2010

All Employers and Corporations will have to use EFTPS soon. Banks will no longer be allowed to accept tax deposits after December 31, 2010 (so the last payment of the 4th quarter will have to be electronic). Smaller employers will still be able to remit with their 941, if below the limit (currently 2,500).

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The passage of the Healthcare reform bill included some of the most drastic changes to 1099 information reporting in over a decade. The bill included revenue raising provisions meant to seek greater compliance of the tax code via 1099 information reporting. General provisions included:

• The elimination of the corporate exemption from 1099-MISC reporting. (Public Law 111-148)
• The requirement to report payments for property (goods, materials, merchandise, supplies, etc.). (Public Law 111-148)
• A six fold increase in penalties from $250,000 to 1.5 million(H.R.4213,H.R.4849)
• A doubling of penalties per record from $50 to $100. (H.R.4213,H.R.4849)

Beginning for payments made after December 31, 2011, companies will be required to furnish and file form 1099-MISC for payments made to all for-profit companies regardless of corporate status. In addition all payments for goods, materials, merchandise, supplies, and other property will need to be reported as well. Early indication reveal that these changes will likely cause the 1099 reporting volume to increase significantly for most companies as well as the associated B-Notices.

While the law applies to payments made after December 31, 2011 companies need to make broad changes to: 1) W-9 procedures to include all vendors. 2) solicit W-9’s for corporate vendors. 3) Prepare for larger 1099 year-end printing, mailing and filing. 4) Make the appropriate budgetary and system updates to accommodate these changes.

This requirement is coming under much fire from many organizations and stands a good chance of being repealed prior to enactment.

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Dealing with Health Care Reform’s New Tax Laws: The Health Care and Education Reconciliation Act of 2010.

Now that Congress has passed a landmark health care reform package, much work needs to be done in dealing with new requirements. While the end result of the legislative process is necessarily health care related, the tax law plays a major role in its implementation. From the tax credits and subsidies used to expand health coverage, to the many penalties, fees and surtaxes designed to pay for it, the Tax Code is front and center.

Two new laws.

Health care reform is actually made up of two new laws: the Patient Protection and Affordable Care Act of 2010 and the Health Care and Education Reconciliation Act of 2010. The Patient Protection Act was crafted largely in the Senate and sets out the general framework of health care reform. The Reconciliation Act was prepared in the House to modify the Patient Protection Act, especially in the areas of tax credits and cost sharing for individuals to help make coverage more affordable. Common features to both laws are delayed effective dates for many of the provisions, which make strategic planning all that more important.

New taxes and penalties.

Viewing the historic health care reform package from the context of the Tax Code, many new taxes and penalties stand out immediately above the rest. Initially, we would advise taking particular note of the following highlights:

• Individuals who earn more than $200,000 for the year ($250,000 for married couples) will be paying an additional 0.9 percent in Hospital Insurance (Medicare) tax, starting in 2013;
• Individuals whose adjusted gross income for the year exceeds $200,000 ($250,000 for joint filers), whether from wages or otherwise, will also be paying an additional 3.8 percent Medicare tax on net investment income, starting in 2013;
• Employers with 50 or more employees generally will be required to provide a minimum level of health insurance for their employees or pay a penalty per employee, starting in 2014;
• Small employers with no more than 25 employees are entitled to up to a 35 percent tax credit on the cost of providing health insurance for employees, starting immediately in 2010;
• Most individuals will be required to obtain health insurance or be subject to a penalty tax starting in 2014;
• Tax credits to subsidize the cost of health insurance premiums will be available to individuals earning up to 400 percent of the poverty level, starting in 2014;
• Health flexible savings arrangement (FSA) dollars will be limited to prescription medications with some exceptions after 2010, along with placing a $2,500 annual cap on expenses covered under health FSAs, starting in 2013;
• A 40 percent excise tax will be imposed on high-cost, “Cadillac” employersponsored health coverage, starting in 2018;
• Fees will be imposed on the pharmaceutical industry and health insurance providers , starting in 2011 and 2014, respectively;
• An excise tax will be imposed on medical device manufacturers after 2012; and
• Limits on tax-subsidized medical expenses will be imposed by raising the itemized medical expense deduction floor for regular tax purposes from 7.5 percent to 10 percent, generally starting in 2013.

Tax incentives.

Among a handful of tax incentives provided under the new health-care reform package, two are particularly notable at this time: (1) the ability of parents to cover adult children up to age 27 under their tax-qualified employer-provided health plans, starting immediately for plans that elect to beat the mandatory post-September 22 year deadline for doing so; and (2) the unveiling of a simplified cafeteria plan specifically tailored to small businesses, starting in 2011.

Exchanges.

The health care reform package requires each state to establish an exchange by 2014 to help individuals and qualified employers obtain coverage. Coverage will be offered at various levels. Qualified individuals may be eligible for premium assistance tax credits, cost-sharing or vouchers to help pay for coverage through an insurance exchange. An individual’s income, whether or not coverage is provided by his or her employer, will all be taken into account when determining if the individual qualifies for a premium assistance tax credit, cost-sharing or voucher.

IRS guidance.

Over the course of the next few months, the IRS and other federal agencies will be filling in details on how to comply with all the provisions under the massive health care reform package. The IRS is expected to issue guidance soon on the provisions with effective dates in 2010 and 2011.

Our office will be staying on top of all developments, with an eye toward how to best maximize results under the new law for our clients. We are prepared to advise our clients on all compliance rules and tax-reduction opportunities that undoubtedly will arise. In the meantime, if you have any questions about the new law, please do not hesitate to call our office.

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phone: 303.232.8300

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Major Changes to 1099 Information Reporting Laws were included in the Healthcare Bill.

The passage of the Healthcare reform bill included some of the most drastic changes to 1099 information reporting in over a decade. The bill included revenue raising provisions meant to seek greater compliance of the tax code via 1099 information reporting. General provisions included:

• The elimination of the corporate exemption from 1099-MISC reporting. (Public Law 111-148)
• The requirement to report payments for property (goods, materials, merchandise, supplies, etc.). (Public Law 111-148)
• A six fold increase in penalties from $250,000 to 1.5 million(H.R.4213,H.R.4849)
• A doubling of penalties per record from $50 to $100. (H.R.4213,H.R.4849)

Beginning for payments made after December 31, 2011, companies will be required to furnish and file form 1099-MISC for payments made to all for-profit companies regardless of corporate status. In addition all payments for goods, materials, merchandise, supplies, and other property will need to be reported as well. Early indication reveal that these changes will likely cause the 1099 reporting volume to increase significantly for most companies as well as the associated B-Notices.

While the law applies to payments made after December 31, 2011 companies need to make broad changes to: 1) W-9 procedures to include all vendors. 2) solicit W-9’s for corporate vendors. 3) Prepare for larger 1099 year-end printing, mailing and filing. 4) Make the appropriate budgetary and system updates to accommodate these changes.

Contact Us
phone: 303.232.8300

Let Accounting & Tax Solutions, Inc. help you navigate through the many regulations and nuances of the tax laws, to ensure that you receive the expert advice of a licensed tax practitioner: Contact Form

Click for a new form W-11 to be used as an affidavit for new employees to complete and sign if they are eligible for the new HIRE credit.

Employers do not have to pay the matching Social Security tax (6.2%) on the wages of workers hired after February 3, 2010 if they worked less then 40 hours in the previous 60 days. The exemption applies to wages paid after March 18, 2010 and before January 2, 2011.

The exemption is claimed on Form 941. The 6.2% exemption for qualified wages the employers pay from March 19 through March 31 will be claimed on the 941 for the second quarter. IRS is revising the 941 form to reflect the exemption. In the interim, employers can reduce their tax deposits by the amount of the exemption or elect to receive the overpayment their 941.

W-2 reporting will be affected, too. The amount of wages that are excluded from Social Security tax under the new law will be listed in box 12, using code CC.

There will also be a credit if the individual remains with the employer for 52 consecutive weeks. This business credit will be the lesser of $1,000 or 6.2 percent of the wages paid by the employer to the retained worker during the 52 consecutive week retention period.

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phone: 303.232.8300

Let Accounting & Tax Solutions, Inc. help you navigate through the many regulations and nuances of the tax laws, to ensure that you receive the expert advice of a licensed tax practitioner: Contact Form

The Hiring Incentives to Restore Employment Act (HIRE), also known as the “jobs bill,” is a plan to create jobs by providing a temporary tax break to companies that hire the unemployed. The bill also extends federal highway programs through the end of the year.

Current Status

On March 18, 2010, the President signed the HIRE Act into law.

The IRS is now outlining how to handle the Act’s provisions. We will continue to monitor the situation, and will update you as final details emerge.

Keep Up with the Latest Legislation

For the latest updates on the HIRE Act, as well as other pending government legislation, return to the Tax Tips page.

The cornerstone of the HIRE Act is a federal program that will provide employers with incentives to hire and retain employees. HIRE will exempt an employer from paying the employer portion of Social Security taxes for the remainder of the year on new hires who are currently unemployed. If those workers stay on the payroll for at least a year, the employer would also get a $1,000 business tax credit per employee.

Social Security Tax Forgiveness

The 6.2% employer portion of the Social Security tax would be exempt for any qualified individual hired after February 3, 2010 and before January 1, 2011, for wages paid in 2010 to the $106,800 Social Security wage base.Qualified employers may begin claiming this tax credit on the second quarter 2010 Form 941.

A qualified individual meets the following requirements:

• Begins employment with a qualified employer after February 3, 2010, but before January 1, 2011.
• Has not been employed for more than 40 hours during the previous 60 days. The individual must sign an affidavit attesting to the employer that he was not employed in the previous 60 days, or was employed for no more than 40 hours total.
• Is not hired to replace another employee unless the previous employee was separated from employment voluntarily or for cause.

An employer can save up to $6,622 in employer Social Security tax for each qualified hire. There is no limit to the total amount of tax benefits or hires during this period, so employers will receive greater tax benefits by hiring individuals earlier in the year.

Note: The Social Security tax exemption can not be taken in conjunction with the Work Opportunity Tax Credit (WOTC). In other words, if the employer chooses to take the WOTC on a qualified worker, they cannot also take the Social Security tax exemption.

Business Credit for Retention

A business tax credit can be claimed by the employer for each qualified individual hired after February 3, 2010 who stays with the employer for 52 consecutive weeks. This business credit will be the lesser of $1,000 or 6.2 percent of the wages paid by the employer to the retained worker during the 52 consecutive week retention period.

For the employer to claim this additional credit, wages paid during the previous 26 weeks must equal at least 80% of wages during the first 26 weeks of employment.

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phone: 303.232.8300

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President Obama signed into law on December 19, 2009 an extension and expansion of a COBRA premium subsidy law under the American Recovery and Reinvestment Act (ARRA) that was due to expire on December 31, 2009. The extension means new compliance obligations for employers, in that the program now runs through February 28, 2010, the subsidy period is expanded by six (6) months and new notice requirements must be met within a tight timeframe.

Earlier this year, in response to the poor economic conditions, the American Recovery and Reinvestment Act of 2009 established a new law under which “assistance-eligible individuals” (AEIs) were initially entitled to receive a 65% subsidy for continuation coverage premiums for up to nine months. Under the original law, an AEI is any COBRA qualified beneficiary who elects COBRA coverage and (1) has a loss of group health coverage as a result of an involuntary termination of employment (other than gross misconduct); and (2) has a qualifying event between September 1, 2008 and December 31, 2009, is otherwise eligible for COBRA coverage during that period and elects that coverage. The law included various new administrative and notice requirements for employers, many of which had to be met within a short period after ARRA was enacted.

Although the ARRA subsidy was supposed to be a short-term fix, as the economy’s rebound became more protracted than expected, in late fall lawmakers begin considering proposals to extend the law and earlier this month, President Obama called for an extension. At least three proposals were introduced, one simply extended the eligibility period by six months, the other two proposals both extended the eligibility period and made further tweaks to the subsidy law provisions.

An amendment to extend and expand the subsidy law was added to the House Department of Defense appropriations bill, Department of Defense Appropriations Act 2010 (H.R. 3326) which the House passed December 16, 2009, the Senate approved the House version, which then went to the president for his signature.

Following are the key provision of the COBRA subsidy extension:

1. The amount of time an AEI can receive a subsidy increase from nine (9) months to fifteen (15) months.
2. The subsidy eligibility period is expanded to include the period that begins with September 1, 2008 and ends with February 28, 2010(formerly December 31, 2009). Significantly, the new rule does not require that COBRA coverage begin by the end of the period (February 28). Instead, the person is an AEI as long as the COBRA qualifying event (involuntary termination of employment) occurs by February 28, 2010 and is entitled to COBRA coverage as a result of that event.
3. For any AEI for whom the premium subsidy now applies due to the extension, there is a transition period consisting of any period of coverage that begins before the extension’s enactment date. Any period during which the applicable premium had been paid is to be treated as a period coverage, irrespective of any failure to pay the applicable premium for such period. In essence, those who have lost their subsidy by completing their nine months in November or later would be grandfathered in under the new legislation.
4. Plan administrators must provide a notice on extension rights to AEIs who did not timely pay the COBRA premium for any period of coverage during their transition period or paid the full (nonsubsidized) premium without regard to the subsidy rules. The notice must be provided within the first sixty (60) days of their transition period, and must include information on the ability to make retroactive premium payments as a result of the transition period.
5. In the case of any premium for a period of coverage during an AEI’s transition period, an AEI shall be treated for purposes of any COBRA provision as having timely paid the premium amount if he or she: (a) was covered under the COBRA coverage to which such premium related for the period of coverage immediately proceeding the transition period; and (b) pays, not later than sixty (60) days after the extension enactment date (or if later, thirty (30) days after the new notices are provided) the amount of the subsidized premium.
6. In the case of an AEI who, during his or her transition period, paid the full premium amount for such coverage without regard to the subsidy amount, ARRA’s rules allowing for that AEI to be reimbursed for the excess premiums will apply.
7. Plan administrators must provide notices of the new extension rights to individuals who became AEIs on or after October 31, 2009, or experience a qualifying event (consisting of termination of employment) relation to COBRA coverage on or after that date. The notice must be provided within sixty (60) days after the extension’s enactment date or, in the case of a qualifying event occurring after the enactment date, consistent with the timing of COBRA notices.

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