, of providing company-sponsored employees benefits, of offering workers' compensation and unemployment insurance, etc.).

As more details from the IRS regarding this newly-developed VCSP emerge, employers are encouraged to conduct preliminary research and internal assessment focused on the nature and degree of any worker misclassification issues.  Review applicable state and federal classification standards, conduct a company-wide worker classification audit and stay on top of relevant IRS notifications and employment law updates.

Of course, the best course of action, when hiring a new worker, is to classify them properly and place them on your payroll immediately, if they are employees.

Hire a Vet and Save on Taxes

  

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In a previous post we highlighted the The Work Opportunity Tax Credit and pending legislation regarding veterans  This tax credit will be expiring at the end of the year (2011).  This is bad news for businesses that are considering hiring new employees in the coming months.  However, the news is not all bad...  

There is one targeted group (veterans) included in the Work Opportunity Tax Credit that businesses can hire and take advantage of any even larger credit. 

Last week President Obama signed into law the VOW to Hire Heroes Act.  This bill expands the payroll tax credit for the Veterans group, contained in Work Opportunity Tax Credit.  Businesses hiring veterans will receive tax credits according to the following criteria:

• Business that hire a veteran that has been unemployed for at least four weeks will receive a tax credit of 40% for the first $6,000 of wages paid - a credit of $2,400 per unemployed veteran hired that meets the criteria.
• If you hire a veteran that has been unemployed for more than 6 months you can receive a credit of 40% on the first $14,000 of wages - a credit of $5,600 per unemployed veteran hired that meets the criteria.
• The Wounded Warrior Tax Credit allows business that hires a veteran who have a service-related disabilities to claim a tax credit of 40% on the first $24,000 of wages.  a credit of $9,600 per unemployed veteran hired that meets the criteria. 

In addition the bill provides for additional support and training for veterans to attempt and reduce the high rate of unemployment for veterans.  Additional information can be found here on the House Committees on Veterans Affair's web site. 

 Are you thinkuing of hiring new employees?  Download a free copy of our E Verify Guide.

How the Work Opportunity Tax Credit Can Reduce Your Payroll Costs

  

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President Obama recently proposed the American Jobs Act.  As part of that proposal is an initiative for "returning heroes" tax credit for hiring veterans. It is not clear what the specific requirements would be for this credit or if this will be part of any type of package Congress passes. 

Currently companies can receive a credit for hiring qualified veterans through the Work Opportunity Tax Credit.  This credit was implemented to incentivize private companies to place individuals from 'targeted groups" on their payroll.  Currently, the Work Opportunity Tax Credit is set to expire at the end of 2011. 

One of those targeted groups in The Work Opportunity Tax Credit is veterans. 

Currently when a private company hires a veteran and places that individual on the comapny's payroll they can receive up to a maximum credit of $2,400 for each new "qualified" veteran hired.  If a veteran became disabled while serving, that credit can increase up to a maximum of $4,800 for each new "qualified" disabled veteran hired. 

A "qualified veteran" is:

One discharged or released from active duty in the US Armed forces at any time during the 5-year period ending on the hiring date and received unemployment compensation for at least 4-weeks  during the 1-year period ending on the hiring date.

A veteran who is a member of family that is receiving or recently received food and nutrition benefits (food stamps) for at least 3 months during the past 15 months

In President Obama's proposal, the amount that could be claimed for a "qualified" veteran would increase to as much as $5,600 per new veteran hired and $9,600 for a "qualified" disabled veteran"  

It is too early to determine or even begin to predict if this will pass Congress and if it does whether the current requirements defining a "qualified veteran" will change or remain the same.

For more information regarding the Work Opportunity Tax Credit, download our Work Opportunity Tax Credit Guide.   

IRS Offers Tips for Taxpayers Who Owe Money

  

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The IRS provides tax tips on various topics.  The latest tip is for those taxpayers who owe money to the IRS. 

For various reason taxpayers end up with a tax bill that they are unable to pay immediately.  It could be, that the taxpayer started a business as a sole proprietor or partnership and did not anticipate or plan for self employment taxes.  The business may have been unexpectedly more profitable than anticipated.  It could simply be that the taxpayer lost a job and had to make adjustments to pay for their monthly expenses rather than worry about taxes. 

It does not matter what your reason is for not paying the taxes due, the IRS will go after you unless, you make arrangements to pay the taxes owed.  Below are some tips to make arrangements for payments.

1. Tax Bill Payment - if you get a bill for late taxes, you are expected to pay the taxes, interest and fines owed promptly.  If you are unable to pay the total amount, you may want to get a loan to pay the amount owed.
2. Additional Time to Pay - A brief additional amount of time to pay can be requested through the Online Payment Agreement application at www.irs.gov or by calling 800-829-1040.
3. Credit Card Payments - Yes, the IRS does accept credit cards.  With a credit card you may be able to find a low interest credit card.  A low interest credit card may be cheaper than an installment plan with the IRS, and certainly less than continuing to accrue penalties and interest for nonpayment.
4. Electronic Funds Transfer - IRS does allow you to pay with an electronic funds transfer, as well as check, money order, cahsier's check and yes, even cash.
5. Installment Agreement - If you cannot pay the amount owed in full, the IRS will work out an installment agreement for you.  To qualify, you will have to make sure all your tax filings are up to date and others taxes are paid in full.  There are several ways to request an installment agreement, including through the Online Payment Agreement, Form 9465, or Form 433F.  You can find additional information about applying for an installment agreement at www.irs.gov.  If an installment agreement is approved you will be charged a user fee of $105, or $52 for agreements where payments are deducted from your bank account.  For eligible individuals with lower income, the user fee may be reduced to $43.

Finally, if you do have a balance due, you may want to consider reducing your W4 withholding allowance.  This will increase the amount of taxes withheld from your paycheck. 

The website for the IRS is www.irs.gov and their phone number is 800-829-1040.

Payroll Tax for Employees Increasing in Janaury?

  

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This past week, Congress passed, and President Obama signed into law legislation to raise the debt ceiling.  While republicans were pushing for more spending cuts and Democrats were pushing for tax increases, one issue that was not included in the compromise was an extension of the temporary payroll tax cut for employees.  

As we highlighted in a previous post, beginning in January 2011, the Social Security tax that employees pay through payroll deduction, decreased from the historic rate of 6.2% to 4.2%.   This tax cut for employees was a temporary one-year tax cut and intended to try and help stimulate the economy.   

There was an attempt, as part of the debt deal, to try and extend this payroll tax cut and keep the Social Security tax rate for employees at the 4.2% rate.

At this time, unless a separate bill is enacted or this temporary tax cut is extended as part of another bill, employees will see their take home pay decrease come January.

For more information about payroll taxes, and to learn about what employers and employees are obligated to pay, download our free Payroll Tax Guide Summary by clicking on "Download Now."  

Charlotte Taxpayers Beware of Fake IRS Solicitations

  

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The IRS just released an IRS Notice (IRS-2011-73) alerting taxpayers to some of the latest taxpayers scam.  One scam they highlight is regarding unethical individuals persuading taxpayers to file false claims for tax credits or rebates. 

Individuals behind these scams will start out with flyers or advertisements around churches and then allow "word of mouth" advertising to spread this illegal scheme.   Members, believing they are assisting and helping fellow members, unknowingly share misinformation and help perpetuate these false filings.  

The IRS Notice highlights what taxpayers should watch for. 

"taxpayers should be wary of the following:

• Fictitious claims for refunds or rebates based on excess or withheld Social Security benefits.
• Claims that Treasury Form 1080 can be used to transfer funds from the Social Security Administration to the IRS enabling a payout from the IRS. 
• Unfamiliar for-profit tax services teaming up with local churches.
• Home-made flyers and brochures implying credits or refunds are available without proof or eligibility.
• Offers of free money with no documentation.
• Promises of refunds for "low income-No Documents tax Returns."
• Claims for the expires Economic Recovery Credit program or recovery Rebate Credit.
• Advice on claiming the Earned Income tax Credit based on exaggerated reports of self-employment income."

Tax filers pay these unethical individuals to file these claims.  The victims eventually discover they have been duped when their false claims are rejected.  By the time the tax filer discovers that they have been scammed, the perpetrator is long gone.

The IRS requires tax preparers to register and obtain a tax preparer identification number.  Before engaging the services of a paid tax preparer, make sure they are registered and have a proper tax preparer identification number.  Additionally, you may want to consult with a licensed professional such as an Enrolled Agent or CPA. 

Finally, if you have any questions regarding tax credits or current scams, you should visit the IRS web site,  www.IRS.gov, or call the IRS toll-free number 1-800-829-1040.       

NC Businesses and Employers, E-verify This...

  

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Last month, North Carolina joined a growing list of states that require or will eventually require employers to use the Federal E-Verify system to check an employees Social Security number at the time of hire.  

The NC law passed the legislation on June 18, 2011 and was signed into law by Governor Perdue on June 23, 2011.

What is E-Verify

The program is administered by the Department of Homeland Security in partnership with the Social Security Administration, and was set-up as a voluntary program for employers.  The E-Verify system allows employers, via access to an on-line system, to verify that a worker is authorized to work in the United States.      

Phase-In for New NC Law

The law will be phased in over the next three years.  Currently state agencies and universities are using the E-verify system.  Listed below are the phase in dates for other NC businesses and public employers to use the E-Verify System. 

• October 1, 2011 - Municipal and county workers. 
• October 1, 2012 - Employers with more than 500 employees
• January 1, 2013 - Employers with more than 100 employees but less than 500 employees
• July 1, 2013 - Employers with more than 25 employees but less than 100 employees.

E-Verify Requirement Spreading Throughout Country

In spring of this year, the US Supreme Court upheld Arizona's 2007 employment verification law requiring businesses to use the federal E-Verify System.  This ruling paved the way for other states to move forward with their E-Verify laws. 

In addition, a bill, put forth by Committee Chairman Lamar Smith (R-Texas), to make E-Verify mandatory for all employers throughout the US is currently being considered for approval by the US House Judicial Committee.  If approved by the House Judicial Committee the bill would move to floor of the US House of Representatives for consideration and launch a national debate on the matter.  

While this is considered and debated at the federal level, states are moving ahead with their E-Verify laws.  Just this year alone nine additional states have already passed new laws that will phase-in some type of E-Verify requirements for employers. 

Human Resouces Compliance Critical for Businesses

As additional requirements, such as this, are implemented, It will be important for the Human Resources (HR) departments of companies to maintain good accurate record keeping.  Failure to comply with requirements such as a states E-Verify requirements or the federal I9 requirement, will result in fines and could lead to criminal charges. 

The E-Verify and I9 requirement are two ways for employers to protect themselves from hiring and placing undocumented workers on their payroll.  Good record keeping and documentation showing compliance will eliminate unnecesaary problems for you as an employer.      

To assist you we have compiled a Guide to E Verify.  In the guide we include all the states that currently require or will be phasing in E verify requirements.  Just click the button below to obtain your free E Verify Guide.