Archive for the ‘Small Business Tips & Tricks’ Category

To reflect changes in the employee rate for social security and the elimination of advance payment of the Earned Income Credit*, there have been big changes to form 941, Employer’s QUARTERLY Federal Tax Return.  Form W-2, Wage and Tax Statement, now includes a new code for reporting designated Roth contributions under a governmental section 457(b) plan.

But the IRS will no longer send you forms or instructions in the mail.

With the increased emphasis on e-filing, the IRS has been implementing plans to stop mailing tax packages to business taxpayers. Last fall, the IRS announced it would no longer mail annual income tax returns to businesses. In early March, the IRS added several forms and instructions to the list of discontinued mailings, most notably the Form 941, Employer’s QUARTERLY Federal Tax Return.

*EIC-eligible individuals can claim their credit when they file their 2011 federal income tax returns. Employees who expect to be eligible for the EIC and who will have income tax withheld from their wages in 2011 may reduce their withholding. This option allows those employees to receive a portion of the credit throughout the year.

If you make payroll tax deposits for your small business at your bank using paper coupons you need to know that you will no longer be able to do so after December 31, 2010. Internal Revenue Service regulation (REG 153340-09) generally maintains existing rules for depositing federal taxes through the Electronic Federal Tax Payment System (EFTPS).  The paper coupon system will no longer be maintained by the Treasury Department after Dec. 31, 2010.

Using EFTPS to make federal tax deposits provides substantial benefits to both taxpayers and the government. EFTPS users can make tax payments 24 hours a day, seven days a week from home or the office.

Deposits can be made online with a computer or by telephone. EFTPS also significantly reduces payment-related errors that could result in a penalty. The system helps taxpayers schedule dates to make payments even when they are out of town or on vacation when a payment is due. EFTPS business users can schedule payments up to 120 days in advance of the desired payment date.

Information on EFTPS, including how to enroll, can be found at www.eftps.gov or by calling EFTPS Customer Service at 1-800-555-4477.

Some businesses paying a minimal amount of tax may make their payments with the related tax return, instead of using EFTPS. More details regarding taxes required to be deposited using EFTPS, dollar thresholds and other specific requirements are in the proposed regulations.

Additional Information:

• Publication 4132, which explains the process of enrolling and paying via the Internet
• Publication 966, The Secure Way to Pay Your Federal Taxes for Businesses and Individuals
• Publication 4169, Tax Professional Guide to Electronic Federal Tax Payment System
• Publication 4320, EFTPS Toolkit, which contains PDF(s) and descriptions of EFTPS educational materials and their intended target audience, and is for use by tax professionals and financial institutions to assist in educating their clients on the benefits of EFTPS.
• Publication 4275, Express Enrollment for New Businesses
• Electronic Payment Options Home Page

Congress just passed changes to the Federal Insurance Contributions Act (FICA) reducing the employee Social Security tax rate by two percentage points to 4.2%. Similarly, for self-employment income for tax years beginning in 2011, the Act reduces the Social Security tax rate under the Self Employment Contributions Act (SECA) tax by two percentage points to 10.4% percent. (Act Sec. 601)

If you are an employer, all your employees will receive a 2% increase in their paychecks on wages paid in 2011. This will cost you, the employer, nothing but there are some potential bookkeeping hassles.

As a result, for 2011, employees will pay only 4.2% Social Security tax on wages up to $106,800 and self-employment individuals will pay only 10.4% Social Security self-employment taxes on self-employment income up to $106,800. The maximum savings for 2011 will be $2,136 (2% of $106,800) per taxpayer. If both spouses earn at least as much as the wage base, the maximum savings will be $4,272.

If you use a software package like QuickBooks to do your payroll, you may have to manually override the employee portion of the Social Security if the software update is not available by the time you pay your first wages in 2011. If you are one of the many small business who manually calculate payroll, you will have a few extra steps to figure the amount of your payroll tax deposits.

Employers must make a reasonable effort to contact an employee to prevent wages from being abandoned and remain liable for unclaimed wages until paid or turned over to the state.  Why the state?  Unclaimed paychecks or paychecks returned by the post office as undeliverable are governed by state law.  State laws vary from one to seven years.

In the state of Texas, unclaimed wages must be reported to the state annually and are “unclaimed property.”  According to the State of Texas Comptroller’s website:

The Texas Comptroller of Public Accounts is responsible for administering the Texas Unclaimed Property Program. Property is turned over to the Comptroller’s office annually when the owner’s whereabouts are unknown and the property has been inactive on the books of the reporting company after the appropriate abandonment period has expired.

Under the Affordable Care Act of 2010, FSAs and other health reimbursement arrangements cannot reimburse the cost of over-the-counter (OTC) medicines or drugs that are purchased after Jan. 1, 2011 without a prescription. Medicines or drugs purchased without a prescription in 2010 can be reimbursed by FSAs in 2011, only if the employer’s plan permits it.

Exceptions to new rule: Insulin, even if purchased without a prescription, or items other than medicines and drugs available without prescriptions, such as medical devices, contact lenses and eyeglasses. Also, both deductibles and co-pays can be reimbursed from an FSA.

OTC medicine and drug purchases using FSA debit cards should be made by Dec. 31, but the IRS says it will not challenge debit card purchases made through Jan. 15, 2011. After that date, purchases of OTC items must be substantiated with a prescription.

A similar rule will go into effect on Jan. 1 for HSAs and Archer medical savings accounts, the IRS says.

The IRS recently issued guidance reflecting the changes and intends to amend other rules and regs.

If your FSA allows reimbursement of over-the-counter drugs and medicines, tell your employees with balances in their accounts that they might want to stock up on items before Dec. 31 to maximize the use of their accounts. [Notice 2010-59; 2010-39 IRB 1; IR-2010-95]