New Georgia E-verify Requirement Starting Jan. 1

Starting on January 1, 2012, Georgia businesses with 500 or more employees will be required to use E-verify.  This site checks the status of workers to make sure that they are authorized to work in this country.

 

The schedule for the phase-in for using E-verify is: [Read more…]

Per-diem Rates Increase Slightly for Business Travel

If you are an employer and you have employees that travel for your business, then you can pay them a per-diem amount instead of reimbursing them for the actual expenses. [Read more…]

IRS Worker Classification Amnesty!

OK, bottom line — did you read our blog post, “Employee vs. Independent Contractor” and think, uh-oh….I did not do that right!!  Well, the IRS is giving you a (rare) do-over.

If you are unsure about the legal differences between an employee and an independent contractor, then go ahead and read the link above.  (If you don’t even know what an independent contractor is…then you need to give us a call today!!)

Now, after reading that…think through your payroll.  Do you think that some people are classified incorrectly?  A new program will allow employers to get it right by making a minimal payment to cover past payroll tax obligations without interest or penalty.  This is a great chance to get everything squared up correctly without having to go through an audit (which most definitely would have a penalty!)

To be eligible for this “amnesty” program you must…

1. Consistently have treated workers in the past as nonemployees

2. Have filed all required Forms 1099 for the workers for the previous three years

3. Not currently be under audit by the IRS, the Dept. of Labor, or a state agency concerning the classification of these workers.  (In other words, if you are already under their thumb…it is too late to get out!)

If you think you could benefit from this program, give our office a call at 770-478-7424 and we can help you get the process started!

QuickBooks Payroll Setup

Congratulations!  If you are reading this, then chances are that your business has grown to the point to where you need to hire employees.  That’s fantastic!

With payroll comes a whole new set of issues — withholding, FICA, FUTA, 940’s, 941’s…and on and on.  Not to worry — I hope I can help you make some sense of all of this!

Luckily, QuickBooks has a payroll setup that really makes it easy.  I’m going to run through some of the basic steps for setting up payroll. 

Some preliminary stuff first —

  1. Labor Posters — Make sure that you have posted all of the appropriate labor posters.  For access to free labor posters, go to: www.business.gov/business-law/employment/posters
  2. Workers Comp — You need workers compensation insurance.  Laws are different state by state, so make sure that you are up to date on what your state requires.  Take a look at www.workerscompensation.com for more information.
  3. Employee Forms — You will need form W-4 and form I-9 for each employee.  Some states have their own forms, so again, you’ll need to check with your state’s Department of Revenue to see what state-specific forms are needed for new employees. 
  4. Employees or Independent Contractors? — Now you need to decide if the people that you are paying are employees or independent contractors.  Take a look at our blog post on this, or look at Form SS-8 (pdf) for a helpful questionnaire.

Now you’re ready to setup payroll in QuickBooks!  There are basically two steps…

  • Select the QuickBooks payroll service
  • Go through the payroll setup interview

 

Selecting the QuickBooks payroll Service

Small business owners, let me speak to you for a bit.  Bookkeepers, feel free to forward this to your boss.   I have a great deal of respect for entrepreneurs…my father was one, my husband and I own a small little business – it is in my blood.  We are the backbone of the United States economy (cue patriotic music in the background)…but, how shall I say it — we sometimes are penny-wise and pound foolish.  We can be cheap.  This is an instance where we need to overcome that tendency and open up the wallet.  I strongly recommend that you look at one of QuickBooks’ payroll options and spend the money for a subscription.

I’m not necessarily saying spring for a payroll option where they do everything for you, although you can do that.  But it is so helpful to have all the tax tables* automatically downloaded into QuickBooks.  Think of it as a little extra insurace that you are doing your taxes right.

*Most of the taxes will be automatically downloaded, but not all.   More than likely you will receive a notice from your state for other taxes, such as unemployment.  These vary by state, and vary by employer, so it is impossible for QuickBooks to automatically download these for you.  Unless you have a do-it-all payroll service, you’ll need to enter these amounts manually.

I use the Enhanced Payroll with one of my clients.  I love it and it is worth every penny. It makes payroll smooth and easy — no looking up tax tables, and QuickBooks will assist me with all of the forms.  Please take the time to take a look at the payroll options to see which will work the best for you.  I think you’ll find that it’s worth it.

 

Going through the Payroll Setup Interview

Now you should be ready to setup your payroll in QuickBooks.  Go to Employee, then Payroll setup and QuickBooks will lead you through, step by step.  Here is a list of things that will be handy to have to answer some of the questions in the interview:

  • Company bank information  — this is used to setup direct deposit, which is quite common now, and for e-paying taxes, which is required in some cases.
  • Types of compensation for employees and their rates — hourly wages, salaries, commissions, etc.
  • Benefits that you offer — health plans, 401(k), etc.
  • any other additions or deductions — reimbursements, cash advances, etc.
  • All W-4 forms
  • balances of any sick or vacation days accrued
  • employee’s bank info (if you use direct deposit)
  • your state’s unemployment rate for your business.  You should receive this each year from your state’s Department of Labor
  • your ID number for your state
  • Any other state specific tax information
  • A copy of your most recent federal and state quarterly forms (if I can make a suggestion here — if you have already been running payroll, don’t start a QuickBooks payroll in mid-quarter…it gets a little hairy when it comes time to file the forms.  It is better to enter in payroll starting at the beginning of the quarter, or even better, the beginning of the year)
  • your deposit schedule for both federal and state
  • payroll history for the current year

Once you have gathered your information, the QuickBooks Interview will lead you through the payroll setup process and help you get on your way with payroll.

If you need some help, the Intuit Community has most all the answers you need almost instantly.  If you think you would like a little more guidance, please give our firm a a call at 770-478-7424.  We can help you whether or not you are in our area.

 

FUTA Rate Change — Surtax Expiration

Unemployment LineEffective July 1, 2011, the FUTA rate will lower from 6.2% to 6.0% on the first $7,000 of wages paid to an employee.

In 1976, the government added a “temporary” 0.2% surtax to FUTA (Federal Unemployment Tax Act) to repay unemployment benefits paid out during the 1973-1975 recession.  Although the “debt” was fully repaid in 1987, the surtax remained in effect until the end of last month.  After being extended eight times over the past 35 years, the House refused to extend any further past this most recent expiration date.   House Ways and Means Committee Chairman Dave Camp (R-MIch) stated, “We need employers paying more salaries, not paying higher taxes.”

 Be sure to run necessary updates within your accounting software (QuickBooks, Peachtree, etc.) to reflect this change.

Click here for the FUTA fact sheet

Payroll Tax Cut in 2010 Tax Relief Act

 

The biggest new tax break for individuals in the recently enacted “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” is the one-year payroll tax reduction. Under this new provision, which is intended to supplement income and boost economic growth, the payroll tax-which funds Social Security-will be cut by two percentage points during 2011. Here are the details:

 

  • The Social Security payroll tax on individual wages will be lowered to 4.2% in 2011, from the usual 6.2% rate. For an individual with wages of $60,000, that amounts to a $1,200 savings for individuals with an income of $60,000. If the individual gets paid twice a month, it will mean an extra $50 in his or her paycheck starting in January.
  • Self-employed workers will also get the tax break. Their self-employment taxes will be cut from 12.4% to 10.4%.
  • There is no phase-out (i.e., gradual reduction) of the payroll tax reduction for higher income workers. It goes to everyone who works, regardless of income. However, since Social Security taxes apply only to the first $106,800 in earnings in 2011, the benefit for high earners tops out at $2,136.
  • The payroll tax reduction in effect replaces the $400-per-worker tax break included in the 2009 stimulus bill. That break, called the Making Work Pay tax credit, provided a tax credit of 6.2% on the first $6,450 of a worker’s wages but was phased out for workers making more than $75,000 ($150,000 for couples). The Making Work Pay credit, which was billed as a way to stimulate the stalled economy, is widely thought to have had little if any success in that regard, in part because of the small amounts involved-$400 for individuals, $800 for couples. The new law’s payroll tax reduction, by contrast, provides a potentially much bigger tax break for taxpayers (up to $2,136 for individuals, $4,272 for couples). In addition, the benefits of the payroll tax reduction are distributed far differently than they were under the Making Work Pay credit, which was aimed primarily at low and moderate-income workers. For example, an individual making $100,000 in 2011 will be able to keep an extra $2,000 under the payroll tax reduction, but under the Making Work Pay credit (which was phased out for earnings over $75,000), the individuals’s tax break would have been zero.
  • The employer’s share of Social Security tax is not affected; it stays at 6.2%. Thus, the cost of hiring new workers isn’t directly affected by the payroll tax reduction.
  • The tax break only applies for one year, 2011-for now anyway. There will almost certainly be efforts to extend it beyond 2011, and I will keep you apprised of any developments in that regard.
  • The payroll tax reduction will cost the government an estimated $120 billion.
  • The payroll tax reduction will not affect the worker’s future Social Security benefit, because benefits are based on lifetime earnings, not the amount of tax paid by the worker into the Social Security system.

 

I hope this information is helpful. If you would like more details about the payroll tax reduction or any other aspect of the new law, please do not hesitate to call

 Ben R. Loggins
Certified Public Accountant
ben@logginscpa.com

 

 

Health Reform — Hidden Tax Change

Health care??

On March 23rd, President Obama signed into law health care changes that will impact how you issue 1099s for your business.   There are only a few lines buried in the new law in Section 9006 that will impact businesses in the U.S. drastically.  Planning for that change now can turn a year-end tax nightmare into a January dream come true. 

 
Those few lines mandate that beginning in 2012, all businesses must issue 1099s to everyone they pay more than $600 to during the year.  This changes the 1099 reporting requirement in two ways.  You will need to report payments for services as well as well as tangible goods (materials).  Currently you are only required to report payments for services and legal fees.  You will also be required to report payments to corporations as well as individuals.  These two small changes could impact the number of 1099s you are required to file exponentially. 
 
But still, what does the Health Care reform bill have to do with 1099s?  To help offset the cost of the health care bill, the 1099 provision would help uncover fraudulent deductions and unreported income.  The IRS estimates that more than $300 billion in tax revenue goes unreported each year.   By enforcing tax compliance, they are able to reduce the cost of the health care bill while offering millions in tax credits.   
 
So the question is, “what can I do now to make this change transparent for my company?”  The answer – 1) Start collecting W-9 forms for anyone you pay regardless if it is for services or goods, regardless of whether they are incorporated or not; regardless of the amount, and  2) make sure these tax ID numbers are entered into your accounting program.  When it is time to print out 1099s in January of 2012, you and/or your accountant will no longer need to go through each payee to determine if it they are a service provider, if the company is incorporated or not, then track down the taxpayer ID number.  Now there’s only one criteria – is it over $600?
 
Give us a call for more information on this and many other tax changes resulting from the new health reform legislation. 

 

President signs HIRE Act

Good Afternoon:
 
I am writing to give you an overview of the key tax changes affecting business in the Hiring Incentives to Restore Employment (HIRE) Act enacted on March 18, 2010.   The new law provides hiring incentives, expense extensions and tax credits to help stimulate the hiring of unemployed workers.
 
  • Payroll Tax Forgiveness – a qualified employer is exempt from paying the 6.2 percent share of Social Security payroll tax on qualified new hires.  A “qualified employee” must start work anytime after February 3, 2010 and before January 1, 2011, and generally must have been unemployed for at least 60 days or worked less than 40 hours per week before his or her start date with your company.  The newly hired cannot be related to the owner or a majority stockholder of the company; they can only be hired to replace a position from which someone left voluntarily or someone was let go for good cause.     Retained Worker Credit – Tax Credit Up to $1,000 – for employers who hire individuals, qualified under the Payroll Tax Forgiveness, AND keep them on the payroll for at least 52 consecutive weeks may be eligible for a tax credit for each qualifying employee on their 2010 tax return.  The Credit is the lesser of $1,000 or 6.2% of wages paid to the qualified retained working during the 52-consecutive week period.  Wages for last 26 weeks must be equal to at least 80% of wages for first 26 weeks. 
  • Extension of Section 179 Expensing – gives a one-year extension to enhanced expensing rules which was to expire December 31, 2009.  The maximum deduction for Section 179 was $250,000 with a phase out limit for qualifying property purchased at $800,000.  Without the new legislation the limit would be $125,000 with a $500,000 cap.  The HIRE Act extends the enhanced expensing at the $200,000/$800,000 threshold levels through December 31, 2010. 
 
Requirements 
  • Use new IRS Form W-11 to confirm qualified employees under the HIRE Act.  Only employees who meet all requirements may complete this form and sign the affidavit under penalty of perjury.   Click Here for Form W-11.    
  • Beginning with Second Quarter 2010, use new IRS Form 941 to claim an exemption equal to the employer’s share of Social Security taxes on wages paid in 2010.  Credits for qualifying First Quarter 2010 wages will be reported on the Second Quarter return.  You should Not file an amended return for First Quarter 2010.  Click Here for the Newly Revised Form 941.
 
I hope this information is helpful.  If you believe that your company may qualify for any of these benefits, contact our office to ensure that you are meeting the criteria and receiving the correct benefits.
 
Ben R. Loggins
Certified Public Accountant

Employee or Independent Contractor?

 Employee
The question of whether a worker is an independent contractor or employee for federal income and employment tax purposes is a complex one. It is intensely factual, and the stakes can be very high.  If a worker is an employee the company must withhold federal income and payroll taxes, pay the employer’s share of FICA taxes on the wages plus FUTA tax, and often provide the worker with fringe benefits it makes available to other employees. There may be state tax obligations as well. These obligations don’t apply for a worker who is an independent contractor. The business sends the independent contractor a Form 1099-MISC for the year showing what he or she was paid (if it amounts to $600 or more), and that’s it.
 

Who is an “employee?” There is no uniform definition of the term:

Under the common-law rules (so-called because they originate from court cases rather than from the tax code), an individual generally is an employee if the enterprise he works for has the right to control and direct him regarding the job he is to do and how he is to do it. Otherwise, he is an independent contractor.

Some employers that have misclassified workers as independent contractors are relieved from employment tax liabilities under Section 530 of the ’78 Revenue Act (not the Internal Revenue Code). In brief, Section 530 protection applies only if the employer: filed all federal returns consistent with its treatment of a worker as an independent contractor; treated all similarly situated workers as independent contractors; and had a “reasonable basis” for not treating the worker as an employee. For example, a “reasonable basis” exists if a significant segment of the employer’s industry has traditionally treated similar workers as independent contractors. Section 530 doesn’t apply to certain types of technical services workers.

Individuals who are “statutory employees,” (that is, specifically identified by the tax code as being employees) are treated as employees for social security tax purposes even if they aren’t subject to an employer’s direction and control (that is, even if the individuals wouldn’t be treated as employees under the common-law rules). These individuals are agent drivers and commission drivers, life insurance salespeople, home workers, and full-time traveling or city salespeople who meet a number of tests. Statutory employees may or may not be employees for non-FICA purposes. Corporate officers are statutory employees for all purposes.

Individuals who are statutory independent contractors (that is, specifically identified by the tax code as being non-employees) aren’t employees for purposes of wage withholding, FICA or FUTA, and the income tax rules in general. These individuals are qualified real estate agents and certain direct sellers.

Some categories of individuals are subject to special rules because of their occupations or identities. For example, corporate directors aren’t employees of a corporation in their capacity as directors, and partners of an enterprise organized as a partnership are treated as self-employed persons.

Under certain circumstances, you can ask IRS (on Form SS-8) to rule on whether a worker is an independent contractor or employee.

 

If you’d like to discuss these complex rules with a Loggins staff member and see how they apply to your business in order to make sure that none of your workers are misclassified, please call our office to arrange for an appointment.

Unemployment Taxes — Increase in 2010

 Employers should anticipate increases in their unemployment taxes in 2010 and possibly beyond, whether or not their business has had any claims.  State unemployment trust funds have fallen to such a low level that rate increases may be required to rebuild their balances even when employment improves.  Some states have had to borrow money from the federal government under the Federal Umemployment Trust Act (FUTA) to cover their current obligations will need to pay this money back with interest. 

November 2009 Georgia’s unemployment rate rose to 10.2% even during a seasonal employment period.  Also in November, the number of Georgians receiving umemployment benefits has risen 11.5% over November 2008.  Year-to-date 2009, Georgia Department of Labor has paid out $1.6 billion in umemployment benefits.  Although Georgia has received authorization to receive federal funds, they had not done so as of November.  Georgia estimates that approximately 15% of employers will see a “modest” increase in their 2010 premiums.