Payroll Tax Cut to Boost Take-Home Pay for Most Workers

In their latest press release, the IRS released instructions to help employers implement the 2011 cut in payroll taxes, along with new income tax withholding tables that employers will use during 2011. Since the tax deal was so late in being finalized, employers have until January 31, 2011 to get up to speed.

From IRS.gov:

Millions of workers will see their take-home pay rise during 2011 because the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 provides a two percentage point payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid. This reduced Social Security withholding will have no effect on the employee’s future Social Security benefits.

The new law also maintains the income-tax rates that have been in effect in recent years.

Employers should start using the new withholding tables and reducing the amount of Social Security tax withheld as soon as possible in 2011 but not later than Jan. 31, 2011. Notice 1036, released today, contains the percentage method income tax withholding tables, the lower Social Security withholding rate, and related information that most employers need to implement these changes. Publication 15, (Circular E), Employer’s Tax Guide, containing the extensive wage bracket tables that some employers use, will be available on IRS.gov in a few days.

The IRS recognizes that the late enactment of these changes makes it difficult for many employers to quickly update their withholding systems. For that reason, the agency asks employers to adjust their payroll systems as soon as possible, but not later than Jan. 31, 2011.

Continue reading at IRS.gov...

IRS Releases Draft W-2 Form for 2011; Announces Relief for Employers

According to a new press release, the IRS posted a draft Form W-2 for 2011, to help employers and employees confused about looming changes related to health care reform. Employers use the form to report wages and employee tax withholding.

The IRS also announced that it will defer the new requirement for employers to report the cost of coverage under an employer-sponsored group health plan, making that reporting by employers optional in 2011.

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. The Treasury Department and the IRS have 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. The IRS will be publishing guidance on the new requirement later this year.

Although reporting the cost of coverage will be optional with respect to 2011, the IRS continues to stress that the amounts reportable are not taxable. Included in the Affordable Care Act passed by Congress in March, the new reporting requirement is intended to be informational only, and to provide employees with greater transparency into overall health care costs.

Form to Claim Payroll Tax Exemption for Hiring New Workers Now Available

Unemployment rates were 9.9 percent nationally last month according to the Bureau of Labor Statistics. In the fight against unemployment in our country, President Obama signed the payroll tax exemption and new hire retention credit created by the Hiring Incentives to Restore Employment (HIRE) Act on March 18. The Act states that employers who hire unemployed workers this year (After February 3, 2010 and before Jan 1, 2011) may qualify for a 6.2 percent payroll tax incentive which will exempt them from the employer’s share of Social Security tax on wages.

The Internal Revenue Service announced today that they have issued the newly revised payroll tax form that most employers can use to claim the exemption of newly hired workers during 2010.

Additionally, for each qualified employee retained for at least a year whose wages did not significantly decrease in the second half of the year, employers may claim a “new hire credit” of up to $1,000 per worker.

To claim the Payroll Tax Exemption, employers would need to file IRS Form 941, Employers Quarterly Federal Tax Return. This means the HIRE act is not allowing employers to claim the payroll tax exemption for wages paid in the first quarter, only for wages paid in the second quarter. You can find the full instructions for claiming the exemption as well as claiming wages paid from March 19 - March 31 of this year on the IRS website.

Holiday Gift Advice for Employers and Employees

Last week the Roni Deutch Tax Center – Tax Help Blog posted a season entry with holiday gift advice for employers and employees. Since there is so much confusion over presents and holiday bonuses from employers I wanted to make sure and share this informative article with my readers. You can find a snippet of the entry below, or checkout the full text at the Roni Deutch Tax Center – Tax Help Blog.

Seasonal Presents for Employees

As the holiday season swings into full force, it has become very common for employers to give out presents to their employees. For the most part, employees will not have to worry about claiming the value of these gifts on their tax returns unless it is a cash bonus. Additionally, employers can write off these expenses if they meet certain restrictions.

The Intent of Giving

In the case of Duberstein v. United States, the Supreme Court determined that the common law understanding of the term "gift," is different than the business tax related definition. The court found that some gifts given by employers were often intended to reward past performances or serve as incentives for future performance. In order to be excluded from payroll taxes a gift given by an employer must be made generously with "respect, admiration, charity or like impulses."

De Minimis Fringe Benefits

According to the Internal Revenue Code Section 132(e)(1), a de minimis fringe benefit is "any property or service the value of which is so small as to make accounting for it unreasonable or administratively impracticable after taking into account the frequency with which similar fringes are provided by the employer to the employer's employees." In plain English, a de minimis benefit is a gift given by an employer that is not subject to payroll taxes and is a deductible business expense.

Turkey, Ham, or Gift Basket Rule

You may have heard of the turkey, ham, or gift basket rule when it comes to taxes on employer provided presents. Essentially, non-cash holiday gifts of property given to an employee will not need to be considered part of an employees wages and will therefore not be subject to payroll taxes. The Federal tax code even allow for items such as flowers, books, gift baskets, etc. to be given to employees. The IRS asserts however, that these gifts must be of a "low fair market value," but does not provide any clear rules on what that monetary limit is.

Continued at RDTC.com…