Money Talks Jan / Feb 2012
Payroll Tax Cut
Following a deal made late on December 22, the House and Senate passed the Temporary Payroll Tax Cut Continuation Act of 2011 on December 23, which was then signed by President Obama.
The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2% to 4.2% of wages paid through February 29, 2012. Self-employed individuals will continue to pay 10.4% on self-employment tax. This reduced Social Security withholding will have no effect on employees’ future Social Security benefits.
Employers should implement the new payroll tax rate as soon as possible in 2012 but no later than January 31, 2012. For any Social Security tax over-withheld during January, employers need to make an offsetting adjustment in workers’ pay as soon as possible but no later than March 31, 2012. View the IRS 2012 Percentage Method Tables for Income Tax Withholding.
PBS will keep you updated as new information is announced. If you have questions about how this Act affects your business, please contact your PBS payroll specialist. ***Updated February 22, 2012 - Payroll Tax Cut Extended Through 2012
Alabama Immigration Law & E-Verify Enrollment
On June 9, 2011, Alabama Governor Robert Bentley signed into law the Beason-Hammon Alabama Taxpayer and Citizen Protection Act. On September 28, 2011, U.S. Federal District Judge Sharon Blackburn temporarily enjoined (stopped from going into effect) certain portions of the Act. On October 14, 2011, the 11th Circuit Court of Appeals enjoined two additional provisions.
Nevertheless, almost all of the provisions affecting Alabama employers remain in place and impose significant new immigration compliance obligations with severe consequences if you fail to comply - including inability to contract with public entities and loss of business license and permits.
The compliance deadline is January 1, 2012 for those Alabama employers in any type of a contractual relationship with the state of Alabama, or any city, county or political subdivision. All other Alabama employers with one or more employees will have to be fully compliant by April 1, 2012.
We urge you to enroll in the US Citizenship and Immigration Services E-Verify and make sure Form I-9 is in compliance with federal requirements for all workers.
PBS Seminar Immigration Law & Everify Seminar on March 13
IRS Worker Voluntary Classification Settlement Program
The IRS launched a program that will enable employers to resolve past worker classification issues by voluntarily reclassifying their workers and making a minimal payment covering past payroll tax obligations, rather than waiting for an IRS audit. This program is part of the “Fresh Start” initiative by the IRS to help taxpayers address their tax responsibilities.
Under the Voluntary Classification Settlement Program (VCSP), eligible employers can obtain relief from past federal payroll taxes if they prospectively treat workers as employees. The VCSP is available to businesses, tax-exempt organizations and government entities that erroneously treated workers as non-employees or independent contractors, and now want to correctly treat these workers as employees.
To be eligible for VCSP program, an employer must:
- Consistently have treated the workers in the past as non-employees,
- Have filed all required 1099 Forms for the workers for the previous three years,
- Not currently be under audit by the IRS, and
- Not currently be under audit by the Department of Labor or a state agency concerning the classification of these workers.
- Interested employers can apply for the program by filing Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before they want to begin treating the workers as employees.
Employers accepted into the VCSP program will pay an amount equaling just over 1% of the wages paid to the reclassified workers for the past year, with no interest or penalties due. Employers will not be audited on payroll taxes related to these workers for prior years. For the first three years under the program, employers will be subject to a special six-year statute of limitations, rather than the usual three years that generally applies to payroll taxes.
For full details from the IRS about the VCSP...
IRS Worker Classification Webinar on February 15
IRS 2012 Mileage Rates
The IRS issued the 2012 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Taxpayers may use these rates in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and businesses to reimburse their employees for mileage.
The only adjustment made was a reduction in the medical and moving rate by 0.5 cents to 23 cents. The business and charitable rates are unchanged at 55.5 and 14 cents per mile, respectively.
Federal Reserve 2012 Bank Holidays
| New Year's Day | January 2 | Labor Day | September 3 | |
| MLK Day | January 16 | Columbus Day | October 8 | |
| President's Day | February 20 | Veterans Day | November 12 | |
| Memorial Day | May 28 | Thanksgiving Day | November 22 | |
| Independence Day | July 4 | Christmas Day | December 25 |
For holidays falling on Saturday, Federal Reserve Banks and Branches will be open the preceding Friday. For holidays falling on Sunday, all Federal Reserve offices will be closed the following Monday.
1099 Reporting Reminder
As a reminder, 1099s are due to recipients at the end of January, with the government forms being due at the end of February. Sole proprietorships, partnerships, corporations, nonprofit organizations, and governmental units are required to report payments made in the course of trade or business. Generally, payments made to corporations do not have to be reported, with a few exceptions noted below.
In addition to payments of interest, dividends, retirement distributions, and the acquisition and abandonment of secured property, payments of $600 or more generally are required to be reported to partnerships, limited liability companies, and individuals who are not employees on a Form 1099-MISC.
Types of payments reported on Form 1099-MISC include, but are not limited to:
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Amounts paid to attorneys should be reported on a Form 1099-MISC when the payment is made in the regular course of trade or business, and totals $600 or more, regardless of the type of entity. Payments to attorneys for legal services rendered to your business are generally treated as nonemployee compensation, and reported in box 7. Other payments to attorneys, such as in claim settlements, may be treated as “Gross proceeds paid to attorneys,” and reported in box 14 of Form 1099-MISC.
Payments made to corporations are not reported on 1099s, except for the following, which are reportable:
- Medical and healthcare payments
- Fish purchases for cash
- Attorney’s fees that are nonemployee compensation
- Gross proceeds paid to an attorney
- Substitute payments in lieu of dividends or tax-exempt interest
- Payments made by a federal executive agency for services (vendors)
Penalties for failing to file 1099s on time can range from $30 to $100 per 1099. If it is determined that there is an intentional disregard of the 1099 filing requirements, the penalty is at least $250 per 1099.
If you have independent contractors that were paid through our payroll system in 2011, PBS will automatically prepare Form 1099-MISC. If your independent contractors were not paid through our payroll system, contact PBS to about filing the 1099 forms for you. Please provide a copy of all 1099s, received or sent, to your tax provider for the preparation of your tax return.
Still Processing Payroll In-House?
The American Payroll Association’s 2011 Survey of Salaries and the Payroll Profession reported that less than 50% of respondents do their entire payroll processing in-house, down from almost 54% in 2009. Almost 15% process their payroll partially in-house and outsource for other parts of the process, up from 10.5% in 2009.
One reason for this increase in companies removing the payroll burden from their in-house operations may be due the ever-increasing, complicated federal, state, and local tax laws. Businesses are also looking for ways to reduce overhead and expenses and the costs of payroll often less than when processing in-house.
Are you considering outsourcing payroll? PBS has helped many companies with their transition to our outsourced payroll solution. Contact Anna Kathryn Ellis at aellis@pbspay.com or (205) 271-5407.
Client Referral Program
If you know of someone that isn't currently using PBS, please let us know. We will give you a free month of our services or a $50 Summit gift card for each referral that results in a new client. The best compliment you can give us is a REFERRAL.
IRS Circular 230 Notice: Federal regulations apply to written communications (including emails) regarding federal tax matters between our firm and our clients. Pursuant to these federal regulations, we inform you that any U.S. federal tax advice in this communication (including any attachments) is not intended or written to be used, and cannot be used, by the addressee or any other person or entity for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
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