Health Reimbursements Are Back!

Legislation was signed into law last week bringing back the ability for employers to directly reimburse employees for health care costs. This was taken away a few years ago after the new ACA laws came into play, often with severe penalties in place for noncompliance. But recent legislation changed that.

The new Qualified Small Employer Health Reimbursement Account allows employers to reimburse employees for health care costs, tax-free to the employee, and deductible by the business. Since this legislation was just signed into law last week, we don’t have all the details, but here are some key points:

  •  In order to qualify, you must not be an “applicable large employer” which is any company with an average of at least 50 full-time employees. So, you must have less than 50 employees to qualify to offer this plan
  • The employer cannot offer a group health plan to any of its employees
  • Reimbursements must be limited by amount. You can reimburse up to a maximum $4,950 for single coverage or $10,000 for family coverage, and can include reimbursement for personal insurance premiums, co-pays and out-of-pocket costs. But this is where you will want to specify which costs are eligible for reimbursement in your written plan, or if you wish to reimburse less than these amounts
  • You must have a written plan
  • The employer must receive evidence of insurance or expenses from the employee. In other words, the employee needs to document the expenses they incurred before you can reimburse them. The employee also must have minimum essential coverage (in other works they must be insured through a private plan).
  • You must provide minimum 90-day notice to employees of availability of this plan
  • You must include all employees, except for the following exceptions:
    • Part-time or seasonal employees
    • Union employees
    • Employees under age 25
    • Employees with less than 90 days of service
    • Nonresident aliens
  • This is likely not available to S-corporation shareholders, but we are awaiting clarification on this issue.

The reimbursements will be reported on the employees’ W-2 at the end of the year, not as taxable income, but only as informational reporting to the IRS. Therefore, reporting systems will have to be maintained to have this information reported properly at year-end. Ideally, these reimbursements will be paid through your payroll system which makes your reporting and tracking much simpler.

This plan can be offered starting January 1, 2017. However, you may find delays in third-party administrators offering these plans as they come up to speed on the new rules and develop plans around the new rules.

As we get more details on this plan, we will be sure to let you know.

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Taxation of a Christmas Bonus for Your Employees

Christmas BonusAre you thinking of giving your employees a Christmas bonus, holiday bonus, or year-end bonus? What’s the best way to handle these year-end bonuses? Can they be handled ‘under the table’? Do you have to include them as wages on their W-2?

The answer to this question is quite simple. Any additional compensation to your employees over and above their standard salary or hourly rates is considered to be taxable compensation. The bonus is considered wages and must be reported as payroll on the employee’s W-2 and is subject to all applicable payroll taxes – federal and state withholding, FICA, Medicare and the related employer taxes.

On your books and records, the bonus is reported as wages on the income statement and it is fully deductible as a valid tax deduction if it is handled this way.  Payments to your employees made in cash (and not reported) or recorded as other expenses are not tax deductible, and may cause unforeseen issues if the IRS or state audits your books.

Many employers like to give a flat dollar bonus amount. You can do this by choosing the amount of the bonus you want hand to your employee and “gross-up” the amount. Most payroll services and payroll software can handle this calculation. By grossing up the flat dollar net amount, you are including the estimated taxes into the amount so that, after taxes, the amount is what you want to provide your employee.

The only way you can exclude the bonus payment from the employees’ W-2, not pay associated employer payroll taxes, and still get a tax deduction on your business tax return, is to make the bonus as a profit sharing bonus through your 401(k) profit sharing plan. Although your employees don’t get the bonus in cash or check, the bonus is completely non-taxable to the employee until they withdraw the funds from their plan, and you avoid paying the payroll taxes associated with paying the bonus in cash or check and including it on their W-2.


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Three Reasons to Check Your Online Social Security Statements Each Year

Sample Social Security Statement GraphicIt’s been a few years since the Social Security Administration stopped mailing annual paper Social Security Statements to those aged 25-60. I know, most people didn’t know what the statement was for and either threw it away or filed it somewhere. But that shouldn’t stop you from checking your earnings record each year.  Now, the SSA provides these statement online if you are under age 60. There are good reasons to check this statement on an annual basis. Earnings that were either misreported, or not reported at all, will adversely affect your or your spouse’s social security benefits when you retire. You want to make sure your earnings are being reported properly to avoid problems later.  For example, if you discover that there were problems 10-20 years ago while you are applying for benefits, the chances of getting the issues resolved easily are going to be small.  Here are three examples of how you can run into problems.

1. Make sure earnings reported on your W-2 have been properly recorded to your social security account. We know of a case where an employee has been receiving a W-2 from their employer for 8 years with the incorrect social security number on their W-2. This means that Social Security may not have recorded her earnings at all under her social security number. It’s a good idea to check your W-2 each year to make sure your social security number is accurate.

2. If you are self-employed, be sure your earnings are being reported. We have seen examples where self-employment earnings on the taxpayer’s Schedule C were reported under the wrong social security number when a husband and wife filed a joint return. In this case, the earning may be reported under the spouse’s number.

3. Some smaller employers who try to handle the payroll on their own may inadvertently not report earnings to Social Security as is required by law. Checking your statement annually will make sure you receive credit for your wages earned.

To setup an online account at the Social Security Administration, go to www.socialsecurity.gov/myaccount and follow the instructions to register an account there.

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Health FSAs Gain More Flexibility

The IRS has modified the “use-or-lose” rule for health flexible spending arrangements (FSAs) to give employers the option to allow participating employees to carry over up to $500 of unused amounts remaining in their health FSAs at year-end. Previously, any amounts that weren’t used by year-end or the end of an optional “grace period” of up to 2½ months would be forfeited. Employers may be eligible to take advantage of this option as early as plan year 2013 if their plan is properly amended [Notice 2013-71, 10-31-13].

Why the change? The original “use-or-lose” rule was adopted to prevent employees from using a health FSA as a vehicle to defer compensation by accumulating salary reduction amounts. But when the $2,500 limit on salary reductions was enacted, the IRS said this limited the potential for such large accumulations. This, combined with the difficulty for employees of predicting their future medical expenses, the desire to minimize incentives for unnecessary spending at the end of the plan year or grace period, employees’ aversion to even minimal forfeitures of their salary reduction amounts, and the chance to ease health FSA administration, led the IRS to inject even more flexibility into the “use-or-lose” rule.

$500 carryover allowed. Under the new guidance, an employer can amend its cafeteria plan document to allow employees to carry over to the immediately following plan year up to $500 of any unused amount in a health FSA as of the end of the plan year. The carryover amount may be used to reimburse medical expenses incurred at any time during the plan year to which it is carried over.

No effect on $2,500 limit. The carryover doesn’t count against or otherwise affect the next year’s $2,500 salary reduction limit, as indexed for inflation, and any unused amount in excess of $500 will be forfeited under this modified “use-or-lose” rule.

Lower amount OK. The plan can specify an amount lower than $500 as the maximum carryover amount, or can decide not to allow any carryover at all. Whatever decision the employer makes, the plan must allow all employees to carry over the same maximum amount.

No grace period plus carryover. A cafeteria plan that is amended to include a carryover provision may not also include a grace period in the plan year to which unused amounts may be carried over (e.g., no grace period is allowed in 2015 if unused amounts can be carried over to 2015). If a plan with a grace period is being amended to add a carryover provision, the plan amendment must eliminate the grace period by no later than the end of the first plan year from which amounts may be carried over.

No cash-out of carryover amount. One rule has not changed. A cafeteria plan may not allow unused amounts in a health FSA to be cashed out or converted to any other taxable or nontaxable benefit.

Plan amendment needed. To take advantage of the carryover option for a plan year, the employer must amend its cafeteria plan to adopt a carryover provision on or before the last day of that plan year. If that is done, the amendment may be made effective retroactively to the first day of that plan year. However, the notice also provides that a plan may be amended to adopt the carryover provision for a plan year that begins in 2013 at any time on or before the last day of the plan year that begins in 2014.

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Social Security Wage Base Increases to $117,000 for 2014

The Social Security Administration announced that the wage base for computing the Social Security tax (OASDI) in 2014 increases to $117,000 from $113,700, which was the wage base for 2013. The $3,300 increase, which is about 2.9%, is due to an increase in average total wages.

The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees, and self-employed workers—one for Old Age, Survivors and Disability Insurance (OASDI; commonly known as the Social Security tax), and the other for Hospital Insurance (HI; commonly known as the Medicare tax).

For 2014, the FICA tax rate for employers is 7.65% each—6.2% for OASDI and 1.45% for HI. For 2014, an employee pays:

  • 6.2% Social Security tax on the first $117,000 of wages (maximum tax is $7,254.00 [6.2% of $117,000]), plus
  • 1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return), plus
  • 2.35% Medicare tax (regular 1.45% Medicare tax + 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return). (Code Sec. 3101(b)(2))

For 2014, the self-employment tax imposed on self-employed people is:

  • 12.4% OASDI on the first $117,000 of self-employment income, for a maximum tax of $14,508.00 (12.40% of $117,000); plus
  • 2.90% Medicare tax on the first $200,000 of self-employment income ($250,000 of combined self-employment income on a joint return, $125,000 on a separate return), (Code Sec. 1401(a), Code Sec. 1401(b)), plus
  • 3.8% (2.90% regular Medicare tax + 0.9% additional Medicare tax) on all self-employment income in excess of $200,000 ($250,000 of combined self-employment income on a joint return, $125,000 for married taxpayers filing a separate return). (Code Sec. 1401(b)(2))

There is a maximum amount of compensation subject to the OASDI tax, but no maximum for HI.

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Healthcare Reform Reporting Requirement Deadline October 1, 2013

Are you aware of the healthcare reform law that goes into effect on January 1, 2014? Did you know that as an employer, you are required to send a marketplace notice to your employees by October 1, 2013?

Effective January 1, 2014, individuals may purchase private health insurance on a “Health Insurance Marketplace” which will be set up by each state. The Marketplace is designed to help individuals find health insurance that meets their needs and fits their budget. The Marketplace offers “one-stop shopping’ to find and compare private health insurance options. Open enrollment for coverage through a Marketplace begins October 1, 2013. All employers subject to the Fair Labor Standards Act (FLSA) must provide a Notice to employees informing them of the option to purchase health insurance coverage in a Marketplace.

All employers, regardless of the number of employees or whether or not they provide health coverage, are required to provide a notice if they are subject to the FLSA. Employers are subject to the FLSA if they have an annual volume of business of $500,000 and have at least one employee.

Employees hired before October 1 must receive the notice by October 1, 2013. New employees hired on or after October 1 must receive the notice within 14 days of their date of hire. A Notice must be provided to all employees, including part-time employees.

The DOL has provided two Model Marketplace Notices. There is one model for employers who do not offer a health plan and another model for employers who offer a health plan to some or all employees. The DOL Model Marketplace Notices can be found at http://www.dol.gov/ebsa/healthreform/. You may also visit HealthCare.gov for more information on the healthcare reform law.

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Special Pricing for Illinois Non-Profit Organizations

FOR IMMEDIATE RELEASE:

Complete Payroll Offers Special Non-Profit Pricing to Help Community

Crystal Lake, IL – June 26, 2012 – Complete Payroll, Inc., a locally owned and operated payroll service company, announced special pricing for non-profit agencies in northern Illinois as part of its effort to support the local communities it serves.

The pricing not only includes a 25% discount on services for non-profit organizations that support residents of the northern Illinois area, but also an opportunity to receive free payroll processing for up to three non-profits in the area.  “We are a local business supporting other local businesses, and I thought it would be a great way to give back to our community,” said Steve Trojan, founder and owner.  “Free services for a not-for-profit organization means more of their resources can be targeted to support our residents.”

Complete Payroll is also developing a program that offers employees of its payroll clients the ability to contribute to various non-profit organizations through automatic payroll deductions. “This will facilitate the charitable giving of northern Illinois employees to local not-for-profit organizations that directly impact our local communities,” said Mr. Trojan.

Interested organizations can visit the company’s website or call the company for additional details.

Complete Payroll, Inc. was founded in 2008 and serves a variety of businesses in northern Illinois. It offers a complete line of payroll services including check writing, direct deposit, tax impounding and reporting, time clocks, and pay-as-you-go workers compensation insurance. To find out more about Complete Payroll, Inc., visit www.completepayrollinc.com.

Contact:
Steve Trojan
steve@completepayrollinc.com
380 N. Terra Cotta Rd., Suite H
Crystal Lake, IL 60012
Phone: 815-788-5114
Website: www.completepayrollinc.com

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Good News – Payroll Tax Cut Extended through 2012!

Congress gave all wage earners a short-lived 2012 reprieve by temporarily extending the 2% payroll tax cut though February of 2012.

The payroll tax, frequently referred to as FICA or OASDI on your paycheck, has historically been 6.2%. This is the tax that funds the Social Security Administration. For 2011, as an economic stimulus measure, Congress temporarily reduced the rate to 4.2%. They also provided self-employed individuals with a corresponding two percentage point reduction by lowering the Social Security portion of the SE tax from 12.4% to 10.4%.

Congress had previously extended this 2% tax cut and now has decided to continue this reduction in payroll tax through the end of 2012.

Steve Trojan, CPA is owner of Complete Payroll, Inc. (www.completepayrollinc.com), a Crystal Lake payroll company, and SMT & Associates, Inc. (www.smt-associates.com), a Crystal Lake tax and accounting firm. Complete Payroll offers a full range of payroll services to Illinois and Wisconsin small businesses.

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New Credits for Hiring Veterans

Congress recently passed legislation that extends and expands the Work Opportunity Credit (WOTC) for hiring unemployed veterans. This effectively gave a one-year lease on life to the WOTC, but only with respect to qualified veterans who begin work for the employer before January 1, 2013. For all other classifications, the credit ended at the close of 2011.

Under the new law, effective for individuals who begin work for the employer after November 21, 2011, a qualified veteran is a veteran who is certified by the designated local agency as falling within one of the following five categories: Continue reading

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IRS Announces Pension Plan Limitations for 2012

The Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for Tax Year 2012. In general, many of the pension plan limitations will change for 2012 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged. Highlights include:

• The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $16,500 to $17,000.

• The catch-up contribution limit for those aged 50 and over remains unchanged at $5,500.

• The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000.

• The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011. For singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.

• The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $57,500 for married couples filing jointly, up from $56,500 in 2011; $43,125 for heads of household, up from $42,375; and $28,750 for married individuals filing separately and for singles, up from $28,250.

Steve Trojan, CPA is owner of SMT & Associates, Inc. (www.smt-associates.com), a Crystal Lake IL based tax and accounting firm, and Complete Payroll Inc, (www.completepayrollinc.com) a payroll processing firm. He specializes in tax and accounting issues affecting small business owners.

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