ZAINER RINEHART CLARKE CERTIFIED PUBLIC ACCOUNTANTS APC AN INDEPENDENT MEMBER OF DFK INTERNATIONAL Santa Rosa St. Helena Sonoma 3510 UNOCAL PLACE, SUITE 350 SANTA ROSA, CALIFORNIA 95403 707 525.1163 707 525.0331 FAX WWW.ZRCCPAS.COM December 2013 Dear Clients and Friends: This memorandum contains useful information related to year-end reporting requirements and tax planning opportunities. We have enclosed information relating to various payroll reporting and calculation issues as provided to us by our friends at Innovative Business Solutions (IBS). Since laws and requirements are continuously changing and becoming more complex, we would like to keep you informed of the most current information and highlight some areas to think about within your business practice. If you have any questions, please call us. As you transition from 2013 into 2014, remember that we are available to assist with all your accounting, financial and tax planning needs. ZRC offers support for your internal accounting as well as your tax and financial reporting requirements. If you do not have a fully staffed accounting department, we can provide support services including basic bookkeeping, payroll management, and ongoing financial management. This year, we would like to remind you that now is a good time to make sure your record keeping supports your allocated business use of any mixed use vehicles (part personal, part business) and that you have good records to substantiate your involvement in any rental activities and businesses in which you actively participate. Lastly, should you have any mixed purpose loans that require interest tracing to various activities, this is a good time to complete your documentation. Whether your requirements are business or personal, we will assist you in developing and implementing innovative and sound financial management strategies tailored to your unique individual and business needs. We wish you a wonderful holiday season and look forward to working with you in the coming year. Very truly yours, Zainer Rinehart Clarke Certified Public Accountants A Professional Corporation Enclosures
Year-End Memorandum Index I. Filing Deadlines for W-2 s and 1099 s II. Personal Use of Automobiles III. Group-term Life Insurance IV. Treatment of Health Coverage for S-Corporation Shareholders V. HSA Plans VI. Personal Property Tax VII. Independent Contractor Reporting Requirements VIII. Business Expense Reimbursements - Accountable Plans IX. Recordkeeping X. Highlights of Patient Protection and Affordable Care Act XI. Small Business Health Care Tax Credit for Small Employers XII. Changes related to Supreme Court overturning Defense of Marriage Act (DOMA) XIII. Helpful Websites
I. FILING DEADLINES FOR W-2 s AND 1099 s Below is a summary of the filing requirements of the various forms in the W-2 and 1099 series. FORM TO BE FILED: DUE TO RECIPIENT DUE TO IRS/SSA W-2 JANUARY 31, 2014 FEBRUARY 28, 2014 1099/1096 1099-MISC, box 8 or 14 FEBRUARY 28, 2014 FEBRUARY 18, 2014 FEBRUARY 28, 2014 FEBRUARY 28, 2014 If you file electronically, the IRS deadlines for W-2 s and 1099 s are extended to March 31, 2014. Electronic payee statements - If your employees give their consent, you may be able to furnish Copies B, C, and 2 of Forms W-2 to your employees electronically. See Publication 15-A Employer s Supplemental Tax Guide for additional information. Form 1099-INT Interest Income must be filed for each unincorporated person to whom you paid at least $10 in interest in the course of business. Form 1099-MISC Miscellaneous Income must be filed for each person you paid at least $10 in royalties or at least $600 in rents, services (including parts and materials incidental to providing services), other income payments and medical payments made in the course of business. Should you have any question about a particular type of payment and whether or not 1099 reporting applies, please call us. The law provides that information returns (Form W-2 and 1099's) must be provided to taxpayers either in person or via first class mail. The envelope and each enclosure must state "Important Tax Return Document Enclosed". Note - We suggest that the IRS filing not be made at the same time the recipients are given their copies. By holding on to the IRS copy until its own due date, any errors which arise can be corrected without having to also file amended reports with the IRS/Social Security Administration. The employee's name which is entered in box "d" on the W-2 must agree exactly with the employee's name on his/her social security card. Private delivery services - You can use certain private delivery services designated by the IRS to meet the "timely mailing as timely filing" rule for information returns. The IRS list of designated private delivery services includes the following: Airborne Express: Overnight Air Express Service, Next Afternoon Service, Second Day Service Federal Express: FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2 Day United Parcel Service: UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, UPS Worldwide Express The private delivery service can tell you how to get written proof of the mailing date.
II. PERSONAL USE OF AUTO Employer-provided vehicles The Internal Revenue Service has enacted specific reporting guidelines for companies who provide their employees with vehicles. An employee's personal use of a company owned automobile (including commuting to and from work) must be treated as additional compensation to the employee. The amount of compensation to be included on the employee's W-2 is based on a lease-value table provided by the Internal Revenue Service. The value that is shown in the table is multiplied by the personal use percentage. Access the table at http://www.irs.gov/publications/p15b/ar02.html and look for Lease Value Rule in the table of contacts or contact us for more information. It is the responsibility of the automobile user to provide the company with the total mileage for the year with a breakdown of personal and business mileage. Standard mileage rate Under the standard mileage rate method, both self-employed persons and employees who use their own vehicle for business purposes may compute car expenses by applying the standard mileage rate to all the business miles driven during the year. The standard mileage rate for 2013 is 56.5 cents per mile. Any auto allowance or reimbursement in excess of substantiated business miles must be either returned or treated as additional compensation on the employee s W-2. III. GROUP TERM LIFE INSURANCE The cost of employer provided group-term life insurance coverage in excess of $50,000 to an employee is required to be reported as Form W-2 wages. The amount includable in wages is not the actual cost for the excess coverage but is based on the IRS Premium Table, found in IRS Publication 15-B. The amount is subject to Social Security and Medicare (FICA) tax but it is exempt from federal income tax withholding and FUTA tax. IV. TREATMENT OF HEALTH COVERAGE FOR S-CORPORATION SHAREHOLDERS Accident and health insurance premium payments on behalf of S-corporation shareholders owning 2% or more of the outstanding shares are to be reported as Form W-2 wages. However, these wages are not subject to FICA and other payroll tax expenses. If the amounts for accident and health premiums are reported as 2013 Form W-2 wages to the 2% shareholder/employee, he/she may be entitled to deduct 100% of the cost of such premiums under Code Section 162(1) rules regarding health insurance costs for the self-employed. The main requirement is that the 2% shareholder/employee (and his or her spouse) cannot be eligible for coverage under another employer-subsidized health plan. The deduction is limited to the taxpayer's earned income derived from the trade or business for which the insurance plan was established. The bottom line is that the S-Corporation gets a compensation deduction on the premium payments and the employee recognizes the amounts as wage income. Note that 2% or more shareholder/employees of S-Corporations are not eligible for cafeteria plan benefits.
V. HSA PLANS Employer HSA contributions and employee contributions made through a cafeteria plan are reportable in box 12 of Form W-2 with code W. While HSA contributions are excluded from federal wages, they are included as wages and are subject to payroll taxes for California. VI. PERSONAL PROPERTY TAX California businesses need to file Form 571-L to declare their California business property tax base. The form is normally due April 1st, but may be extended. The extended due date is May 7 th in most counties. VII. INDEPENDENT CONTRACTOR REPORTING REQUIREMENTS Under California law, all businesses and governmental entities are required to identify independent contractors who receive compensation for services performed or who enter into a contract for services for which a Federal Form 1099-MISC is required. The law requires filing of Form DE 542 within 20 days of either making payments totaling $600 or more or entering into a contract of $600 or more with an independent contractor. An independent contractor only needs to be reported once in a calendar year. In general, only businesses must report payments to service providers in the aggregate of $600 or more, and the current exception for not reporting payments made to corporations (except attorneys and certain healthcare providers) remains intact. Furthermore, rental property owners must report payments to service providers if their activities rise to the level of a trade or business. Businesses are required to provide: The independent contractor's full name (first, last and middle initial), address, social security number or employer identification number, the start and expiration date of the contract and the amount of the contract. The business's name, address, telephone number and the federal employer identification number, California employer account number, or Social Security number. To obtain forms and/or information, call 916-657-0529 or contact the Employment Tax Customer Service representative at 1-888-745-3886, or access EDD at www.edd.ca.gov. VIII. BUSINESS EXPENSE REIMBURSEMENTS - ACCOUNTABLE PLANS If employee business expense reimbursements are made under an accountable plan, they are not wages subject to W-2 reporting, FICA, FUTA, or income tax withholding. An accountable plan is a written agreement designed to reimburse employees for expenses that have a direct connection to the employer s business. It requires the employee to substantiate expenses and to return any excess amounts received as reimbursements. Substantiation requires each expense to be specifically identified and not merely aggregated into broad categories (e.g. travel). Please contact us for further clarification of these plans.
IX. RECORDKEEPING Keep all records of employment taxes for at least 4 years. These need to be available for IRS review. Records should include: Your employer identification number Amounts and dates of all wage, annuity, and pension payments Amounts of tips reported and records of allocated tips The fair market value of in-kind wages paid Names, addresses, social security numbers, and occupations of employees and recipients Any employee copies of Form W-2 that were returned to you as undeliverable Dates of employment Periods for which employees and recipients were paid while absent due to sickness or injury and the amount and weekly rate of payments you or third-party payers made to them Copies of employees' and recipients' income tax withholding allowance certificates (Forms W-4, W-4P, W-4S, and W-4V) Dates and amounts of tax deposits you made Copies of returns filed Records of fringe benefits provided, including substantiation Additionally, all records that substantiate the business portion of expenses that are partly personal (examples may include interest expense, home office costs, and vehicles) should be retained. Documentation of hours of involvement in a business activity (including rental activity) that will be used to substantiate active versus passive status should also be retained. Please call for further clarification regarding active versus passive classification and resulting tax implications. X. HIGHLIGHTS OF THE PATIENT PROTECTION AND AFFORDABLE CARE ACT The Patient Protection and Affordable Care Act (PPACA) required employers that sponsor group health plans to take a number of legal compliance steps related to their group health plans. Changes for 2013 included: Health FSA Contribution Limits Previously there was no maximum contribution limit on the amount that can be contributed to a Health FSA. The maximum annual contribution limit permissible under a Health FSA, effective for plan years on or after January 1, 2013, was reduced to $2,500. FICA Medicare Tax Increase For tax years beginning after December 31, 2012, the FICA Medicare tax rate increased by 0.9% for wages over $200,000 ($250,000 for married couples filing jointly). FICA taxes are comprised of Social Security and Medicare taxes, thus this change increases the employee s portion of the FICA Medicare tax from 1.45% to 2.35% for wages over $200,000 ($250,000 for married couples filing jointly). The employer is required to collect the employee s portion of this FICA Medicare tax. W-2 reporting of Employer-Sponsored Health Coverage This is required for employers who issue 250 or more W-2 s. The information is reported in box 12 of 2013 Form W-2 with code DD. There is no reporting on Form W-3. Small employers continue to be exempt, although they may disclose this on W-2 s if they choose. Reporting the cost of coverage does not mean the coverage is taxable. If you need more information on this please contact us.
XI. SMALL BUSINESS HEALTH CARE TAX CREDIT FOR SMALL EMPLOYERS Beginning in 2010, small businesses and small tax-exempt employers are eligible for a tax credit to help them afford the cost of providing health insurance to employees. The qualifying employer must cover at least 50% of the cost of health care coverage for some of its workers based on the single rate. The employer must have less than the equivalent of 25 full-time workers. The average annual wage must be below $50,000 (adjusted for inflation beginning in 2014), and the employer must pay a uniform percentage for all employees that is equal to at least 50% of the premium cost of the insurance coverage. There is a phase-out for average wages above $25,400, up from $25,000 in 2013. The credit is up to 35% of the premium cost for small businesses and 25% of the cost for tax-exempt employers. It is scheduled to increase in 2014. For tax years beginning in 2014 and forward, the employer much contribute toward premiums on behalf of each employee enrolled in a qualified health plan (QHP) offered by the eligible small employer through a Small Business Health Options Program (SHOP Exchange) established as part of the Affordable Care Act to qualify for the credit. An employer may claim the credit for two-consecutive taxable years, beginning with the first taxable year in or after 2014 in which the eligible small employer attaches a Form 8941, Credit for Small Employer Health Insurance Premiums, to its income tax return, or in the case of a taxexempt eligible small employer, attaches a Form 8941 to the Form 990-T, Exempt Organization Business Income Tax Return. Cost-of-living adjustments are made to the average annual wage phaseout amounts. (The credit is phased out gradually when average annual wages exceed certain amounts.) XII. CHANGES RELATED TO SUPREME COURT OVERTURNING DEFENSE OF MARRIAGE ACT (DOMA) All taxpayers who are legally married in any jurisdiction will be treated as married for all federal tax purposes. Various employee benefits that were previously taxed for federal purposes are no longer subject to income tax. These include health insurance and HSA contributions. Streamlined procedures for amending prior payroll tax reports and issuing corrected W-2 s have been issued. These changes do not apply to CA registered domestic partners. XIII. HELPFUL WEBSITES Internal Revenue Service www.irs.gov Franchise Tax Board www.ftb.ca.gov Employment Development Department www.edd.ca.gov State Board of Equalization www.boe.ca.gov Social Security Administration www.ssa.gov
2014 TAX INFORMATION SHEET Visit www.ibspayroll.com for the latest updates FEDERAL TAX RATES: FEDERAL TAX DEPOSIT RULES: FSOC FMED Deposit Requirements Maximum Earnings $117,000 No Limit Rule Determination for Base Period Check Day Deposit Day Rate of Tax - Employer 6.2% 1.45% Monthly If the accumulated tax liability is less Any Day Deposit Monthly by the Rate of Tax - Employee 6.2% 1.45% up to $200k than or equal to $50,000 for the 2.35% over $200k base period 15th of the following month Maximum Deduction $7,254.00 No Limit FUTA Maximum Earnings $7,000 Semi-Weekly If the accumulated tax liability is Wednesday- Following Wednesday Net Tax (After Maximum Allowable Credit) 0.6% greater than $50,000 for the base Friday period Saturday- Following Friday Federal Withholding Supplemental Tax Rate 25% Tuesday Mileage Reimbursement $0.565 Exception Rules Tax Liability Amount Deposit Day $2500 Rule If the tax liability is less than $2500 Liability may be paid with the quarterly tax return CALIFORNIA TAX RATES: for the entire quarter CADI $100,000 Rule If the accumulated tax liability is Deposit next business day Maximum Earnings $101,636 $100,000 or more for any check date Rate of Tax (Employee Rate) 1.0% Maximum Deduction $1,016.36 The deposit schedule for an employer during a calendar year is based on four quarters. The deposit frequency base CAUI ETT period is July 1st to June 30th of the previous year. For 2013, the base period is July-September (3rd qtr) 2011, Maximum Earnings $7,000 $7,000 October-December (4th qtr) 2011, January-March (1st qtr) 2012, April-June (2nd qtr) 2012. The IRS will notify employers New Employer Rate 3.4% 0.1% of their deposit frequency in November. However, it is the employer's responsibility to deposit federal taxes at the correct frequency if the notice is wrong. CA Withholding Supplemental Rates *Bonus/Stock Options 10.23% CALIFORNIA STATE TAX DEPOSIT RULES: *All Other Supplemental Pay 6.60% Your Federal Deposit And You Have Accumulated SDI & PIT If Payday Schedule is State PIT Withholding Deposit Required is Deposit Due * CA Minimum Wage $8.00 Less than $350 NO Any day Quarterly * Overtime Law: Rate of pay times 1.5 after 8 hours in a day or 40 Next Banking Day $350 to $500 YES Any day 15th of following month hours in a week. Rate of pay times 2 after 12 hours in a day or after More than $500 YES Any day Next Banking Day 8 hours on the seventh day. Less than $350 NO Any day Quarterly $350 to $500 YES Any day 15th of following month Semi-Weekly H.S.A. LIMITS: Catch-Up Contrib. More than $500 YES Wed-Fri Following Wednesday Plan Limit (age 55 & over) More than $500 YES Sat-Tues Following Friday Single $3,300 $1,000 Less than $350 NO Any day Quarterly Monthly Family $6,550 $1,000 More than $350 YES Any day 15th of following month Less than $350 NO Any day Quarterly Quarterly PENSION PLAN LIMITS: Catch-Up Contrib. $350 or more YES Any day 15th of following month Plan Limit (age 50 & over) Employer contributions to SUI and ETT are due quarterly. For withholding taken for employees' PIT & SDI, CA state deposit rules 401k, 403b, ROTH $17,500 $5,500 generally follow federal deposit guidelines. Once an employer makes a next banking day deposit, they automatically become a 408p (SIMPLE Plans) $12,000 $2,500 semi-weekly depositor for the remainder of that calendar year and all of the following year. 457 (Qualified) $17,500 $5,500 457 (Deferred Compensation) $17,500 N/A Innovative Business Solutions, Inc. www.ibspayroll.com 6400 Redwood Dr. Suite 100 Rohnert Park, CA 94928 Phone (707) 586-4300 Fax (877) 586-4303