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Staying Informed on Payroll Regulations

What to Expect in 2013

Nadine Hughes, CPP VP Tax Services CompuPay, A BenefitMall Company

http://www.nfib.com/PayrollReg



Meet Our Speaker

Nadine Hughes, CPP

VP Tax Services

CompuPay, A BenefitMall Company





Why is it important to stay informed?




$$ M O N E Y $$

• Employee goodwill & confidence

• Potential interest & penalties from tax agencies

• Time/effort/fees for corrections & amendments

• Tax audits





What sources should you use?

• Industry publications and websites

• IRS and state websites (establish online account)

• State & local newsletters (free)

• Payroll service website and newsletters


Word of mouth is okay, but always verify with an official source!




IRS: Helping you stay informed!

•New redesign of irs.gov website

•New subscription services

•More non-English content

•New “Information for….” menu will more easily direct you based on role (individual business, nonprofit, tax professional, etc.)

•More search functionality with related forms with each search

•Display of a consistent footer on every page (links to other sites)

IRS Redesign




IRS Redesign




IRS Redesign




States help you stay informed!

•Many states are determining that an online system for communicating with employers is more efficient and cost effective.

•NJ will no longer send out annual rate determination letters; employers must retrieve online.

•Many states are requiring online reporting and electronic payments, with fees for paper filing/payments (FL).

•Benefit charge-back notices and response to benefit hearings are being delivered online (MA, NJ).

If you get a notice with logon instructions, take action!

State Online Website Use




State Trends to Watch




FUTA credit reductions are still here…..Why?

Outlook for FUTA for 2012

$5,129 11.46%

Average cost of an unemployment claim National annual benefit charge overpayment rate

$38,472,755,129 27

Title XII loans outstanding Number of states with insolvent state trust funds

27

States facing FUTA tax increase in 2012

Source: U.S. Department of Labor and TALX Corporation, as of 01/30/12




Known FUTA Reduction States for 2012

• Employers are at risk of losing their full offset credit against the 6.0% FUTA tax if they fail to pay off their Title XII loans to the US government.

• Normally the FUTA net tax with the offset is 0.6% on the first $7,000 of annual wages.

• As states are unable to pay off their huge loans, they lose part of the 5.4% possible offset.

• The loss of the full FUTA credits began back in 2009 with the State of Michigan loosing 0.3% of its credit. In 2010, two more states were added, SC and Indiana. In 2011, there were 21 states with higher FUTA taxes.

• Nevada and Connecticut have affirmed that they will be credit reduction states for 2012 tax filings.

• The Virgin Islands will have a 0.9% add-on based on their average tax rate for 2012.

•The final confirmed list of states with FUTA reduction credit for 2012 will not be available until November 2012. •All employers in the final states, will owe additional FUTA taxes for 2012!




Outstanding Title XII Loans (09/24/12)

State Outstanding Federal Loan

State Outstanding Federal Loan

Arizona

$271M Nevada $666M

Arkansas $280M New Jersey $824M

California $9,726M New York $3,058M

Connecticut $632M North Carolina $2,453M

Delaware $76M Ohio $1,789M

Florida $746M Rhode Island $240M

Georgia $651M South Carolina $676M

Indiana $1,763M Vermont $58M

Kentucky $918M Virgin Islands $42M

Missouri $569M Wisconsin $827M




Emerging State Payroll Trends

South Carolina revised its 2012 unemployment insurance tax rates in September retroactive for the entire year!

New Hampshire will revise some rates for Q4-2012 only. Minnesota: has begun charging $25.00 per employee wage record when an amendment is needed. Michigan: has revised individual income tax rates, effective 10/01/12 thru

12/31/12. New York: MTA (Metropolitan Transit tax) was found unconstitutional.

Potential refunds of taxes paid since 2009.




What Could Your Employees See in January Paychecks?

Tax cuts included in the federal income tax withholding tables will

expire December 31, 2012, unless lawmakers make changes before that date.

• Many changes to existing tax brackets will occur. Tax tables for

federal income tax withholding are based on collecting enough tax throughout the year to satisfy the annual liability.

• Many state income tax rates are based on the federal table!

• The “temporary tax holiday” will also expire which reduced Social

Security tax from 6.2% to 4.2%.

How will your employees react?




Projections for 2013

Payroll related projections for 2013 are hard to predict because they are tied to inflation, including those involving federal withholding, commuter transportation, and adoption assistance. The adjustments are made annually using a derivative of the formula in Internal Revenue Code Section 1(f)(3). The Internal Revenue Service typically publishes its official inflation-adjusted numbers in October. Because Congress is not likely to take action on the expiring provisions until the end of the year, IRS may not release its final numbers until January.




Projections for 2013—Best Guess

• The amount of one annual federal withholding allowance is projected to be $3,900.

• The monthly tax-free limit for qualified commuter highway vehicle transportation or transit passes is projected at $125, while the tax-free monthly amount an employer can provide to an employee in qualified parking benefits is projected to be $245.

• The maximum amount of qualified adoption expenses an employee can exclude is projected to be $12,970, which falls to $6,000 for the adoption of special-needs children and $5,000 for all other adoptions in 2013 if the provisions are not extended.

• The maximum amount of foreign-earned income that a U.S. citizen or resident living and working overseas may exclude for tax purposes is projected to be $97,600.




IRS Updates Special Per Diem Rates

• Special per diem rates for business expenses incurred

while traveling away from home were updated in IRS Notice 2012-63. These rates apply for fiscal year 2013 (starting Oct. 1, 2012).

• Rates are $242 for high-cost locations and $163 for other locations in the continental United States (CONUS).

• Meals is $65 for travel to a high-cost location and $52 for travel to other locations in US (transportation industry = $59 (CONUS or $65 for others).

• There are no changes in the list of high-cost locations for fiscal 2013.




New Trends from States Affecting Preparers

Pennsylvania: • Effective January 1, 2013, third-parties that prepare at least 50 PA-W3s

in a year must file electronically the next year, per the Department of Revenue.

• Third-party preparers continue to be subject to the electronic filing requirement in subsequent years, regardless of whether they file at least 50 PA-W3s in those years.

Michigan: • Will be validating SSN in the wage reports and penalizing for all “invalid”

SSN, including ITIN. Illinois: (SMART-Save Medicaid Access and Resources Together) • Illinois Department of Employment Security (IDES) will be administering

a new requirement to report employee wages each month as well as quarterly wage reporting. Required initially for employers of 250+ employees, but under consideration for 25+ employees.




Potential Changes??

California:

Lawmakers recently passed initial legislation that could create the nation’s first state-run retirement plans (SB1234) for private-sector workers. All employers would need to automatically set-up a 3% savings program unless the employee opts out.

Federal Proposal on Student Loans:

Congressional staff are working on a legislative proposal which would require student loan repayments to be handled through employer withholding, flowing through to the IRS similar to tax deposits, using EFTPS. This could mean aggregate payments, requiring quarterly reporting for individual payments.




Supreme Court Upholds Health Care Law

The Supreme Court upheld the Patient Protection an Affordable Care Act (Pub. L. 111-148) on June 28, leaving payroll-related provisions intact.

• Under the health care law, employers are required to report the

aggregate cost of employer-sponsored group health coverage on employees' Forms W-2, wage and tax statements.

• Health insurance plans continue to cover nondependent children up to age 27 under a parent’s policy, with coverage tax-free to the employee.

• Provisions that take effect in 2013 limit the annual pretax deductible

amount for health flexible spending accounts to $2,500 in 2013.


http://www.supremecourt.gov/opinions/11pdf/11-393c3a2.pdf



Health Care Law and Medicare Tax

Employers must withhold an extra 0.9 percent in Medicare taxes for high-income earners (wages over $200,000.) • IRS announced recently employers would not need to separate the

additional Medicare amounts from the total on be reported on Forms W-2 starting in 2013

• Normal Medicare tax rate is 1.45%; wages over $200,000 will be taxed at 2.35%.

• Form 941 has been altered to account for reporting the additional

Medicare tax in 2013.




New Medicare Tax

The IRS has issued FAQs, published on their website, to help employers and payroll service providers accommodate the requirement to withhold an extra 0.9 percent in Medicare taxes for high-income earners starting in 2013.

The additional tax applies to individuals' wages, other compensation, and self-employment income.

Most of the FAQs deal with employer and service-provider issues, such as when an employer must withhold the additional tax, Medicare wages greater than $200,000 in a year, fringe benefits, group-term life insurance, and third-party sick pay.

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Questions-and-Answers-for-the-Additional-Medicare-Tax


http://www.irs.gov/businesses/small/article/0,,id=258201,00.html


























IRS Issues Guidance Related to Tipped Employee Taxation

• IRS released clarification on taxes related to tips under the Federal Insurance Contributions Act and audits on June 20.

• Revenue Ruling 2012-18 guidance in a question-and-answer format on the taxes imposed on tips. Includes the difference between tips and service charges, reporting of the employer share of FICA, and the FICA tip credit).

• SBSE-04-0612-057 guidelines for examiners auditing businesses where tipping is customary.


http://op.bna.com/hrlw.nsf/id/tbue-8vgk49/$File/IRS Rev. Rul. 2012-18.pdf



http://op.bna.com/hrlw.nsf/id/tbue-8vgk4r/$File/IRS Interim Guidance Memo %28SBSE-04-0612-057%29.pdf










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Download the Changes for Tax Year 2013 handout


http://www.nfib.com/payroll

http://www.nfib.com/Portals/0/PDF/AllUsers/benefits/webinars/2013_Tax_Changes.pdf

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