New Payroll Tax and Related Rates Announced

Social Security Wage Base Projected to Rise in 2012

The Social Security wage base, now at $106,800, is projected to increase to $110,700 in 2012, according to the annual report of the Social Security Board of Trustees. This projection is based on the intermediate cost assumptions contained in the report. This will increase the social security tax paid by high wage earners from $6,621 to $6,863. This will be particularly noticeable as all wage earners have seen a reduction in their social security taxes due to this years reduction in the tax rate from 6.2% to 4.2%. The intermediate cost assumptions also show an increase in the wage base to $114,900 in 2013 and to $120,000 in 2014. According to the report, the trust fund would exhaust its assets in 2036, a year earlier than predicted last year.

IRS Announces Interest Rates to Remain Unchanged

The interest on tax over payments and underpayments for the calendar quarter beginning July 1, 2011, will remain unchanged, according to Internal Revenue Service. The interest rates will be 4 percent for over payments (3 percent in the case of a corporation), 4 percent for underpayments, 1.5 percent for the portion of a corporate overpayment exceeding $10,000, and 6 percent for large corporate underpayments.  

 IRS Anounces  2012 Inflation Adjusted HSA Deduction Limits

The 2012 deduction limitation on contributions to a high-deductible health savings account for an individual with self-only coverage is $3,100, the Internal Revenue Service announced. For family coverage under a high-deductible plan, the calendar year 2012 inflation-adjusted amount is $6,250, IRS said.

The IRS also noted that the definition of a high-deductible health plan in calendar year 2012 is the same as in calendar year 2011. Such plans have an annual deductible that at least $1,200 for self-only coverage and $2,400 for family coverage with annual deductibles, co-payments, and other amounts (except for premiums) of up to $6,050 for self-only coverage or $12,100 for family coverage.

IRS Planning for Midyear Exemption of 0.2% FUTA Surtax

Since Congress has done nothing to extend a 0.2 percent Federal Unemployment Tax Act surtax past its June 30 expiration date, the Internal Revenue Service plannning to adjust the 2011 Form 940 to account for two FUTA tax rates in 2011.

If Congress continues inaction in this area, new lines likely will be necessary on the 2011 Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, to account for the expiration of the surtax. There would likely be separate lines developed to report liability based on the 6.2 percent rate that applies from January to June, and the 6 percent rate from July to December.

If the surtax expires at the end of June and is not extended for the rest of 2011, the effective FUTA rate for the final six months of 2011 will be 6 percent. Applying the full 5.4 percent credit for state unemployment taxes, many employers, except those in “credit-reduction states,” will have a net drop in FUTA liability. Keep in mind the FUTA wage cap is $7,000 so if Congress does not extend the surtax, this would probaby only affect those employees hired in that latter part of the year.

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Payroll Depts. Take Note: Labor Law Enforcement in Full Swing

Payroll professionals know the current trend of the current administration leans towards more labor law enforcement and a desire to close the “tax gap” (payroll taxes that the government thinks should be paid that are not). To that end, the Labor Department’s Wage and Hour Division has launched enforcement initiatives throughout the country to combat wage violations. For example, the DOL has initiated investigations of wage and child labor violations at restaurants in a Hillsborough County, Florida and service stations in New Jersey. In Florida, more than $2.8 million in minimum wage and back overtime for 3,873 workers was recovered over a four-year period. In New Jersey, more than $1.2 million in minimum wage and back overtime for 381 workers was recovered over a three-year period.

Other examples of successful enforcement since March 1, 2011:

  • An Arizona doughnut and coffee shop owner was indicted by a federal grand jury in connection with the alleged withholding of more than $27,000 in back wages to eight employees during a two-year period, The owner was indicted on charges of concealment by trick, making false statements to the Labor Department, and willful failure to pay overtime.
  • A restaurant in North Carolina will pay $245,500 in back wages to 12 employees following an investigation by the Labor Department’s Wage and Hour Division. The two-year investigation found that the workers were owed $183,452 in back pay for minimum wage violations and $62,048 in back overtime.
  • A meat processor and its president must pay more than $1.8 million in back wages and damages for failure to pay 31 workers minimum wage and overtime for at least three years. The Texas company violated the FLSA by failing to properly pay the workers, who sometimes worked 40 hours a week for $65 a month. The company also allowed the employees to work more than 40 hours a week without overtime pay.
  • A 19-count indictment unsealed in a federal court charged individuals with creating a scheme to rig a restaurant’s payroll system to avoid paying taxes for undocumented workers. Two men who owned a chain of restaurants devised a payroll system in which undocumented employees were paid without any federal tax withholding and without the employer’s share of the employment taxes being paid, the court found. The owners knowingly participated in preparing false quarterly Forms 941 that did not report any of the wages of the undocumented employees or the employer’s share of employment taxes. They under-reported and failed to pay at least $400,000 in employment taxes, the complaint alleged.
  • A supermarket chain reached an agreement with the Oregon departments of justice and veterans’ affairs to pay back wages to about 110 employees who did not receive scheduled raises during leaves to serve overseas in the military.
  • A restaurant and catering hall agreed to pay $610,000 in back wages, interest, and penalties to resolve a contempt proceeding stemming from a 2005 court order. The company and its owners are to pay about $483,000 in back wages and $127,000 in penalties and interest. An investigation by the Labor Department’s Wage and Hour Division found that the employer failed to pay minimum wage and overtime, and also had violated record keeping and child labor provisions
  • A utility contractor agreed to pay $750,000 in back overtime wages to 740 employees in three states, the Labor Department said Mach 30.  Arizona Pipeline Co. of Hesperia, Calif., violated the Fair Labor Standards Act by failing to pay employees for pre-shift and post-shift time spent loading and unloading material, cleaning trucks, and picking up equipment according to the department’s Wage and Hour Division. The employer did not pay workers for travel time to and from job sites and for mandatory attendance at a monthly one-hour meeting. The company also docked a half-hour’s pay for lunch each day even though employees typically had only a 15-minute lunch period or worked through lunch periods.
  • A subcontractor agreed to pay $270,696 in back overtime to 114 cable installers who were misclassified as independent contractors. An investigation by the department’s Wage and Hour Division found that the employer had paid the misclassified workers on a piece-rate basis for all hours worked instead of paying them time and one-half the regular rate of pay for overtime hours. The employer also failed to maintain accurate records of employees’ work hours and wages.

Every week we receive payroll publications full of examples of labor law enforcement like the above. Based on our experience, The Advi$or notes that the cost of compliance is always significantly less than the cost of non-compliance. The IRS and the DOL have numerous resources available to verify compliance questions. Time & Pay would also be glad to assist you with any questions you may have regarding payroll and labor law compliance. Don’t let your business make headlines! Contact us today if you need assistance.

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The HIRE Act: Part II

Payroll and HR administrators need to take note and remember “part II” of the HIRE Act.  As you recall, last spring Congress passed the HIRE Act to encourage businesses to bring on more employees. The Act went into effect March 18, 2010. It basically had two parts.  

“Part I” allowed business to take an exemption from paying their share of the Social Security tax (6.2%) on all new hires. The Act stipulated that any individual hired between Feb 3, 2010 & Jan 1, 2011 that had not worked for 60 days prior to being hired was eligible. New employees had to sign an affidavit stating they had not worked in 60 days. Businesses could take the exemption on paying their share of the social security tax for the entire year of 2010. This part of the Act expired Jan. 1, 2011. All businesses were eligible, even seasonal businesses, and it resulted in hundreds of millions of dollars in payroll tax savings. The IRS did implement rules to avoid abuse of the law such as stipulating that a business could not let some one go and then turn around and hire a new person to replace them. Nor could a business get the tax break for hiring family members.    

Businesses took the credit by paying in less payroll taxes. The tax exemption was then indicated on form 941 in order to accurately balance payroll tax liabilities due with payroll tax payments made. Note if you missed taking advantage of this tax exemption, you cannot do so retroactively.

Now that a year has passed, “Part II” is now kicking in. It allows businesses, for each qualified employee retained for at least 52 consecutive weeks, to be eligible for a general business tax credit, referred to as the new hire retention credit. The credit allowed equals 6.2 percent of wages paid to the qualified employee over the 52 week period, up to a maximum credit of $1,000.

Note that unlike the first part of the Act, this credit is not taken when filing payroll taxes. It is a business tax credit. Payroll and HR departments should work closely with the accounting dept. to make sure that the individuals filing company income taxes utilize the correct credit due.

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Congress Continues to Work on Bills That Will Affect All Employers

Congress is hard at work proposing bills that will affect many employers and how employees are paid. Here is some of the legislation in the works:

– The Payroll Fraud Prevention Act would amend the Fair Labor Standards Act (FLSA) to penalize all employers who misclassify individuals as independent contractors  instead of employees. Employers would have to accurately classify workers as employees or non employees and would have to give them written notification of such. Failure to accurately classify the worker will result in fines up to $1,100 per occurrence. Repeat violators would be fined up to $5,000. Congress has been working on legislation to curb the abuse of misclassification for a number of years now. It appears that eventually something will be passed as they continue to work on increasing tax revenues.

– There is now a bill in Congress to increase the wage for tipped employees. Under the bill, the FLSA would be amended to raise the wage for tipped workers to $3.75 per hour 3 months after the bill becomes law and then $5.00 per hour one year later. A year after that, the wage for tipped employees would be set at 70% of federal minimum wage or no less than $5.50.

– The Senate has introduced a bill that would allow Congress flexibility in how they spend the excess $31 billion dollars in already approved unemployment funding. The Bill would allow states to continue paying regular or extended benefits,  help prevent increases in SUTA rates or use the funds for re-employment services. Another bill  is looking at options to allow for the continuation of the FUTA credit each state is granted as well as interest penalty relief for states that have borrowed funds to prop up their unemployment trust funds. It appears they are going to spend the allocated funds whether they have to or not.

All these bills are still in the preliminary stages but represent another attempt to pass legislation of a similar nature that was previously attempted. Try often enough and eventually something may get through. The Advi$or will keep you posted as to if and when they become law.

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Recent Tornados Can Allow for Tax Filing Relief

Last week NE Tennessee was hit by some powerful storms that caused extensive damage to both personal and business property.  The President has declared four Tennessee counties to be federal disaster areas: Bradley, Hamilton, Washington and Greene.  Two of those counties are in our region.  Our thoughts and prayers are with those who lost family and friends or their homes or businesses in the storm and we have made contributions to the Red Cross to support local relief efforts.

One of the consequences of the President’s declaration is that the IRS is providing tax relief for the filing deadlines for most types of tax returns, including payroll returns, and the payment due dates for most tax payments.  Businesses in these areas need to know that there may some tax filing relief that may help them. 

Specifically payroll related, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after April 25 and on or before May 10, 2011, as long as the deposits were made by May 10, 2011. Specifically, the postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after April 25 and on or before May 10 provided the taxpayer made these deposits by May 10.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hot-line at 1-866-562-5227 to request this tax relief.

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief.  For example, a business in Sullivan County that uses a CPA firm in Greene County to perform all of their accounting functions would be eligible for this relief.

The IRS will also grant relief to affected taxpayers until June 30 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after April 25 and on or before June 30. They will also grant relief to affected taxpayers regarding other time-sensitive actions related to making contributions to qualified retirement plans, filing claims, etc. 

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may research this topic, download forms and publications from the official IRS Web site,, or order forms by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

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-T W – Little Things, LLC, Chattanooga, TN


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