DA—Insurance Notice for Employees

published October, 2013

There is NOT currently a penalty if you don’t provide these notices, but they say we’re supposed to provide the notices by October 1, 2013, or whenever you hire a new employee.

The link to the notice if you DO NOT provide health insurance to your employees is here: https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/model-notice-for-employers-who-do-not-offer-a-health-plan.pdf

The line to the notice if you DO provide health insurance to your employees is here: https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/model-notice-for-employers-who-offer-a-health-plan-to-some-or-all-employees.pdf

There is some information you’ll need to fill out on these forms—perhaps download, fill in the info, and copy?

Who is Required to Have Health Insurance in 2014?

published August, 2013

Employer with fewer than 50 employees? No.

A Person? Yes.

Try this link: https://www.healthcare.gov/what-do-small-businesses-need-to-know/

Small businesses may get health coverage in the Small Business Health Options Program (SHOP) Marketplace. No employers are required to offer health coverage.

Starting in 2014, businesses with 50 or fewer full-time equivalent (FTE) employees can use SHOP to offer coverage to their employees. This applies to non-profit organizations as well. You control the coverage you offer and how much you pay toward premium costs.

Individuals ARE required to have health insurance, with some exceptions, or face a penalty of $95 per adult in 2014, $325 in 2015 and $695 in 2016 and beyond, with some adjustments and exceptions and general hand waving. Here is a link to a chart: http://kff.org/infographic/the-requirement-to-buy-coverage-under-the-affordable-care-act/

Health coverage through SHOP starts as soon as January 1, 2014. Open enrollment begins October 1, 2013. You can sign up and begin offering coverage any time during the year. If you already have insurance or your employer provides health insurance, you may continue with this.

Thanks to Peggy Hall, EA for her help with this section.

Patient Protection and Affordable Care Act—does it apply to your company?

published July, 2013

PPACA, also known as “Obamacare” has different rules depending on your company size.

There are two classes: “Large” and “Small.” Large employers have more than fifty full-time employees for Full Time Equivalents (FTEs) on average for the previous year.

Owners, partners, greater than 2% shareholders and their family do not count.

If you are a small employer, there is potentially a tax credit available through the end of this year if you’re voluntarily providing health care insurance for your employees. BUT, the owners don’t count for the credit, family of owners don’t count, and average annual wage has to be less than $50,000 per FTE. I ran some calculations for a couple of my clients last year, and no one qualified, and it just made me cranky to have spent several hours calculating for no benefit. (I suppose the benefit is that we know for sure there is no credit available.) I hold little hope for most of my clients. (The cost of living is generally too high in the Bay Area, or my clients just pay too much in payroll!) Oh, and if you were eligible for the credit, the amount of the credit is also reduced by 8.7% due to sequestration.

This Act is also the one that put in the extra 0.9 Medicare Tax on wage and self-employment income for individuals with income higher than $200,000 or married filing jointly couples with incomes higher than $250,000. If you’re paying someone more than $200k, your payroll service or software should do this calculation correctly. If both spouses make $199k, they’ll have an extra tax to pay on the joint return (MFS is $125k each—so no magic relief is available by filing separately).

For more information, try http://www.irs.gov/taxtopics/tc763.html

Credit for Small Employer Health Insurance Premiums

published March, 2012

You may have received a letter from the CA EDD about an available credit for health insurance premiums paid.

Excluded from the credit are business owners, partners, and more than 2% shareholders, so most of us will not qualify for the credit.

When you do qualify, the credit is reported on Form 8941.

There is a three part eligibility test. First you have to have paid at least 50% of the premiums for health insurance coverage, and you have to pay uniformly (like 100% for everyone). Second, you have to have fewer than 25 “FTE” employees for the tax year, “FTE” is full-time equivalents. To calculate this, we take the hours of service divided by 2080 hours in a year, rounded down. Third, and this is the “killer” for most of my clients who offer health insurance, average annual wages for the year of less than $50,000 per FTE.

Health insurance does not include workers compensation insurance, or HSAs.

There is a reduction to the credit if your average is over $25k (but must still be under $50k), and there’s also an upper limit to the amount of coverage cost allowed in figuring the credit—in California the coverage limits are $4,790 for single and $11,493 for family coverage. Its $5,146 and $12,328 in New Mexico, and the lowest limits are $4,378 and $9,849 in Arkansas. Clearly people in Arkansas are healthier than they are in New Mexico and California!

See http://www.irs.gov/instructions/i8941/ar02.html for more information.

1099-B: The Delayed 1099

published February, 2012

The IRS has set up new rules for brokerage houses (Schwab, Scott Trade, etc) that they now have to include BASIS as well as their estimation of long term or short term holdings. This means your 1099-B may be delayed this year. And that may mean a delay in processing your tax return.

The tax return for 2011 has a new Schedule D—the place we report capital gains and losses. It is now a summary only, with details of the transactions getting reported on a new form, the Form 8949. There are two sides to this new form, one side for short term, and the other for long term. Also, there are three boxes at the top of each side of each page—and you can only check one box per page. The boxes are to tie to the 1099-B forms: box A is checked when reporting transactions where the brokerage house IS reporting the basis to the IRS. Box B is checked when reporting transactions where the brokerage house IS NOT reporting the basis. Some securities transferred from one brokerage to another didn’t include the basis information, so the new brokerage just doesn’t have the information about basis, so they can’t report it on the 1099-B. If you’ve only used one brokerage house over the years, they MAY have the basis info, but they previously didn’t have to report it to the IRS, so I’m not promising they’ll have it.

Since there is a change in the reporting requirements, several brokerage houses have said it may take them until February 15th to report.

To report stock trades for 2011, we’ll need to have the 1099-B in hand, to make sure what we submit to the IRS on your tax return matches what the brokerage house reports – or you’re likely to get a letter from the IRS asking you to explain the difference.

There IS a column on the Form 8949 for “adjustments” in the unlikely (!) event your brokerage house does not compute the gain/loss correctly when reporting the sale price and the cost.

If you have several 1099-B transactions that are short term, and the brokerage has the basis for some and not for others, you’ll have two pages of Form 8949, one with box A checked and another page with box B checked. Since most returns will be efiled, this is not so much a waste of paper as it might seem.

“Critical Notice” for 1099s

published January, 2012

You may have received an email from Intuit about 1099s offering to sell you their new tool—that works with QuickBooks 2012 (billed separately!) that will allow you to exclude amounts paid to people who would otherwise receive a 1099 from you, except that they changed the rules about what you have to report. The IRS has a new Form 1099-K that reports merchant card processing of payments. If you PAID a vendor with a credit card (AmEx, Visa, M/C, PayPal), you don’t need to include the payment on a 1099. You still need to issue 1099s for payments made in other ways.

This might mean you issue fewer 1099s.

More likely, you’ll just have more work to do. Now you “get to” review the payments and you can exclude payments made via credit card, as the IRS will get the info reported to them via the credit card merchants.

Start keeping track of HOW you pay your vendors. If you never use credit cards, this doesn’t affect you. If you ONLY use credit cards, you will probably have fewer 1099s to issue. Most companies use a blend of both, so you’ll have to slice out the non-reportable transactions.

If you need help with this, let us know.

Just so you’re aware: the IRS is now asking directly if you made any payments that require a 1099. I personally think this is a way to charge a higher penalty for not doing 1099s because you were “made aware” that you should, and you are now actively saying you did (or will) issue the 1099s, so you’re extra bad if you don’t actually issue the 1099s.

For the time being, the rules of who is excluded from receiving the 1099s hasn’t changed. The 1099s are issued in a business context; your personal expenses are not reportable on 1099s. Also, corporations are excluded from having to get 1099s (LLC’s are NOT corporations, they’re partnerships and should receive 1099s). There is an exception to the exception: lawyers should receive 1099s even if they are corporations. Certain medical payments are also required to be listed on 1099s, even if the recipients are corporations.

COBRA and the Viper

published July, 2009

You probably need to offer continuing Health Insurance to your terminated employees.

Part of the Recovery Act of 2009 to get the economy going involves a change to the rules about COBRA. Workers who have lost their jobs may qualify for a 65% subsidy from the IRS on health insurance premiums for themselves and their families for up to 9 months. COBRA can last 18-36 months, but the subsidy lasts only 9 months. The ex-employees have to pay 35% of the premium to the employer to stay on the health insurance plan, if they were participating when they were terminated. 

People who voluntarily quit are not eligible.

Employees who were terminated “involuntarily” between September 1, 2008 and December 31, 2009 are eligible. The subsidy phases out for singe employees between $125,000 and $145,000 AGI ($250,000 and $290,000 for MFJ). AGI above the phase out is not eligible.

Covered plans include Medical Dental and Vision, but not things like FSA’s.

COBRA stands for Consolidated Omnibus Budget Reconciliation Act (although I call it the “Continuation Of Benefits? Really awesome!”)

The Federal standards are if you have more than 20 employees, but the Very Important Plan for Employee Retention (I just made that up!), also (actually) known as “mini-COBRA” or “Cal-COBRA” in California and 37 other states say 2 or more employees. It doesn’t look like the “viper” is in Arizona or Washington state, but it is in New Mexico, Texas, Virginia and Vermont, just to cover some of the other states I prepare returns for. Check with your state to be sure.

That’s right, 2 employees and you need to provide continued coverage.

The way it works is you, the employer, pay the insurance premium in full each month, your employee reimburses you 35%, and then you take the balance off of your Quarterly Form 941 payment
Here’s a wacky thing or two: to cover administrative costs, an employer can ‘charge’ 102% of the premium federally, but 110% for CA. Federal is 18 months allowed COBRA, but CA is generally 36 months.

For more information http://www.dol.gov/ebsa/cobra.html

Health Insurance for S Corporations

published May, 2009

As an S Corporation owner-operator, you may qualify to deduct your health insurance premium “off the front” of your personal 1040 as “Self-Employed Health Insurance” deduction. That’s even better than being able to deduct it from Schedule A as a medical deduction.

Does your S Corporation pay your health insurance?

If you own more than 2% of an S Corporation and you’re drawing wage as an officer of the corporation, your health insurance should go on your W-2. As an officer, you are an employee and should be on payroll per statute (i.e. written law on the books). 

Here’s the crazy circle that winds up with the same deduction if you were a sole-proprietor filing Schedule C: The corporation 1.) reduces its income by the benefit but 2.) increases the W-2 reported to the shareholder-employee who 3.) decreases their taxable income by the benefit amount.

If this will appear at year end on your W-2, it should also go on your quarterly payroll tax filings.

Health insurance is “wage income” but it is not subject to Social Security and Medicare tax, so it isn’t part of the wage base for those taxes on Form 941. If you’ve filed your first quarter 941 and DE-6 without including your health insurance, you should amend both forms. This does not change the amount of tax due, so there shouldn’t be a penalty. You want your four quarters to match up to the annual filings, so now is the time to correct first quarter and start reporting correctly.

Non-shareholder employees (<2% owners) are treated ‘normally:’ the health insurance is a non-taxable benefit to the employee and is a deduction to the corporation.

There are some limitations on deductibility for self employed health insurance. For example if you have no income, you can’t take the deduction, but if that’s the case, what do you care, you’re not paying tax anyway. Make sure your wage is reasonable.

“B” Notice for 1099s

published October, 2008

If you issued 1099s in 2007 where the contractor name doesn’t match the tax ID number on file, the IRS has recently sent you a CP2100 notice. You’re supposed to do something with this.

Typically, this happens because someone gave you their personal Social Security number and their business name, or it could be a data entry error over at the IRS, or you could have copied the name or number down wrong.

You need to check the W-9 you have from the contractor against the IRS notice. If they have different numbers from what you reported, you’re done. Don’t do anything (except put the right name/number combination down NEXT year).

Don’t have a W-9 filled out by your contractor? Get one at: http://www.irs.gov/pub/irs-pdf/fw9.pdf?portlet=3.

If the IRS has what you have, then there’s a second step. If you’ve received a notice about this contractor twice in three years you have to do a further step that we won’t talk about here. See IRS Publication 1281 for further information.

Generally, if you get a CP2100 you have to begin “backup withholding” – you keep back 28% of the amount due and send it to the IRS unless you get a revised W-9 back from the contractor with a corrected number. You are supposed to mail out a “B” notice (see below) with a blank W-9 within 15 days, and they’re supposed to fill out the W-9 and return it within 15 more days. The envelope you mail this stuff in has to say “Important Tax Information Enclosed.” The new W-9 has to be written and signed (fax or PDF is OK by me) – you can’t just get the info over the phone.

The actual text of the “B” notice is on page 22-23 of Publication 1281 available at: http://www.irs.gov/pub/irs-pdf/p1281.pdf. The IRS doesn’t seem to include what you’re required to mail out with the CP2100 letter you get, so you’ll need this link to do what you’re supposed to do!

Don’t send the new W-9 in to the IRS. Don’t amend your 2007 1099s (unless the dollar amount was wrong).

Employer provided Vehicle

published June, 2008

If your corporation provides a vehicle for it’s employees who drive at least a bit personally, this is income to the employee.

The question for the employer has been how to value the personal use portion. The IRS says that for 2008, you can use the cents per mile method ($0.505/mile for Jan-June, $0.585 July-Dec for ’08) IF the vehicle value does not exceed $15,000 when the employee starts using it. ($15,900 for the ‘step up’ sized vehicle, like a Chevy Suburban). You can read more about this in Publication 15-B, Employers Tax Guide to Fringe Benefits (page 20) http://www.irs.gov/pub/irs-pdf/p15b.pdf. Otherwise, you may need to determine actual expense.