Money Talks News March 2011

Updates to IRS Forms

Form 941: Federal law requires employers to withhold taxes from your employees' paychecks. Each time you pay wages, you must withhold – or take out of your employees' paychecks – certain amounts for federal income tax, social security tax, and Medicare tax.

Under the withholding system, taxes withheld from your employees are credited to your employees in payment of their tax liabilities. Federal law also requires you to pay any liability for the employer's portion of social security and Medicare taxes.

File your initial Form 941 for the quarter in which you first paid wages that are subject to social security and Medicare taxes or subject to federal income tax withholding. You must file every quarter after the initial filing, even if you have no taxes to report.

Form 941, Employer’s Quarterly Federal Tax Return, was updated in January 2011. A new line was added – 5e, Section 3121(q) Notice and Demand - Tax due on unreported tips.

W-2: The IRS issued a draft Form W-2 for 2011 that employers can use to report wages and employee tax withholding.

The draft Form W-2 includes the codes that employers may use to report the cost of coverage under an employer-sponsored group health plan in 2011.

Although reporting the cost of coverage is optional in 2011, the IRS stresses that the amounts reported are not taxable. The new reporting requirement is intended to be informational only and to provide employees with transparency into overall health care costs.

The Treasury Department and the IRS determined that this relief is necessary to provide employers the time they need to make changes to their payroll systems or procedures in preparation for compliance with the new reporting requirement.

IRS Forms Now Available Online Only

Business taxpayers will no longer receive additional tax packages (including Form 941) in the mail from the IRS. Click here for the forms and publications no longer being mailed.

Beware Increased Monitoring and Penalties

Increased Penalties for Late or Missing Forms W-2: The Small Business Jobs Act of 2010 raised penalty amounts and thresholds related to failure to file and furnish correct employee pay statements, effective January 1, 2011.

Increased IRS Audits: To help collect more tax revenue in this era of budget deficits, the IRS kicked off an employment-tax audit program that focuses on employee misclassification, executive compensation, and fringe benefits. The IRS is also increasing efforts to ensure tax compliance among employees who collect tips.

Employment verification/immigration: U.S. Immigration and Customs Enforcement (ICE) continues to crack down on companies knowingly hiring undocumented aliens. This topic is expected to get increased attention in 2011. 

PBS Partnership With Exspend

Payroll & Benefit Solutions announces its partnership with Exspend of Birmingham, a leading provider of expense management solutions.

The eXspend system automates the expense reimbursement process, provides robust reporting and improves efficiency around the expense management process for PBS clients.

To read the full article or request a demonstration...

Reminder about EFTPS

Effective January 1, 2011, the IRS is no longer accepting federal tax deposits made with Form 8109. Federal taxes must be paid via the Electronic Federal Tax Payment System (EFTPS) unless taxpayers owe $2,500 or less with their quarterly Form 941 or annual Form(s) 943 or 944.

Using EFTPS is beneficial to taxpayers because it gives you the ability to make tax payments online or by telephone, 24-hours a day, seven days a week. EFTPS also significantly reduces payment-related errors that could result in a penalty. Failure to make accurate, timely payments using EFTPS could result in a 10% failure-to-deposit penalty.

Payroll Tax Cuts Boost Employee Take-Home Pay

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, enacted on December 17, 2010, includes several changes impacting workers’ take-home pay for 2011.

The Tax Relief Act extends the income tax rates that were scheduled to expire at the end of 2010 for two years. The extension prevents a large increase in federal income tax withholding. However, the new law does not extend the Making Work Pay (MWP) credit that has been available for tax years 2009 and 2010.

In December 2010, the IRS published new federal income tax withholding information to reflect the impact of the Tax Relief Act. The fact that the MWP credit expired, by itself, would have resulted in increased withholding for most taxpayers.

However, under the Tax Relief Act, withholding for social security tax for all wage earners was reduced from 6.2% to 4.2% (withholding for Medicare, at 1.45%, did not change).

For most employees, the net effect of these two changes will result in less total tax being withheld from their checks.

View the 2011 Percentage Method for Income Tax Witholding.