Paid Sick Leave in CA—Mandatory starting 7/1/15

published June, 2015

Starting July first, employees who work thrity hours or more are now entitled to paid sick leave. The rate is one hour per every thirty hours worked, but can’t be used (under this program) until the 90th day of employment.

Here is the link for the POSTER that must be displayed:
https://www.dir.ca.gov/DLSE/Publications/Paid_Sick_Days_Poster_Template_%2811_2014%29.pdf

This can also be found by searching for DLSE Paid Sick Leave Posting.

Employers can limit the use of paid sick days to 24 hours or three days in each year of employment, and it may be capped at 48 hours or six days, but it carries forward if unused.

San Francisco already has a paid sick leave policy. See http://sfgsa.org/index.aspx?page=419 for details. This is only if your place of business is in San Francisco: it doesn’t apply to your business if you are in Alameda.

Stop Reimbursing Health Expenses

published April, 2015

One of the tricky bits of the Affordable Care Act is that you may not “just reimburse some expenses” for your employees. If you have been doing that in the past, stop now. (Actually you have a ‘grace period’ until the end of June.) If you reimburse some medical expenses for employees, you have a “non-qualified health plan.” If you reimburse part or all of an individual health plan, you have a “non-qualified health plan.” If you have a COMPANY health insurance plan, you’re good. If you have NOTHING, you’re good.

If you have a “non-qualified health plan,” past June 30th, there is a penalty. It is $100 per employee per day.

If you’ve been reimbursing some employees for some medical expenses, stop now. Give notice to everyone, something like “our plan is terminated as of May 31st.” It has to be a company-wide plan, or nothing.

If you’re a greater than 2% Shareholder of your own S corporation, you may still have health insurance for yourself.

More details can be found in IRS Notice 2013-54. This was further clarified in IRS Notice 2015-17.

Oh, and the rules are different if you have 50+ “full time equivalent” employees.

1099s and Update on Paying Foreign Persons for Services: 1099, 1042S or Nothing?

published January, 2015

Please work on your 1099s, if you need to prepare them for your business. Let me know if you need help, I’m preparing a limited number of 1099s and I have some form stock in house, or you can order the forms from the IRS (don’t forget the Form 1096 “Transmittal” to use as a cover sheet). You can file them on-line, but this is not yet a free service.

I went to a class in December and was able to ask an IRS expert specifically about reporting requirements for paying Foreign Persons for Services.

We all know if we pay an individual for services who is a US person or US resident, with some exceptions, they should probably get a Form 1099. These people have an SSN, a nine-digit number issued by the Social Security Administration.

If you pay someone for work DONE in the US who is a “non resident”—which means they are not a US citizen nor a resident alien, they should complete Form W-8BEN and you’ll issue them a Form 1042S. The question about who is a “Resident Alien” for purposes of this test, is complicated. These people have to get an ITIN, a nine digit number issued by the IRS which begins with the number 9, and has a range of 70-88 in the fourth and fifth digit.

If you pay a foreign person, who never comes to the US, does not do the work in the US, and doesn’t plan to come to the US, they get nothing: no 1099 and no 1042S. Keep copies of cancelled checks and an invoice to prove payment, in the event of audit.

Thanks Carlos!

Payroll for Apartment Managers

published October, 2013

In California, if you have an apartment building with more than 15 units, you are required to have a “responsible person” residing on the premises. If you have an apartment manager who is receiving reduced rent as “compensation” for keeping track of your building, can they file for unemployment or disability?

As we say in our payroll classes, anyone can FILE for unemployment or disability, but not everyone is eligible.

The IRS and California’s EDD say if “lodging” is furnished on the employer’s premises, for the employer’s convenience, and as a condition of employment, it is not subject to income tax nor income tax withholding, not Medicare nor Social Security (IRS Publication 15A, page 15)—which is ALMOST all the taxes. The three that are missing are CA Unemployment Insurance, CA Employment Training Tax and CA State Disability Insurance (DE-44, page 32, and DE-231TP). The value of lodging is not “income wages” but it is “subject wages.”—a fine distinction.The 2013 rate for SDI in California is 1%, but the SDI is normally withheld from the paycheck—and the employer is making this payment in addition to the value of the lodging— SO, to figure out the “wage base” to calculate the SDI tax, we have to add the tax paid to the value of the lodging. Mathematically, we take the lodging value/0.99 to get the wage base for SDI, UI and ETT (calculation found at DE-231Q). UI and ETT are taxes with rates that change per employer, and these two are limited to the first $7,000 of wages for each employee in 2013. SDI tax is limited to the first $100,880 paid to each employee for 2013.

How do you figure out the value of the rent reduction? Ideally the cash value of the rent reduction would be stated in an employment contract. You may have an idea based on the other 15 units in the building. The CA EDD also provides a minimum of $39.90 per week, or a maximum of $1,224 per month as an alternate method of determining value, or 2/3 of ordinary rental value (DE-44, page 11).

There are also minimum wage laws in California, but I’m just not going to get into that here! You might want to have them keep track of their hours and submit a timecard, and you should keep a copy.

The upshot of this complicated system is that it would appear apartment mangers ARE potentially eligible for Unemployment or State Disability, and as the apartment owner, you are responsible to report your employees and pay California employment tax for them, even though they have no “wages.”

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

S Corp Medical Insurance

published May, 2013

The most common issue I’ve run into this season was the S Corporation medical insurance issue for a greater than 2% shareholder.

I did write about this in October 2012’s newsletter (see this here: http://taxbuddha.com/newsletter/newsletter_2012_10.html)

If you’re the owner of an S corp and you want to deduct your medical insurance in the “most beneficial” way, the medical insurance payments need to appear on your W-2.

For more detailed information, see IRS Notice 2008-1 or
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporation-Compensation-and-Medical-Insurance-Issues

QuickBooks does a good job of recording and reporting this, if you’re using QuickBooks for you payroll. The setup is a two-part process, first setting up the payroll item in the payroll item list, then adding the item to the payroll records of the owners who are receiving wages from the corp. Once set up, you’ll need to include the item in the paycheck (which will happen automatically). This will then show up on the year end W-2 form properly.

If I’m preparing your payroll, make sure I know how much medical insurance the corp is paying for each quarter.

1099s and Other Tax Deadlines

published January, 2013

1099s and W-2’s are due out to contractors and employees by January 31st. Then copies with transmittal forms are due to the IRS by February 28th. Personal estimated payments for the fourth quarter of income from 2012 are due January 15th. Corporate returns are due March 15th and personal returns are due…um…I forget exactly when. (April 15 as per usual)

Have you made payments to an individual or partnership from your business in amounts over $600? For non-employee compensation, you must issue 1099-MISC forms in January 2013.

Have you heard about the 1099-K? It is a new (as of last year) 1099 that credit card processors have to issue to their merchants—so Visa, Paypal, AmEx, etc will be sending statements to you, if you’ve accepted credit cards this year. A copy will also go to the IRS so they can match the income reported to your tax return.

Here’s the news: if you’ve paid vendors with a credit card or Paypal, you DON’T have to include those payments on a 1099-MISC (the 1099-K is filed instead of the 1099-MISC per IRS instructions). So, now you have to keep track not only of what you paid, but how payment was rendered. If you’re using QuickBooks and populate the check number field with the following:
Gone are the days of bringing a stack of 1099s in to the office and saying “here’s all my income.” Some of your income may be duplicated if you accept credit cards, and you wouldn’t want to pay too much tax.

Get Ready for 1099s (Please!) (And info on 1099-K’s)

published December, 2012

Have you made payments to an individual or partnership from your business in amounts over $600? For non-employee compensation, we’ll issue 1099-MISC forms in January, 2013.

Now is the time to start gathering info for any vendors who need to receive 1099s from you. You need the (REAL) business name, address, tax ID# and amount paid.

Have you heard about the 1099-K? It is a new (as of last year) 1099 that credit card processors have to issue to their merchants – so Visa, Paypal, AmEx, etc will be sending statements to you, if you’ve accepted credit cards this year. A copy will also go to the IRS so they can match the income reported to your tax return.

Here’s the news: if you’ve paid vendors with a credit card or Paypal, you DON’T have to include those payments on a 1099-MISC (the 1099-K is filed instead of the 1099-MISC per IRS instructions). So, now you have to keep track not only of what you paid, but how payment was rendered. If you’re using QuickBooks and populate the check number field with the following:

  • Debit
  • Debitcar
  • DBT
  • DBT card
  • DCard
  • Debit cd
  • Visa
  • Masterc
  • MC
  • MCard
  • Chase
  • Discover
  • Diners
  • PayPal

QuickBooks will exclude the payment (as it should) from the regular 1099-MISC. (I guess they really like Chase bank, and really don’t care for AmEx.) This MIGHT make for less work (at least doing 1099s) but don’t worry, you make up for it in data entry.

So, what if you fail to exclude the credit card payments, and issue a 1099-MISC for the payments, and the credit card processor ALSO issues a 1099-K for the same income? The vendor may have some explaining to do on their tax return—and if this happens in reverse, we’ll have to explain it on your tax return.

Gone are the days of bringing a stack of 1099s into the office and saying “here’s all my income.” Some of your income may be duplicated if you accept credit cards, and you wouldn’t want to pay too much tax.