Illinois Small Business Job Creation Tax Credit

There is still time to hire employees for your Illinois business to qualify for the Illinois Small Business Job Creation Tax Credit. By creating at least one new, full-time position that meets the eligibility requirements, you may be eligible to receive up to $2,500 in tax credits. The deadline to create new positions and hire the employees is June 30, 2011.

Here are a number of important details you need to know in order to claim this credit.

1.  The most important detail is that you, as the employer, must register your new hire online, as soon as you hire this individual. Registration takes place at JobsTaxCredit.illinois.gov.  It is important to realize that this is not a tax credit taken on your corporate or business income tax return. Credits are taken against payroll tax withholdings and will offset amounts required to pay in with regular payroll tax payments.

2. The credit is granted on a first-come, first-served basis and will support about 20,000 new jobs. Registering your new employee at JobsTaxCredit.illinois.gov is critical in order to stake your claim before the funds run out.

3. Eligible employers must have fewer than 50 full-time employees as of June 30, 2010.

4. The tax credit is worth $2,500 per new hire; tax credits will be issued beginning July 1, 2011 and will be used to offset the employer’s payroll tax withholding for Illinois taxes.

5. The position for which this credit qualifies must pay no less than $10.00 per hour.

There are other qualifications and Illinois has a very good FAQ document at their website. I would highly recommend reading this document. If you still have questions, feel free to contact us for details.

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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Paying for Payroll Taxes With Form 8109 Coupon to End December 31st

The IRS has issued proposed regulations that would eliminate paper coupons for deposits of employment taxes, corporate income and estimated taxes, and many other taxes (REG-153340-09).  The paper 8109 coupon payment system will be shut down at the end of 2010.  Taxpayers currently still using the paper coupons to make federal payroll and corporate tax payments should make plans to sign up for the EFTPS system by December 2010 to avoid last minute problems and delays when the paper coupon system is shut down December 31, 2010.  You can  sign up for electronic payments at www.eftps.gov.

Alternatively, taxpayers can utilize the services of a payroll processing company such as Complete Payroll, Inc. to have all payroll tax payments made electronically.

With this change, taxpayers will be required to use the IRS’ Electronic Federal Tax Payment System (EFTPS) to make federal tax deposits of various withheld and estimated taxes.

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.

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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President’s budget proposal calls for quarterly W-2 reporting

There is a provision in the President’s fiscal year 2011 budget (Oct. 1, 2010 to Sept. 30, 2011) that would require quarterly W-2 reporting, rather than annual. The budget document says that increasing the timeliness of wage reporting would enhance tax administration, improve program integrity for a range of programs, and facilitate implementation of automatic workplace pensions.

For details see this sub-section of the President’s fiscal 2011 budget.

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2010 Health Insurance Reform Tax Credit Calculator for Small Business

Found this handy calculator if you’re wondering if your business qualifies for the new small business tax credit on health insurance. Courtesy of National Federation of Independent Businesses.

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Complete Payroll offers new program to help local charities

You save 10% – We contribute 10% to charity! For all of 2010!

And not only are you supporting local charities, you are supporting your local payroll company and its employees – and keeping profits in your community to help your own business!

We’ve been paying employees in northern Illinois since 2002. We want to pay back our community for their support.  Join us now in supporting your favorite local charity through this program and save over 10% for your own business!

  • Sign up as a new client between now and June 30, 2010
  • Save 10% off your payroll service fees for all of 2010
  • Complete Payroll Inc. will donate 10% of payroll service fees to a charitable organization of your choice during the year!
  • We’ll also throw in Free Direct Deposit and No Delivery Fees (for McHenry County businesses only).Being a locally owned company, dollars you spend on payroll service stays in the community!

Valid only for new clients of Complete Payroll. Must sign up for service before June 30, 2010 and process your first payroll by July 15, 2010

Don’t have a “favorite” charity or don’t know who to support?  Let us recommend one for you.  Complete Payroll, Inc. suggests one of the following:

Crystal Lake Food Pantry – “No one should go hungry”

Turning Point of McHenry County – To confront violence against women & children in McHenry County, IL

Call us today to get started! 815-788-2932. Or email us for more information.  To get a quote, fill in our online quote form.

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Special Payroll Tax Exemption Form Now Available

WASHINGTON — The Internal Revenue Service today released a new form that will help employers claim the special payroll tax exemption that applies to many newly-hired workers during 2010, created by the Hiring Incentives to Restore Employment (HIRE) Act signed by President Obama on March 18.

New Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, is now posted on IRS.gov, along with answers to frequently-asked questions about the payroll tax exemption and the related new hire retention credit. The new law requires that employers get a statement from each eligible new hire, certifying under penalties of perjury, that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for anyone during the 60-day period. Employers can use Form W-11 to meet this requirement.

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Payroll tax holiday and up-to-$1,000 credit for employers who hire unemployed workers.

A key tax change affecting business was made in the recently enacted Hiring Incentives to Restore Employment (HIRE) Act.

To help stimulate the hiring of workers by the private sector, the new law exempts any private-sector employer that hires a worker who had been unemployed for at least 60 days from having to pay the employer’s 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010. A company could save a maximum of $6,621 if it hired an unemployed worker and paid that worker at least $106,800—the maximum amount of wages subject to Social Security taxes—by the end of the year.

As an additional incentive, for any qualifying worker hired under this initiative that the employer keeps on payroll for a continuous 52 weeks, the employer is eligible for an additional non-refundable tax credit of up to $1,000 after the 52-week threshold is reached, to be taken on their 2011 tax return. In order to be eligible, the employee’s pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.

Workers hired after the date of introduction of the legislation (Feb. 3, 2010) are eligible for the payroll tax forgiveness and the retention bonus, but only wages paid after March 18 receive the exemption for payroll taxes. Some additional features of the new hiring incentive include:

  • The tax benefit of the new incentive is immediate. It puts money into a business’ cash flow immediately, since the tax is simply not paid in the first place.
  • The tax benefit generally applies only to private-sector employment, including nonprofit organizations—public sector jobs are generally not eligible for either benefit. However, employment by a public higher education institution qualifies.
  • There is no minimum weekly number of hours that the new employee must work for the employer to be eligible, and there is no limit on the dollar amount of payroll taxes per employer that may be forgiven.
  • For workers that would otherwise be eligible for the Work Opportunity Tax Credit (i.e., another type of employment tax credit), the employer must select one benefit or the other for 2010. There is no double dipping.
  • An employer can’t claim the new tax breaks for hiring family members.
  • A worker who replaces another employee who performed the same job for the employer isn’t eligible for the benefit, unless the prior employee left the job voluntarily or for cause.
  • For the hiring to qualify, the new hire must sign an affidavit, under penalties of perjury, stating that he or she hasn’t been employed for more than 40 hours during the 60-day period ending on the date the employment begins.
  • The incentive isn’t biased towards either low-wage or high-wage workers. Under the measure, a business saves 6.2% on both a $40,000 worker and a $90,000 worker.
  • The payroll tax holiday doesn’t apply with respect to wages paid during the first calendar quarter of 2010, but the amount by which the Social Security payroll tax would have been reduced under the payroll tax holiday provision during the first calendar quarter is applied against the tax imposed on the employer for the second calendar quarter of 2010.
  • The credit for retaining qualifying new hires is the lesser of $1,000 or 6.2% of the wages paid by the taxpayer to the retained worker during the 52-consecutive-week period. Thus, the credit for a retained worker will be $1,000 if, disregarding rounding, the retained worker’s wages during the 52-consecutive-week period exceed $16,129.03. However, the credit isn’t available for pay not treated as wages under the Code (e.g., remuneration paid to domestic workers).

Employers will have to get a statement from each eligible new hire certifying that he or she was unemployed during the 60 days before beginning work, or alternatively, worked fewer than a total of 40 hours for someone else during the 60-day period.  IRS says it is currently developing a form employees can use to make the required statement, and will within the next few weeks be issuing revised employment tax forms for the second quarter of 2010, as well as more detailed guidance on the new provisions.

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COBRA premium subsidy extended and expanded

On December 19, 2009, the 65% COBRA premium subsidy that was due to expire December 31, 2009 for newly terminated employees was extended. The extension adds another six months to the maximum period that the COBRA subsidy can run, and also extends the up-to-15 month COBRA premium subsidy to workers who lose their jobs during the first two months of 2010.  Under the prior law, the subsidy wasn’t available for those who lost their jobs after 2009.

The law previously applied to workers who were terminated between Sept. 1, 2008 and Dec. 31, 2009 and were eligible for COBRA continuation coverage and elected COBRA coverage.   Normally, the workers would have been responsible for 100% of the cost of the insurance premiums.  A COBRA premium subsidy of 65% of the cost of the COBRA coverage has been provided to the employee which reduces the cost of the insurance to 35% of the normal cost. Under the new, law employees terminated in Jan. or Feb. 2010 can now also qualify for the COBRA premium subsidy.

Another very important change was the length of time the employee is eligible for the subsidy.  Previously the premium subsidy would have expired nine months after the subsidy began.  This was extended to a total of 15 months by the recent legislation.

The law and the recent changes are important for employers to be aware of. Not only are there certain notification requirements that must be given to the employee, but the way the 65% subsidy is paid by the government can be complex.  Essentially, the employer continues to pay 100% of the insurance premium. The employee reimburses the employer 35% of the cost, and the remaining 65% is recouped by the employer in the form of payroll tax credits on the employer’s Form 941 and related payroll tax deposits.

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

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Year-end Special! Save 20% and Help Local Charities!

Complete Payroll, Inc. announces a year-end special for new clients.  The program called Payback 2010 is designed to offer savings to new clients, and offer a contribution by Complete Payroll to local charities.

For new clients signing up for payroll service before December 31, 2009, Complete Payroll is offering a 20% discount. In addition, we will make a monthly donation of 10% of payroll fees to a local charity of your choice.

For more information, visit our website.

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Year-end Tax Tips for Employees

As year-end approaches, taxpayers generally are faced with a number of choices that can save taxes this year, next year or both years. Employees too are faced with these choices. However, employees have some special considerations to take into account that retirees and other nonworking individuals don’t face. To help our clients who are employees take advantage of these special tax saving opportunities, we have put together a list of items to consider.

Please review the list and contact us if you need additional information on one or more of the items.

Health flexible spending accounts. Many employees take advantage of the annual opportunity to save taxes by placing funds in their employer’s health flexible spending account (health FSA). You save taxes because you use pre-tax dollars to pay for medical expenses that might not be deductible. They would not be deductible if you don’t itemize. Even if you do itemize, some medical expenses would not be deductible because of the 7.5% adjusted gross income floor beneath medical expense deductions. Also, a health FSA can be used to get tax-free reimbursement for over-the-counter medications and other items even though they would not be deductible as medical expenses if you paid for them outside of a health FSA.

If you have set aside funds in your employer’s health FSA, check your balance so that you have sufficient time to incur additional reimbursable expenditures to prevent loss of any unused amount under the use-it-lose-it feature of these plans. Don’t forget you can get tax-free reimbursements for aspirin, antacids and other over-the-counter items. Your plan should have a listing of qualifying items and any documentation from a medical provider that may be needed to get a reimbursement for any such items.

To avoid the lose-it-use it rule, you must incur qualifying expenditures by the last day of the plan year (Dec. 31, 2009 in the case of a calendar year plan) unless the plan allows an optional grace period. Any grace period cannot extend beyond the 15th day of the third month following the close of the plan year (e.g., March 15 for a calendar year plan). An exception to the use-it-or lose-it rule allows FSAs to make distributions of all or part of unused health FSA benefits to military reservists who are called to active duty for a period exceeding 179 days (or an indefinite period ).

Examining your year-to-date expenditures now will also help you to determine how much to set aside for next year. Don’t forget to reflect any changed circumstances in making your calculation.

Dependent care FSAs. Some employers also allow employees to set aside funds in dependent care FSAs. They allow employees to use pre-tax dollars to pay for dependent care. In particular cases, participating in a dependent care FSA can yield greater tax savings than foregoing participation and claiming a dependent care credit. Taxpayers who are eligible to participate in a dependent care FSA and are (a) in a high tax bracket and/or (b) have only one dependent and more than $3,000 of employment-related expenses, should use the FSA to pay for child care expenses. For these taxpayers, the FSA almost always provides greater federal tax savings than does the credit. Additionally, participating in a dependent care FSA can also save on FICA taxes.

However, like health FSAs, dependent care FSAs are subject to the use-it-or lose it rule. Thus, now is a good time to review expenditures to date and to project amounts to be set aside for next year.

Adoption assistance FSAs. Under an adoption assistance FSA, adoption reimbursement accounts are established for participating employees. Typically, these accounts are funded with employee pre-tax contributions uniformly withheld from each paycheck throughout the year. The balances in these accounts are used to reimburse qualified adoption expenses incurred during the year, subject to a reimbursement maximum. Like their health and dependent care FSA siblings, these accounts are subject to the use-it-or-lose-it rule. However, predicting the amount and timing of adoption expenses may be far more difficult than projecting medical and dependent care assistance expenses. As a result, the use-it-or-lose-it rule could pose a greater risk of loss with this type of FSA. This should be borne in mind in choosing the extent to which to participate in an adoption FSA.

Adjustments to state withholding. If you expect to owe state and local income taxes when you file your return next year, ask your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2009.

Adjustments to federal withholding. If you face a penalty for underpayment of federal estimated tax, you may be able to eliminate or reduce it by increasing your withholding. In this connection, it should be stressed that the Making Work Pay Credit, which was enacted earlier this year, automatically lowered tax withholding rates for employees. However, you should especially review your withholding to ensure that enough tax is withheld if you hold multiple jobs, you and your spouse both work, or you can be claimed as dependent by another person.

401(k) contributions. Review and make appropriate adjustments to your contributions to you employer’s 401(k) retirement plan for the remainder of this year. Figure your contribution rate for next year as well.

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