Can You Dock a Salaried Exempt Employee’s
Salary for a Day Not Worked?
:: Karen Randle
Director, Human Resource Services
G. R. Reid Consulting Services, LLC
www.grreidconsulting.com
Whether a deduction is permissible or impermissible for an exempt employee will depend on the facts in the particular case. The general rule is to stick to company policy and heed the list of permissible and nonpermissible deductions under the Fair Labor Standards Act (FLSA). The FLSA does not regulate vacation, severance, sick, and holiday pay or rest and meal times. Most of these are a matter of company policy and should be enforced in a nondiscriminatory manner. In addition, be aware that many state laws do regulate areas that the FLSA does not. In these cases, the state law would control.
Deductions may be made when the employee is absent from work for a full day or more for personal reasons other than sickness or disability. Thus, if an employee is absent for a day or longer to handle personal affairs, his or her salaried status will not be affected if deductions are made from the salary for such absences. If an employee is absent for less than a day, he or she must be paid for the full day.
Thursday, February 24, 2011
Wednesday, February 16, 2011
Tax News
The President's FY 2012 budget proposals include scores of tax proposals for businesses, individuals, and investors
: : Jason Reid Saladino, CPA, PFS
Managing Partner | G.R. Reid Associates, LLP
631.425.1800 ext. 309
http://www.grrcpas.com
On February 14, the President issued his FY 2012 budget proposals, accompanied by the Treasury's release of its “General Explanations of the Administration's Fiscal Year 2012 Revenue Proposals. These documents reveal that the Administration has a robust agenda of tax proposals it will try to get Congress to enact. There are scores of changes for businesses, individuals and investors.
Tax proposals for businesses and investors include:
• Expanding the research credit by nearly 20% and making it permanent.
• Revamping the Federal Unemployment Tax Act (FUTA) tax. Currently, the tax is 6.2% through June of 2011, and 6.0% for the remainder of calendar year 2011 and later years. It's levied on the first $7,000 paid each employee as wages during the calendar year. Under the budget proposal, the FUTA rate would remain at 6.2% after June of 2011, and, beginning in 2014, the FUTA wage base would be raised to $14,000.
• Repealing the use of the LIFO inventory accounting method. Taxpayers currently use this method would be required to write up their beginning LIFO inventory to its FIFO value in the first tax year beginning after Dec. 31, 2012, but this one-time increase in gross income would be taken into account ratably over ten years, beginning with the first tax year beginning after Dec. 31, 2012. • Taxing as ordinary income a partner's share of income on an “investment services partnership interest” (ISPI) in an investment partnership, regardless of the character of the income at the partnership level. The partner would have to pay self-employment taxes on such income, and gain recognized on the sale of an ISPI would generally be taxed as ordinary income, not as capital gain. In general, an ISPI would be defined as a carried interest in an investment partnership that is held by a person who provides services to the partnership. These changes would apply for tax years beginning after Dec. 31, 2011.
• Barring a deduction for punitive damages. Where the liability for punitive damages is covered by insurance, such damages paid or incurred by the insurer would be included in the gross income of the insured person. These changes would apply to damages paid or incurred after Dec. 31, 2012.
• Repealing the lower-of-cost-or-market inventory accounting method, and the subnormal goods method, effective for tax years beginning after Dec. 31, 2012.
• Repeal the additional information reporting requirements imposed by the Affordable Care Act, but requiring businesses to file an information return for payments for services or for determinable gains aggregating to $600 or more in a calendar year to a corporation (except a tax-exempt corporation).
• Permitting IRS to require prospective reclassification of workers who are currently misclassified and whose reclassification has been prohibited under current law. This would apply upon enactment, with a transition rule.
• Replacing the current deduction for energy efficient commercial building property with a more generous and effective tax credit that will encourage building owners to retrofit their properties.
• Making permanent the Section 179 rule allowing up to $125,000 to be expensed. (Under current law, the maximum expensing amount is $500,000 for tax years beginning in 2010 or 2011, dropping down to $125,000 for tax years beginning in 2012, and then falling to $25,000 for tax years beginning after 2012.)
Tax proposals for individuals include:
... Allowing the 2001 and 2003 tax cuts to expire for households making more than $250,000 per year, and restoring the estate tax to 2009 levels. Both these changes would be effective beginning in 2013.
... Limiting the tax subsidy for itemized deductions for high-income families to 28%.
... Making the American Opportunity Tax Credit permanent (under current law, it won't apply after 2012).
... Permitting borrowers to exclude loan forgiveness on certain student debt provided that they have met their repayment obligations for the 25-year period required by Federal repayment programs. (For many students on income-contingent or income-based repayment plans, at the end of their payment plans any outstanding balance on their loans is forgiven. Under current law, those forgiven amounts are taxable.)
... Increasing tax credits for child care and dependent care expenses, and permanently expanding the Earned Income Tax Credit for families with 3 or more Children.
... Providing for “Automatic IRAs” in the workplace and giving employers automatically enrolling their employees in IRAs tax credits of up to $250 a year for two years.
... Eliminating required minimum distributions (RMDs) for taxpayers with aggregate IRA and tax favored retirement plan account balances of $50,000 or less, effective for taxpayers attaining age 70-1/2 after Dec. 31, 2011.
... Allowing a surviving non-spouse beneficiary to make 60-day rollovers from a retirement plan or IRA to a non-spousal inherited IRA, effective for distributions after Dec. 31, 2011.
: : Jason Reid Saladino, CPA, PFS
Managing Partner | G.R. Reid Associates, LLP
631.425.1800 ext. 309
http://www.grrcpas.com
On February 14, the President issued his FY 2012 budget proposals, accompanied by the Treasury's release of its “General Explanations of the Administration's Fiscal Year 2012 Revenue Proposals. These documents reveal that the Administration has a robust agenda of tax proposals it will try to get Congress to enact. There are scores of changes for businesses, individuals and investors.
Tax proposals for businesses and investors include:
• Expanding the research credit by nearly 20% and making it permanent.
• Revamping the Federal Unemployment Tax Act (FUTA) tax. Currently, the tax is 6.2% through June of 2011, and 6.0% for the remainder of calendar year 2011 and later years. It's levied on the first $7,000 paid each employee as wages during the calendar year. Under the budget proposal, the FUTA rate would remain at 6.2% after June of 2011, and, beginning in 2014, the FUTA wage base would be raised to $14,000.
• Repealing the use of the LIFO inventory accounting method. Taxpayers currently use this method would be required to write up their beginning LIFO inventory to its FIFO value in the first tax year beginning after Dec. 31, 2012, but this one-time increase in gross income would be taken into account ratably over ten years, beginning with the first tax year beginning after Dec. 31, 2012. • Taxing as ordinary income a partner's share of income on an “investment services partnership interest” (ISPI) in an investment partnership, regardless of the character of the income at the partnership level. The partner would have to pay self-employment taxes on such income, and gain recognized on the sale of an ISPI would generally be taxed as ordinary income, not as capital gain. In general, an ISPI would be defined as a carried interest in an investment partnership that is held by a person who provides services to the partnership. These changes would apply for tax years beginning after Dec. 31, 2011.
• Barring a deduction for punitive damages. Where the liability for punitive damages is covered by insurance, such damages paid or incurred by the insurer would be included in the gross income of the insured person. These changes would apply to damages paid or incurred after Dec. 31, 2012.
• Repealing the lower-of-cost-or-market inventory accounting method, and the subnormal goods method, effective for tax years beginning after Dec. 31, 2012.
• Repeal the additional information reporting requirements imposed by the Affordable Care Act, but requiring businesses to file an information return for payments for services or for determinable gains aggregating to $600 or more in a calendar year to a corporation (except a tax-exempt corporation).
• Permitting IRS to require prospective reclassification of workers who are currently misclassified and whose reclassification has been prohibited under current law. This would apply upon enactment, with a transition rule.
• Replacing the current deduction for energy efficient commercial building property with a more generous and effective tax credit that will encourage building owners to retrofit their properties.
• Making permanent the Section 179 rule allowing up to $125,000 to be expensed. (Under current law, the maximum expensing amount is $500,000 for tax years beginning in 2010 or 2011, dropping down to $125,000 for tax years beginning in 2012, and then falling to $25,000 for tax years beginning after 2012.)
Tax proposals for individuals include:
... Allowing the 2001 and 2003 tax cuts to expire for households making more than $250,000 per year, and restoring the estate tax to 2009 levels. Both these changes would be effective beginning in 2013.
... Limiting the tax subsidy for itemized deductions for high-income families to 28%.
... Making the American Opportunity Tax Credit permanent (under current law, it won't apply after 2012).
... Permitting borrowers to exclude loan forgiveness on certain student debt provided that they have met their repayment obligations for the 25-year period required by Federal repayment programs. (For many students on income-contingent or income-based repayment plans, at the end of their payment plans any outstanding balance on their loans is forgiven. Under current law, those forgiven amounts are taxable.)
... Increasing tax credits for child care and dependent care expenses, and permanently expanding the Earned Income Tax Credit for families with 3 or more Children.
... Providing for “Automatic IRAs” in the workplace and giving employers automatically enrolling their employees in IRAs tax credits of up to $250 a year for two years.
... Eliminating required minimum distributions (RMDs) for taxpayers with aggregate IRA and tax favored retirement plan account balances of $50,000 or less, effective for taxpayers attaining age 70-1/2 after Dec. 31, 2011.
... Allowing a surviving non-spouse beneficiary to make 60-day rollovers from a retirement plan or IRA to a non-spousal inherited IRA, effective for distributions after Dec. 31, 2011.
Tax News
New Reporting Provisions Effective for the First Time in 2011
: : Jason Reid Saladino, CPA, PFS
Managing Partner | G.R. Reid Associates, LLP
631.425.1800 ext. 309
http://www.grrcpas.com
The tax laws enacted in the last couple of years contain important income tax and information reporting provisions that are effective for the first time in 2011. To inform you of what's new in the tax rules, here's a summary of the key tax changes for 2011, broken down into three categories: Personal Income Taxes, Retirement Plan Changes, and Tax Changes for Businesses and Investors.
Personal Income Taxes
Payroll tax holiday in place.
Employees will pay only 4.2% (instead of the usual 6.2%) OASDI (Social Security) tax on compensation received during 2011 up to $106,800 (the wage base for 2011). Similarly, for tax years beginning in 2011, self-employed persons will pay only 10.4% Social Security self-employment taxes on self-employment income up to $106,800. In either case, the maximum savings for 2011 will be $2,136 (2% of $106,800) per taxpayer. If both spouses earn at least as much as the wage base, the maximum savings will be $4,272.
Stricter rules apply to energy saving home improvements.
You can claim a tax credit for energy saving home improvements you make this year, but stricter rules apply for 2011 than for 2010. You can only claim a 10% credit for qualified energy property placed in service in 2011 up to a $500 lifetime limit (with no more than $200 from windows and skylights). What's more, the credit you claim for any year can't exceed $500 less the total of the credits you claimed for all earlier tax years ending after Dec. 31, 2005. The amount you claim for windows and skylights in a year can't exceed $200 less the total of the credits you claimed for these items in all earlier tax years ending after Dec. 31, 2005. The credit is equal to the sum of: (1) 10% of the amount you pay or incur for qualified energy efficient improvements (such as insulation, exterior windows or doors that meet certain energy efficient standards) installed during the year; and (2) the amount of the residential energy property expenses you paid or incurred during the year.
The credit for residential energy property expenses can't exceed: (A) $50 for an advanced main circulating fan; (B) $150 for any qualified natural gas, propane, or hot water boiler; and (C) $300 for any item of energy efficient property (advanced types of energy saving equipment, such as electric heat pumps, meeting specific energy efficient standards).
Partial annuitization of annuity contracts.
When you receive non-retirement-plan annuity payments from an annuity contract, part of each payment is a tax-free recovery of your basis (cost of the annuity contract for tax purposes), and part is a taxable distribution of earnings. For amounts received in tax years beginning after Dec. 31, 2010, taxpayers may partially annuitize such an annuity (or endowment, or life insurance) contract. If you receive an annuity for a period of 10 years or more, or over one or more lives, under any portion of an annuity, endowment, or life insurance contract, then that portion is treated as a separate contract for annuity taxation purposes. The net effect is that the annuitized portion is treated as a separate contract, and each annuity payment from that portion is partially a tax-free recovery of basis and partially a taxable distribution of earnings. Absent this rule, the payments might have been treated as coming out of income before recovery of any basis. The portion of the contract that is not annuitized is also treated as a separate contract and will continue to earn income on a tax-deferred basis.
Restricted definition of medicine for health plan reimbursements.
Beginning this year, the cost of over-the-counter medicines can't be reimbursed with excludible income through a health flexible spending arrangement (FSA), health reimbursement account (HRA), health savings account (HSA), or Archer MSA (medical savings account), unless the medicine is prescribed by a doctor or is insulin. This new rule applies to amounts paid after 2010. However, it does not apply to amounts paid in 2011 for medicines or drugs bought before Jan. 1, 2011. Also, for distributions after 2010, the additional tax on distributions from an HSA that are not used for qualified medical expenses increases from 10% to 20% of the disbursed amount, and the additional tax on distributions from an Archer MSA that are not used for qualified medical expenses increases from 15% to 20% of the disbursed amount.
Retirement Plan Changes
Small employers may establish “simple cafeteria plans.”
For years beginning after Dec. 31, 2010, small employers (those having an average of 100 or fewer employees on business days during either of the two preceding years) may provide employees with a “simple cafeteria plan.” An employer that uses this type of plan gets a safe harbor from the nondiscrimination requirements for cafeteria plans as well as from the nondiscrimination requirements for certain types of qualified benefits offered under a cafeteria plan, including group term life insurance, benefits under a self-insured medical expense reimbursement plan, and benefits under a dependent care assistance program.
Election to treat January 2011 charitable distributions as made in 2010. If you are age 70 1/2 or older, you can make tax-free distributions to a charity from an Individual Retirement Account (IRA) of up to $100,000. This applies for charitable IRA transfers made in tax years beginning before Jan. 1, 2012. In addition, if you make such a distribution in January of 2011, you can treat it for income tax purposes as if it were made on Dec. 31, 2010. Thus, a qualified charitable distribution made in January of 2011 may be treated as made in your 2010 tax year and count against the $100,000 exclusion for 2010. It also may be used to satisfy your IRA required minimum distribution for 2010.
Tax Changes for Businesses and Investors
Electronic filing rules now in place.
Beginning Jan. 1, 2011, employers must use electronic funds transfer (EFT) to make all federal tax deposits (such as deposits of employment tax, excise tax, and corporate income tax). Forms 8109 and 8109-B, Federal Tax Deposit Coupon, cannot be used after Dec. 31, 2010.
Up-to-$1,000 credit for “retained workers” in 2011.
Employers may claim a “retention credit” for retaining qualifying new employees (certain formerly unemployed workers meeting specific requirements). The amount of the credit is the lesser of $1,000 or 6.2% of wages paid to the retained qualified employee during a 52 consecutive week period. The qualified employee's wages for such employment during the last 26 weeks must equal at least 80% of wages for the first 26 weeks. The credit may be claimed for a retained worker for the first tax year ending after Mar. 18, 2010, for which the retained worker satisfies the 52 consecutive week requirement. However, the credit applies only for qualifying employees hired after Feb. 3, 2010, and before Jan. 1, 2011.
New basis and character reporting rules.
Generally effective on Jan. 1, 2011, every broker required to file an information return reporting the gross proceeds of a “covered security” such as corporate stock must include in the return the customer's adjusted basis in the security and whether any gain or loss with respect to the security is short-term or long-term. The reporting is generally done on Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions.” A covered security includes all stock acquired beginning in 2011, except stock in certain regulated investment companies (i.e, mutual funds) and stock acquired in connection with a dividend reinvestment plan (both of which are covered securities if acquired beginning in 2012).
Corporate actions that affect stock basis must be reported. Effective Jan. 1, 2011, issuers of “specified securities” must file a return describing any organizational action (e.g., stock split, merger, or acquisition) that affects the basis of the specified security, the quantitative effect on the basis of that specified security, and any other information required by the IRS. The issuer's return (and information to nominees or certificate holders) must be filed within 45 days after the date of the organizational action or, if earlier, by January 15th of the year following the calendar year during which the action occurred. Nominees or certificate holders must (unless the IRS waives this requirement) be given a written statement showing (1) the name, address, and telephone number of the information contact of the person required to file the return, (2) the information required to be included on the return for the security, and (3) any other information required by the IRS. In general, a specified security is any share of stock in an entity organized as, or treated for federal tax purposes as, a foreign or domestic corporation.
Reporting requirement for payment card and third-party payment transactions.
After 2010, banks generally must file an information return with the IRS reporting the gross amount of credit and debit card payments a merchant receives during the year, along with the merchant's name, address, and taxpayer identification number (TIN). Similar reporting is also required for third party network transactions (e.g., those facilitating online sales).
Information reporting for real estate.
For payments made after Dec. 31, 2010, for information reporting purposes, a person receiving rental income from real estate is treated as engaged in the trade or business of renting property. As a result, recipients of rental income from real estate generally are subject to the same information reporting requirements as taxpayers engaged in a trade or business. In particular, rental income recipients making payments of $600 or more during the tax year to a service provider (such as a plumber, painter, or accountant) in the course of earning rental income must provide an information return (typically Form 1099-MISC) to the IRS and to the service provider.
The rental property expense payment reporting requirement doesn't apply to: (1) an individual who receives rental income of not more than a minimal amount (to be determined by the IRS); (2) any individual (including one who is an active member of the uniformed services or an employee of the intelligence community) if substantially all of his or her rental income is derived from renting the individual's principal residence (main home) on a temporary basis; or (3) any other individual for whom the information reporting requirement would cause hardship (to be defined by the IRS).
: : Jason Reid Saladino, CPA, PFS
Managing Partner | G.R. Reid Associates, LLP
631.425.1800 ext. 309
http://www.grrcpas.com
The tax laws enacted in the last couple of years contain important income tax and information reporting provisions that are effective for the first time in 2011. To inform you of what's new in the tax rules, here's a summary of the key tax changes for 2011, broken down into three categories: Personal Income Taxes, Retirement Plan Changes, and Tax Changes for Businesses and Investors.
Personal Income Taxes
Payroll tax holiday in place.
Employees will pay only 4.2% (instead of the usual 6.2%) OASDI (Social Security) tax on compensation received during 2011 up to $106,800 (the wage base for 2011). Similarly, for tax years beginning in 2011, self-employed persons will pay only 10.4% Social Security self-employment taxes on self-employment income up to $106,800. In either case, the maximum savings for 2011 will be $2,136 (2% of $106,800) per taxpayer. If both spouses earn at least as much as the wage base, the maximum savings will be $4,272.
Stricter rules apply to energy saving home improvements.
You can claim a tax credit for energy saving home improvements you make this year, but stricter rules apply for 2011 than for 2010. You can only claim a 10% credit for qualified energy property placed in service in 2011 up to a $500 lifetime limit (with no more than $200 from windows and skylights). What's more, the credit you claim for any year can't exceed $500 less the total of the credits you claimed for all earlier tax years ending after Dec. 31, 2005. The amount you claim for windows and skylights in a year can't exceed $200 less the total of the credits you claimed for these items in all earlier tax years ending after Dec. 31, 2005. The credit is equal to the sum of: (1) 10% of the amount you pay or incur for qualified energy efficient improvements (such as insulation, exterior windows or doors that meet certain energy efficient standards) installed during the year; and (2) the amount of the residential energy property expenses you paid or incurred during the year.
The credit for residential energy property expenses can't exceed: (A) $50 for an advanced main circulating fan; (B) $150 for any qualified natural gas, propane, or hot water boiler; and (C) $300 for any item of energy efficient property (advanced types of energy saving equipment, such as electric heat pumps, meeting specific energy efficient standards).
Partial annuitization of annuity contracts.
When you receive non-retirement-plan annuity payments from an annuity contract, part of each payment is a tax-free recovery of your basis (cost of the annuity contract for tax purposes), and part is a taxable distribution of earnings. For amounts received in tax years beginning after Dec. 31, 2010, taxpayers may partially annuitize such an annuity (or endowment, or life insurance) contract. If you receive an annuity for a period of 10 years or more, or over one or more lives, under any portion of an annuity, endowment, or life insurance contract, then that portion is treated as a separate contract for annuity taxation purposes. The net effect is that the annuitized portion is treated as a separate contract, and each annuity payment from that portion is partially a tax-free recovery of basis and partially a taxable distribution of earnings. Absent this rule, the payments might have been treated as coming out of income before recovery of any basis. The portion of the contract that is not annuitized is also treated as a separate contract and will continue to earn income on a tax-deferred basis.
Restricted definition of medicine for health plan reimbursements.
Beginning this year, the cost of over-the-counter medicines can't be reimbursed with excludible income through a health flexible spending arrangement (FSA), health reimbursement account (HRA), health savings account (HSA), or Archer MSA (medical savings account), unless the medicine is prescribed by a doctor or is insulin. This new rule applies to amounts paid after 2010. However, it does not apply to amounts paid in 2011 for medicines or drugs bought before Jan. 1, 2011. Also, for distributions after 2010, the additional tax on distributions from an HSA that are not used for qualified medical expenses increases from 10% to 20% of the disbursed amount, and the additional tax on distributions from an Archer MSA that are not used for qualified medical expenses increases from 15% to 20% of the disbursed amount.
Retirement Plan Changes
Small employers may establish “simple cafeteria plans.”
For years beginning after Dec. 31, 2010, small employers (those having an average of 100 or fewer employees on business days during either of the two preceding years) may provide employees with a “simple cafeteria plan.” An employer that uses this type of plan gets a safe harbor from the nondiscrimination requirements for cafeteria plans as well as from the nondiscrimination requirements for certain types of qualified benefits offered under a cafeteria plan, including group term life insurance, benefits under a self-insured medical expense reimbursement plan, and benefits under a dependent care assistance program.
Election to treat January 2011 charitable distributions as made in 2010. If you are age 70 1/2 or older, you can make tax-free distributions to a charity from an Individual Retirement Account (IRA) of up to $100,000. This applies for charitable IRA transfers made in tax years beginning before Jan. 1, 2012. In addition, if you make such a distribution in January of 2011, you can treat it for income tax purposes as if it were made on Dec. 31, 2010. Thus, a qualified charitable distribution made in January of 2011 may be treated as made in your 2010 tax year and count against the $100,000 exclusion for 2010. It also may be used to satisfy your IRA required minimum distribution for 2010.
Tax Changes for Businesses and Investors
Electronic filing rules now in place.
Beginning Jan. 1, 2011, employers must use electronic funds transfer (EFT) to make all federal tax deposits (such as deposits of employment tax, excise tax, and corporate income tax). Forms 8109 and 8109-B, Federal Tax Deposit Coupon, cannot be used after Dec. 31, 2010.
Up-to-$1,000 credit for “retained workers” in 2011.
Employers may claim a “retention credit” for retaining qualifying new employees (certain formerly unemployed workers meeting specific requirements). The amount of the credit is the lesser of $1,000 or 6.2% of wages paid to the retained qualified employee during a 52 consecutive week period. The qualified employee's wages for such employment during the last 26 weeks must equal at least 80% of wages for the first 26 weeks. The credit may be claimed for a retained worker for the first tax year ending after Mar. 18, 2010, for which the retained worker satisfies the 52 consecutive week requirement. However, the credit applies only for qualifying employees hired after Feb. 3, 2010, and before Jan. 1, 2011.
New basis and character reporting rules.
Generally effective on Jan. 1, 2011, every broker required to file an information return reporting the gross proceeds of a “covered security” such as corporate stock must include in the return the customer's adjusted basis in the security and whether any gain or loss with respect to the security is short-term or long-term. The reporting is generally done on Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions.” A covered security includes all stock acquired beginning in 2011, except stock in certain regulated investment companies (i.e, mutual funds) and stock acquired in connection with a dividend reinvestment plan (both of which are covered securities if acquired beginning in 2012).
Corporate actions that affect stock basis must be reported. Effective Jan. 1, 2011, issuers of “specified securities” must file a return describing any organizational action (e.g., stock split, merger, or acquisition) that affects the basis of the specified security, the quantitative effect on the basis of that specified security, and any other information required by the IRS. The issuer's return (and information to nominees or certificate holders) must be filed within 45 days after the date of the organizational action or, if earlier, by January 15th of the year following the calendar year during which the action occurred. Nominees or certificate holders must (unless the IRS waives this requirement) be given a written statement showing (1) the name, address, and telephone number of the information contact of the person required to file the return, (2) the information required to be included on the return for the security, and (3) any other information required by the IRS. In general, a specified security is any share of stock in an entity organized as, or treated for federal tax purposes as, a foreign or domestic corporation.
Reporting requirement for payment card and third-party payment transactions.
After 2010, banks generally must file an information return with the IRS reporting the gross amount of credit and debit card payments a merchant receives during the year, along with the merchant's name, address, and taxpayer identification number (TIN). Similar reporting is also required for third party network transactions (e.g., those facilitating online sales).
Information reporting for real estate.
For payments made after Dec. 31, 2010, for information reporting purposes, a person receiving rental income from real estate is treated as engaged in the trade or business of renting property. As a result, recipients of rental income from real estate generally are subject to the same information reporting requirements as taxpayers engaged in a trade or business. In particular, rental income recipients making payments of $600 or more during the tax year to a service provider (such as a plumber, painter, or accountant) in the course of earning rental income must provide an information return (typically Form 1099-MISC) to the IRS and to the service provider.
The rental property expense payment reporting requirement doesn't apply to: (1) an individual who receives rental income of not more than a minimal amount (to be determined by the IRS); (2) any individual (including one who is an active member of the uniformed services or an employee of the intelligence community) if substantially all of his or her rental income is derived from renting the individual's principal residence (main home) on a temporary basis; or (3) any other individual for whom the information reporting requirement would cause hardship (to be defined by the IRS).
Monday, February 14, 2011
Health Benefit Services News
Special Enrollment Period (SEP) Extended through February 28, 2011
:: Julie Seiden
Managing Director, Health Benefit Services
G.R. Reid Consulting Services, LLC
The Centers for Medicare and Medicaid Services (CMS) announced an extension of the Special Enrollment Period which now runs through February 28, 2011. This extension is for Medicare Advantage (MA) and Part D plan (PDP) beneficiaries that have recently experienced a plan Non-Renewal (NR) or Service Area Reduction (SAR). Be aware that CMS is now mailing a SEP reminder and extended enrollment deadline notice to those beneficiaries nationwide who were originally enrolled in a 2010 non-renewing plan and, currently still have not chosen prescription drug coverage (via either an MA-PD or PDP). The CMS notification to these beneficiaries will specifically explain that the non-renewal Special Election Period has been extended by CMS through February 28, 2011.
:: Julie Seiden
Managing Director, Health Benefit Services
G.R. Reid Consulting Services, LLC
The Centers for Medicare and Medicaid Services (CMS) announced an extension of the Special Enrollment Period which now runs through February 28, 2011. This extension is for Medicare Advantage (MA) and Part D plan (PDP) beneficiaries that have recently experienced a plan Non-Renewal (NR) or Service Area Reduction (SAR). Be aware that CMS is now mailing a SEP reminder and extended enrollment deadline notice to those beneficiaries nationwide who were originally enrolled in a 2010 non-renewing plan and, currently still have not chosen prescription drug coverage (via either an MA-PD or PDP). The CMS notification to these beneficiaries will specifically explain that the non-renewal Special Election Period has been extended by CMS through February 28, 2011.
Human Resource News
Tips For Conducting Great Interviews
:: Deidre Siegel
Director, Human Resource Services
G. R. Reid Consulting Services, LLC
The key ingredient to a company’s success always circles back to the people working in the organization. The heart, the pulse, the “soul” of a company’s anatomy if you will, extends from every level of talent you hire and retain. As you look to hire future talent to take your business to greater levels of success, do you think about the impression you leave on the potential new hire during the selection process? To master the best practices of impressionable and successful interviews, a business owner or hiring manager needs to create a vision of how you want your company and the position/opportunity to be perceived and received. Here is a list of suggestions that will be important for each meeting you have with a prospective new talent you are considering for hire.
Make Yourself Available for Interviews | There have been countless occasions where a candidate often has to wait weeks for the first interview and weeks for follow up interviews. Make yourself available by allowing a specific designated weekly timeframe in your schedule to conduct interviews.
Show Up and Be on Time for Interviews | Standing a candidate up, or having them wait outside your office for more than 15 minutes is not acceptable. The idea that you are more important, or that your time is more valuable speaks volumes about your management style and company culture to the person waiting.
Be Prepared for The Interview | Read the resumes of everyone before the actual interview. Have questions prepared beforehand and remember to let the candidate speak, too. Provide important details about the position, and just as importantly about the organization. Know what you are looking for beyond the skill set necessary for the position. Who is the person that will fit in best with your unique business culture? Who succeeds in your organization? Who underperforms in your current talent pool? What qualities are the most important to you? Think about the types of questions you ask, first. Are they appropriate questions? Are they legal? Tailor your questions to understand the tenure and the true depth of knowledge on the specific subject matter that the candidate has. (see more hyperlink to blog)
Avoid “Analysis Paralysis” | With the amount of candidates available, the task of culling resumes takes longer. If you have had the opportunity of meeting with 3 or 4 candidates that would be ideal for you, the longer you stretch out the process, the faster this talent will be scooped up by another company.
Communicate! | There is nothing worse than being on the other side knowing you had a great interview(s), the position is something that resonates with you, and there is absolutely no feedback from the business owner/hiring manager. Any communication is better than no communication at all.
Undivided Attention, Please | Be present. Focus is the name of the game. During any interview, just as you would expect from the candidate, turn mobile devices off. Undivided attention will highlight your level of professionalism, seriousness and respect for the process and the candidate.
Cheap is Cheap. | Be realistic about the compensation range for the open position. If it is a replacement position, you should have that historical information. If it is a new position, do your homework.
With a keen sense of self awareness and preparation, you can be confident that you will impress and attract the talent that you want to represent and succeed in your organization.
:: Deidre Siegel
Director, Human Resource Services
G. R. Reid Consulting Services, LLC
The key ingredient to a company’s success always circles back to the people working in the organization. The heart, the pulse, the “soul” of a company’s anatomy if you will, extends from every level of talent you hire and retain. As you look to hire future talent to take your business to greater levels of success, do you think about the impression you leave on the potential new hire during the selection process? To master the best practices of impressionable and successful interviews, a business owner or hiring manager needs to create a vision of how you want your company and the position/opportunity to be perceived and received. Here is a list of suggestions that will be important for each meeting you have with a prospective new talent you are considering for hire.
Make Yourself Available for Interviews | There have been countless occasions where a candidate often has to wait weeks for the first interview and weeks for follow up interviews. Make yourself available by allowing a specific designated weekly timeframe in your schedule to conduct interviews.
Show Up and Be on Time for Interviews | Standing a candidate up, or having them wait outside your office for more than 15 minutes is not acceptable. The idea that you are more important, or that your time is more valuable speaks volumes about your management style and company culture to the person waiting.
Be Prepared for The Interview | Read the resumes of everyone before the actual interview. Have questions prepared beforehand and remember to let the candidate speak, too. Provide important details about the position, and just as importantly about the organization. Know what you are looking for beyond the skill set necessary for the position. Who is the person that will fit in best with your unique business culture? Who succeeds in your organization? Who underperforms in your current talent pool? What qualities are the most important to you? Think about the types of questions you ask, first. Are they appropriate questions? Are they legal? Tailor your questions to understand the tenure and the true depth of knowledge on the specific subject matter that the candidate has. (see more hyperlink to blog)
Avoid “Analysis Paralysis” | With the amount of candidates available, the task of culling resumes takes longer. If you have had the opportunity of meeting with 3 or 4 candidates that would be ideal for you, the longer you stretch out the process, the faster this talent will be scooped up by another company.
Communicate! | There is nothing worse than being on the other side knowing you had a great interview(s), the position is something that resonates with you, and there is absolutely no feedback from the business owner/hiring manager. Any communication is better than no communication at all.
Undivided Attention, Please | Be present. Focus is the name of the game. During any interview, just as you would expect from the candidate, turn mobile devices off. Undivided attention will highlight your level of professionalism, seriousness and respect for the process and the candidate.
Cheap is Cheap. | Be realistic about the compensation range for the open position. If it is a replacement position, you should have that historical information. If it is a new position, do your homework.
With a keen sense of self awareness and preparation, you can be confident that you will impress and attract the talent that you want to represent and succeed in your organization.
Monday, February 7, 2011
Wage Theft Protection Act
The Wage Theft Prevention Act is creating new recordkeeping obligations for employers and becomes effective on April 12, 2011.
Notice Obligations for New Hires
Currently, New York Labor Law Section 195(1) mandates that employers inform all new hires in writing of their regular rate of pay, pay day, and overtime rate, if applicable. Employers must obtain a written acknowledgment from the new hire that this information was provided to them in writing. Upon the Wage Theft Prevention Act’s April 12, 2011, effective date, the written notice must also include additional information, such as the method of payment, (hour, shift, day, week, salary, piece, or commission), as well as whether any allowances will be claimed as part of the minimum wage (tips, meals or lodging). Employers will be required to furnish this information in both English and the employee’s primary language.
Annual Notice Obligations for All Employees
The new law also requires that employers provide all current employees with a notice annually, reiterating their pay rate and other mandated information and obtain a written acknowledgment that the notice was received before February 1st of each year. Being that the law does not go into effect until April 12th of this year, the first time employers will be asked to do this is prior to February 1st of 2012.
Additional Notice Obligations
The new law also requires employers to provide a written notice at least seven days before any changes to the information contained in the employee’s most recent notice are implemented, unless the modifications are reflected in the employee’s wage statement. Therefore, the wage statement must include the following information: dates of work covered by the payment, employee name, employer name, address and telephone number, hours worked, rates paid and basis thereof (e.g., hour, day, or week), gross wages, credits/allowances claimed (e.g., tips, meals and lodging), deductions, and net wages.
Recordkeeping Requirements
Remaining consistent with current requirements for payroll records, all required notices, statements, and acknowledgments must be maintained for six years.
Notice Obligations for New Hires
Currently, New York Labor Law Section 195(1) mandates that employers inform all new hires in writing of their regular rate of pay, pay day, and overtime rate, if applicable. Employers must obtain a written acknowledgment from the new hire that this information was provided to them in writing. Upon the Wage Theft Prevention Act’s April 12, 2011, effective date, the written notice must also include additional information, such as the method of payment, (hour, shift, day, week, salary, piece, or commission), as well as whether any allowances will be claimed as part of the minimum wage (tips, meals or lodging). Employers will be required to furnish this information in both English and the employee’s primary language.
Annual Notice Obligations for All Employees
The new law also requires that employers provide all current employees with a notice annually, reiterating their pay rate and other mandated information and obtain a written acknowledgment that the notice was received before February 1st of each year. Being that the law does not go into effect until April 12th of this year, the first time employers will be asked to do this is prior to February 1st of 2012.
Additional Notice Obligations
The new law also requires employers to provide a written notice at least seven days before any changes to the information contained in the employee’s most recent notice are implemented, unless the modifications are reflected in the employee’s wage statement. Therefore, the wage statement must include the following information: dates of work covered by the payment, employee name, employer name, address and telephone number, hours worked, rates paid and basis thereof (e.g., hour, day, or week), gross wages, credits/allowances claimed (e.g., tips, meals and lodging), deductions, and net wages.
Recordkeeping Requirements
Remaining consistent with current requirements for payroll records, all required notices, statements, and acknowledgments must be maintained for six years.
Tuesday, February 1, 2011
Estate & Gift Tax Changes for 2011
Overview of The New Law
The 2010 Tax Relief Act provides temporary relief. Among other changes, it reduces estate, gift and generation-skipping transfer (GST) taxes for 2011 and 2012. It preserves estate tax repeal for 2010, but in a roundabout way: estates wanting zero estate tax for 2010 must elect that option, along with the less favorable modified carryover basis rules that were set to apply for 2010. Otherwise, by default, the estate tax is revived for 2010, with a $5 million exemption, a top tax rate of 35%, and a step-up in basis. Also, for estates of decedents dying after Dec. 31, 2010, a deceased spouse's unused exemption may be shifted to the surviving spouse. However, these generous rules are temporary—much harsher rules are slated to return after 2012.
:: Lower rate and higher exemption for 2011 and 2012
For estates of individuals dying in 2009, the top estate tax rate was 45% and there was a $3.5 million exemption. The top rate was to rise to 55% for estates of individuals dying after 2010, and the exemption was to be $1 million. For 2011 and 2012, the 2010 Tax Relief Act reduces the top rate to 35%. It also increases the exemption to $5 million for 2011 with a further increase for inflation in 2012. But these changes are temporary. After 2012, the top rate will be 55%, and the exemption will be $1 million.
:: Special tax saving choice for 2010
The 2010 Tax Relief Act allows estates of decedents who died in 2010 to choose between (1) estate tax (based on a $5 million exemption and 35% top rate) and a step-up in basis, or (2) no estate tax and modified carryover basis. Basis is the yardstick for measuring income tax gain or loss when an asset is sold. With a step-up in basis, pre-death gain is eliminated because the basis in the heir's hands is increased to the date of death value of the asset. On the other hand, with a modified carryover basis, an heir gets the decedent's original basis, plus certain increases, which can be substantial. Even so, if the decedent had a relatively low basis and significant assets, some pre-death gain may be taxed when the heir sells the property. These concerns factor into the special choice for 2010. The executor should make whichever choice would produce the lowest combined estate and income taxes for the estate and its beneficiaries. This would depend, among other factors, on the decedent's basis in the assets immediately before death and how soon the estate beneficiaries may sell the assets.
:: Gift tax changes
Years ago, the gift tax and the estate tax were unified—they shared a single exemption and were subject to the same rates. This was not the case in recent years. For example, in 2010, the top gift tax rate was 35% and the exemption was $1 million. For gifts made after Dec. 31, 2010, the gift tax and estate tax are reunified and an overall $5 million exemption applies.
GST tax changes. The GST tax is an additional tax on gifts and bequests to grandchildren when their parents are still alive. The 2010 Tax Relief Act lowers GST taxes for 2011 and 2012 by increasing the exemption amount from $1 million to $5 million (as indexed after 2011) and reducing the rate from 55% to 35%.
:: New portability feature
Under the 2010 Tax Relief Act, any exemption that remains unused as of the death of a spouse who dies after Dec. 31, 2010 and before Jan. 1, 2013 is generally available for use by the surviving spouse in addition to his or her own $5 million exemption for taxable transfers made during life or at death. Under prior law, the exemption of the first spouse to die would be lost if not used. This could happen where the spouse with resources below the exemption amount died before the richer spouse. One way to address that was to set up a trust for the poorer spouse. Now, the portability rule may make setting up a trust unnecessary in some cases. But there still may be other reasons to employ credit shelter trusts. For example, a credit shelter trust may protect appreciation occurring between the death of the first spouse and the death of the second spouse from being subject to estate tax. Such a trust also can protect against creditors. Plus, the transferred exemption may be lost if the surviving spouse remarries and is again widowed.
Tax Breaks For This Filing Season
Key Changes
:: Roth IRA rollovers no longer restricted
You can now make a qualified rollover contribution to a Roth IRA, regardless of the amount of your modified adjusted gross income.
:: Income from Roth rollover can be spread out
Half of any income that results from a rollover or conversion to a Roth IRA from another retirement plan in 2010 is included in income in 2011, and the other half in 2012, unless you elect to include all of it in 2010.
:: Self-employed health insurance deduction
Effective March 30, 2010, a self-employed person who paid for health insurance may be able to include in his self-employed health insurance deduction any premiums he paid to cover his child who was under age 27 at the end of 2010, even if the child was not his dependent. Also, health insurance costs for a taxpayer and his family are deductible in computing 2010 self-employment tax.
:: Small business health insurance credit
There's a new tax credit for an eligible small employer who makes qualifying contributions to buy health insurance for his employees. This credit is very complex but it can yield substantial tax savings. In general, the credit is 35% of premiums paid and can be taken against regular and alternative minimum tax.
:: Limits on personal exemptions and itemized deductions ended
You no longer lose part of your deduction for personal exemptions and itemized deductions, regardless of the amount of your adjusted gross income.
:: Personal casualty and theft loss limit reduced
Each personal casualty or theft loss is limited to the excess of the loss over $100 (instead of the $500 limit that applied for 2009). This yields larger deductions and thus greater tax savings for affected individuals.
:: Corrosive drywall damage
A taxpayer who paid for repairs to his personal residence or household appliances because of corrosive drywall that was installed between 2001 and 2008 may be able to deduct those amounts as casualty losses under a special safe harbor crafted by the IRS.
:: Homebuyer credit
An eligible first-time homebuyer (and a long-term resident treated as a first-time homebuyer) may be able to claim a first-time homebuyer credit for a home that was purchased in 2010. To qualify, the home must have cost $800,000 or less. You generally cannot claim the credit for a home you bought after April 30, 2010. However, you may be able to claim the credit if you entered into a written binding contract before May 1, 2010, to buy the home before July 1, 2010, and actually bought the home before October 1, 2010.
:: Adoption credit
The maximum adoption credit is $13,170 per eligible child for both non-special needs adoptions and special needs adoptions. In addition, the adoption credit is refundable, i.e., you get the credit even if it exceeds your taxes.
:: Gifts to charity
The provision that excludes up to $100,000 of qualified charitable distributions (distributions to a charity from an Individual Retirement Account) has been extended. If you elect, a qualified charitable distribution made in January of 2011, will be treated as made in 2010.
:: Enhanced small business expensing (Section 179 expensing)
To help small businesses quickly recover the cost of capital outlays, small business taxpayers can elect to write off these expenditures in the year they are made instead of recovering them through depreciation. For 2010, you generally may expense up to $500,000 of qualifying property placed in service during the tax year. This annual limit is reduced by the amount by which the cost of property placed in service exceeds $2,000,000.
:: Special depreciation allowance
Businesses that acquire and place qualified property into service after September 8, 2010 can now claim a depreciation allowance in the placed-in-service year equal to 100% of the cost of the property. Businesses that acquired qualified property from January 1, 2010 through September 8, 2010 can claim a bonus first-year depreciation allowance of 50% of the cost of the property.
:: Cellular telephones
Cellular telephones (cell phones) and other similar telecommunications equipment have been removed from the categories of “listed property.” This means that cell phones can be deducted or depreciated like other business property, without onerous record keeping requirements.
:: Carryback of general business credits
Generally, a business's unused general business credits can be carried back to offset taxes paid in the previous year, and the remaining amount can be carried forward for 20 years to offset future tax liabilities. However, for 2010, eligible small businesses can carry back unused general business credits for five years instead of just one.
:: Luxury auto limits
First-year luxury auto limits for vehicles first placed in service in 2010 are $11,060 for autos and $11,160 for light trucks or vans (for vehicles ineligible for bonus depreciation, or if the taxpayer elects out, $3,060 and $3,160, respectively).
Important Tax Changes for 2011
Personal Income Taxes
:: Payroll tax holiday in place
Employees will pay only 4.2% (instead of the usual 6.2%) OASDI (Social Security) tax on compensation received during 2011 up to $106,800 (the wage base for 2011). Similarly, for tax years beginning in 2011, self-employed persons will pay only 10.4% Social Security self-employment taxes on self-employment income up to $106,800. In either case, the maximum savings for 2011 will be $2,136 (2% of $106,800) per taxpayer. If both spouses earn at least as much as the wage base, the maximum savings will be $4,272.
:: Stricter rules apply to energy saving home improvements
You can claim a tax credit for energy saving home improvements you make this year, but stricter rules apply for 2011 than for 2010. You can only claim a 10% credit for qualified energy property placed in service in 2011 up to a $500 lifetime limit (with no more than $200 from windows and skylights). What's more, the credit you claim for any year can't exceed $500 less the total of the credits you claimed for all earlier tax years ending after Dec. 31, 2005. The amount you claim for windows and skylights in a year can't exceed $200 less the total of the credits you claimed for these items in all earlier tax years ending after Dec. 31, 2005. The credit is equal to the sum of: (1) 10% of the amount you pay or incur for qualified energy efficient improvements (such as insulation, exterior windows or doors that meet certain energy efficient standards) installed during the year, and (2) the amount of the residential energy property expenses you paid or incurred during the year. The credit for residential energy property expenses can't exceed: (A) $50 for an advanced main circulating fan; (B) $150 for any qualified natural gas, propane, or hot water boiler; and (C) $300 for any item of energy efficient property (advanced types of energy saving equipment, such as electric heat pumps, meeting specific energy efficient standards).
:: Partial annuitization of annuity contracts
When you receive non-retirement-plan annuity payments from an annuity contract, part of each payment is a tax-free recovery of your basis (cost of the annuity contract for tax purposes), and part is a taxable distribution of earnings. For amounts received in tax years beginning after Dec. 31, 2010, taxpayers may partially annuitize such an annuity (or endowment, or life insurance) contract. If you receive an annuity for a period of 10 years or more, or over one or more lives, under any portion of an annuity, endowment, or life insurance contract, then that portion is treated as a separate contract for annuity taxation purposes. The net effect is that the annuitized portion is treated as a separate contract, and each annuity payment from that portion is partially a tax-free recovery of basis and partially a taxable distribution of earnings. Absent this rule, the payments might have been treated as coming out of income before recovery of any basis. The portion of the contract that is not annuitized is also treated as a separate contract and will continue to earn income on a tax-deferred basis.
:: Restricted definition of medicine for health plan reimbursements. Beginning this year, the cost of over-the-counter medicines can't be reimbursed with excludible income through a health flexible spending arrangement (FSA), health reimbursement account (HRA), health savings account (HSA), or Archer MSA (medical savings account), unless the medicine is prescribed by a doctor or is insulin. This new rule applies to amounts paid after 2010. However, it does not apply to amounts paid in 2011 for medicines or drugs bought before Jan. 1, 2011. Also, for distributions after 2010, the additional tax on distributions from an HSA that are not used for qualified medical expenses increases from 10% to 20% of the disbursed amount, and the additional tax on distributions from an Archer MSA that are not used for qualified medical expenses increases from 15% to 20% of the disbursed amount.
Retirement Plan Changes
:: Small employers may establish “simple cafeteria plans.”
For years beginning after Dec. 31, 2010, small employers (those having an average of 100 or fewer employees on business days during either of the two preceding years) may provide employees with a “simple cafeteria plan.” An employer that uses this type of plan gets a safe harbor from the nondiscrimination requirements for cafeteria plans as well as from the nondiscrimination requirements for certain types of qualified benefits offered under a cafeteria plan, including group term life insurance, benefits under a self-insured medical expense reimbursement plan, and benefits under a dependent care assistance program.
Election to treat January 2011 charitable distributions as made in 2010. If you are age 70 1/2 or older, you can make tax-free distributions to a charity from an Individual Retirement Account (IRA) of up to $100,000. This applies for charitable IRA transfers made in tax years beginning before Jan. 1, 2012. In addition, if you make such a distribution in January of 2011, you can treat it for income tax purposes as if it were made on Dec. 31, 2010. Thus, a qualified charitable distribution made in January of 2011 may be treated as made in your 2010 tax year and count against the $100,000 exclusion for 2010. It is also may be used to satisfy your IRA required minimum distribution for 2010.
Tax Changes for Businesses and Investors
:: Electronic filing rules now in place
Beginning Jan. 1, 2011, employers must use electronic funds transfer (EFT) to make all federal tax deposits (such as deposits of employment tax, excise tax, and corporate income tax). Forms 8109 and 8109-B, Federal Tax Deposit Coupon, cannot be used after Dec. 31, 2010.
:: Up-to-$1,000 credit for “retained workers” in 2011
Employers may claim a “retention credit” for retaining qualifying new employees (certain formerly unemployed workers meeting specific requirements). The amount of the credit is the lesser of $1,000 or 6.2% of wages you pay to the retained qualified employee during a 52 consecutive week period. The qualified employee's wages for such employment during the last 26 weeks must equal at least 80% of wages for the first 26 weeks. The credit may be claimed for a retained worker for the first tax year ending after Mar. 18, 2010, for which the retained worker satisfies the 52 consecutive week requirement. However, the credit applies only for qualifying employees hired after Feb. 3, 2010, and before Jan. 1, 2011.
:: New basis and character reporting rules
Generally effective on Jan. 1, 2011, every broker required to file an information return reporting the gross proceeds of a “covered security” such as corporate stock must include in the return the customer's adjusted basis in the security and whether any gain or loss with respect to the security is short-term or long-term. The reporting is generally done on Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions.” A covered security includes all stock acquired beginning in 2011, except stock in certain regulated investment companies (i.e, mutual funds) and stock acquired in connection with a dividend reinvestment plan (both of which are covered securities if acquired beginning in 2012).
:: Corporate actions that affect stock basis must be reported
Effective Jan. 1, 2011, issuers of “specified securities” must file a return describing any organizational action (e.g., stock split, merger, or acquisition) that affects the basis of the specified security, the quantitative effect on the basis of that specified security, and any other information required by IRS. The issuer's return (and information to nominees or certificate holders) must be filed within 45 days after the date of the organizational action or, if earlier, by January 15th of the year following the calendar year during which the action occurred. Nominees or certificate holders must (unless the IRS waives this requirement) be given a written statement showing (1) the name, address, and telephone number of the information contact of the person required to file the return, (2) the information required to be included on the return for the security, and (3) any other information required by the IRS. In general, a specified security is any share of stock in an entity organized as, or treated for federal tax purposes as, a foreign or domestic corporation.
:: Reporting requirement for payment card and third-party payment transactions
After 2010, banks generally must file an information return with the IRS reporting the gross amount of credit and debit card payments a merchant receives during the year, along with the merchant's name, address, and TIN. Similar reporting is also required for third party network transactions (e.g., those facilitating online sales).
:: Information reporting for real estate
For payments made after Dec. 31, 2010, for information reporting purposes, a person receiving rental income from real estate is treated as engaged in the trade or business of renting property. As a result, recipients of rental income from real estate generally are subject to the same information reporting requirements as taxpayers engaged in a trade or business. In particular, rental income recipients making payments of $600 or more during the tax year to a service provider (such as a plumber, painter, or accountant) in the course of earning rental income must provide an information return (typically Form 1099-MISC) to the IRS and to the service provider. The rental property expense payment reporting requirement doesn't apply to: (1) an individual who receives rental income of not more than a minimal amount (to be determined by the IRS); (2) any individual (including one who is an active member of the uniformed services or an employee of the intelligence community) if substantially all of his or her rental income is derived from renting the individual's principal residence (main home) on a temporary basis; or (3) any other individual for whom the information reporting requirement would cause hardship (to be defined by the IRS).
:: Payroll tax holiday in place
Employees will pay only 4.2% (instead of the usual 6.2%) OASDI (Social Security) tax on compensation received during 2011 up to $106,800 (the wage base for 2011). Similarly, for tax years beginning in 2011, self-employed persons will pay only 10.4% Social Security self-employment taxes on self-employment income up to $106,800. In either case, the maximum savings for 2011 will be $2,136 (2% of $106,800) per taxpayer. If both spouses earn at least as much as the wage base, the maximum savings will be $4,272.
:: Stricter rules apply to energy saving home improvements
You can claim a tax credit for energy saving home improvements you make this year, but stricter rules apply for 2011 than for 2010. You can only claim a 10% credit for qualified energy property placed in service in 2011 up to a $500 lifetime limit (with no more than $200 from windows and skylights). What's more, the credit you claim for any year can't exceed $500 less the total of the credits you claimed for all earlier tax years ending after Dec. 31, 2005. The amount you claim for windows and skylights in a year can't exceed $200 less the total of the credits you claimed for these items in all earlier tax years ending after Dec. 31, 2005. The credit is equal to the sum of: (1) 10% of the amount you pay or incur for qualified energy efficient improvements (such as insulation, exterior windows or doors that meet certain energy efficient standards) installed during the year, and (2) the amount of the residential energy property expenses you paid or incurred during the year. The credit for residential energy property expenses can't exceed: (A) $50 for an advanced main circulating fan; (B) $150 for any qualified natural gas, propane, or hot water boiler; and (C) $300 for any item of energy efficient property (advanced types of energy saving equipment, such as electric heat pumps, meeting specific energy efficient standards).
:: Partial annuitization of annuity contracts
When you receive non-retirement-plan annuity payments from an annuity contract, part of each payment is a tax-free recovery of your basis (cost of the annuity contract for tax purposes), and part is a taxable distribution of earnings. For amounts received in tax years beginning after Dec. 31, 2010, taxpayers may partially annuitize such an annuity (or endowment, or life insurance) contract. If you receive an annuity for a period of 10 years or more, or over one or more lives, under any portion of an annuity, endowment, or life insurance contract, then that portion is treated as a separate contract for annuity taxation purposes. The net effect is that the annuitized portion is treated as a separate contract, and each annuity payment from that portion is partially a tax-free recovery of basis and partially a taxable distribution of earnings. Absent this rule, the payments might have been treated as coming out of income before recovery of any basis. The portion of the contract that is not annuitized is also treated as a separate contract and will continue to earn income on a tax-deferred basis.
:: Restricted definition of medicine for health plan reimbursements. Beginning this year, the cost of over-the-counter medicines can't be reimbursed with excludible income through a health flexible spending arrangement (FSA), health reimbursement account (HRA), health savings account (HSA), or Archer MSA (medical savings account), unless the medicine is prescribed by a doctor or is insulin. This new rule applies to amounts paid after 2010. However, it does not apply to amounts paid in 2011 for medicines or drugs bought before Jan. 1, 2011. Also, for distributions after 2010, the additional tax on distributions from an HSA that are not used for qualified medical expenses increases from 10% to 20% of the disbursed amount, and the additional tax on distributions from an Archer MSA that are not used for qualified medical expenses increases from 15% to 20% of the disbursed amount.
Retirement Plan Changes
:: Small employers may establish “simple cafeteria plans.”
For years beginning after Dec. 31, 2010, small employers (those having an average of 100 or fewer employees on business days during either of the two preceding years) may provide employees with a “simple cafeteria plan.” An employer that uses this type of plan gets a safe harbor from the nondiscrimination requirements for cafeteria plans as well as from the nondiscrimination requirements for certain types of qualified benefits offered under a cafeteria plan, including group term life insurance, benefits under a self-insured medical expense reimbursement plan, and benefits under a dependent care assistance program.
Election to treat January 2011 charitable distributions as made in 2010. If you are age 70 1/2 or older, you can make tax-free distributions to a charity from an Individual Retirement Account (IRA) of up to $100,000. This applies for charitable IRA transfers made in tax years beginning before Jan. 1, 2012. In addition, if you make such a distribution in January of 2011, you can treat it for income tax purposes as if it were made on Dec. 31, 2010. Thus, a qualified charitable distribution made in January of 2011 may be treated as made in your 2010 tax year and count against the $100,000 exclusion for 2010. It is also may be used to satisfy your IRA required minimum distribution for 2010.
Tax Changes for Businesses and Investors
:: Electronic filing rules now in place
Beginning Jan. 1, 2011, employers must use electronic funds transfer (EFT) to make all federal tax deposits (such as deposits of employment tax, excise tax, and corporate income tax). Forms 8109 and 8109-B, Federal Tax Deposit Coupon, cannot be used after Dec. 31, 2010.
:: Up-to-$1,000 credit for “retained workers” in 2011
Employers may claim a “retention credit” for retaining qualifying new employees (certain formerly unemployed workers meeting specific requirements). The amount of the credit is the lesser of $1,000 or 6.2% of wages you pay to the retained qualified employee during a 52 consecutive week period. The qualified employee's wages for such employment during the last 26 weeks must equal at least 80% of wages for the first 26 weeks. The credit may be claimed for a retained worker for the first tax year ending after Mar. 18, 2010, for which the retained worker satisfies the 52 consecutive week requirement. However, the credit applies only for qualifying employees hired after Feb. 3, 2010, and before Jan. 1, 2011.
:: New basis and character reporting rules
Generally effective on Jan. 1, 2011, every broker required to file an information return reporting the gross proceeds of a “covered security” such as corporate stock must include in the return the customer's adjusted basis in the security and whether any gain or loss with respect to the security is short-term or long-term. The reporting is generally done on Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions.” A covered security includes all stock acquired beginning in 2011, except stock in certain regulated investment companies (i.e, mutual funds) and stock acquired in connection with a dividend reinvestment plan (both of which are covered securities if acquired beginning in 2012).
:: Corporate actions that affect stock basis must be reported
Effective Jan. 1, 2011, issuers of “specified securities” must file a return describing any organizational action (e.g., stock split, merger, or acquisition) that affects the basis of the specified security, the quantitative effect on the basis of that specified security, and any other information required by IRS. The issuer's return (and information to nominees or certificate holders) must be filed within 45 days after the date of the organizational action or, if earlier, by January 15th of the year following the calendar year during which the action occurred. Nominees or certificate holders must (unless the IRS waives this requirement) be given a written statement showing (1) the name, address, and telephone number of the information contact of the person required to file the return, (2) the information required to be included on the return for the security, and (3) any other information required by the IRS. In general, a specified security is any share of stock in an entity organized as, or treated for federal tax purposes as, a foreign or domestic corporation.
:: Reporting requirement for payment card and third-party payment transactions
After 2010, banks generally must file an information return with the IRS reporting the gross amount of credit and debit card payments a merchant receives during the year, along with the merchant's name, address, and TIN. Similar reporting is also required for third party network transactions (e.g., those facilitating online sales).
:: Information reporting for real estate
For payments made after Dec. 31, 2010, for information reporting purposes, a person receiving rental income from real estate is treated as engaged in the trade or business of renting property. As a result, recipients of rental income from real estate generally are subject to the same information reporting requirements as taxpayers engaged in a trade or business. In particular, rental income recipients making payments of $600 or more during the tax year to a service provider (such as a plumber, painter, or accountant) in the course of earning rental income must provide an information return (typically Form 1099-MISC) to the IRS and to the service provider. The rental property expense payment reporting requirement doesn't apply to: (1) an individual who receives rental income of not more than a minimal amount (to be determined by the IRS); (2) any individual (including one who is an active member of the uniformed services or an employee of the intelligence community) if substantially all of his or her rental income is derived from renting the individual's principal residence (main home) on a temporary basis; or (3) any other individual for whom the information reporting requirement would cause hardship (to be defined by the IRS).
Subscribe to:
Posts (Atom)