IRS To Discontinue High-Low Lodging and Meal Expensing

Because payroll departments are often designated to administer employee travel expenses, payroll administrators need to take note that on July 19, 2011 the IRS issued formal advice informing taxpayers and preparers that they intend to discontinue the use of the High-Low per diem method for substantiating lodging, meal and other incidental expenses that individuals incur during business travel.

The High-Low method of substantiating expenses basically categorized certain localities as either High Cost or Low Cost cities when it came to verifying travel expenses. High Cost localities allowed for per diem travel expenses at $233 ($168 for lodging, $65 for food). Currently there are 50 localities designated as High Cost areas. All other Low Cost localities came in at $160 ($1o8 for lodging, $52 for meals). The method is not allowed for substantiating travel expenses out side the continental U.S.

As a result of this pending decision, employers will now use the standard per diem substantiation method which is based on a listing of thousands of locations maintained by the GSA that defines specific amounts for each location.

Because these rates are primarily intended for use by government workers traveling on business, the rates are set effective Oct. 1 of each year. However, the IRS allows employers to apply the rates on a calendar year basis after they are announced in Sept.

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Obama Pushes for Extension of Payroll Tax Break in 2012

The payroll tax cut for employees that went into effect in January of 2011 is scheduled to expire Dec 31, 2011. In the name of job creation, the Obama administration is beginning the process of pushing to extend that tax break for another year. The current law reduces the social security payroll tax from 6.2% to 4.2% resulting in about an estimated $1,000 payroll tax savings for the average American family. The proposal being considered would also result in a 2% decrease in social security taxes paid by the employer…basically reenactment of the HIRE Act tax break that expired the end of 2010.  

We seldom editorialize in the Advi$or, but we would question how effective the current payroll tax break for employees has proven to be on stimulating employment considering the unemployment rate seems to be steadily increasing in recent months. And we wonder why any administration who wants to reduce government debt and ultimately balance the budget would want to reduce the revenue of the Social Security trust fund when the fund is already deeply in the red and scheduled to go broke in the relatively near future.  

The Advi$or will keep you posted as to how the proposed idea progresses through Washington! According to reports, the idea received a lukewarm reception from Congress, but who knows what the political climate will bring at the end of the year.

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Employee or Independent Contractor?

When you decide you need to hire someone, one of the big dilemmas business people face is do you hire them as an employee or do you hire them as an independent contractor? Unfortunately for the business owner, making the wrong choice can be costly. People hired as independent contractors are not subject to Social Security, Medicare, unemployment taxes, or any Federal (or State) withholding from the employer’s side. The individuals themselves are responsible for all those taxes. Thus, the IRS tries to keep a very close eye on businesses that classify workers incorrectly as, while sometimes the business is not aware of the parameters involving the classification, just as often the business is misclassifying them simply to avoid the expense of the tax consequences. As we have noted in previous Advi$ors, in the past few years, the IRS, with full support of Congress and the current administration, has stepped up enforcement of accurate worker classification as they work on collecting payroll taxes government officials feel are due.

If the IRS determines that you have classified your workers as independent contractors when they should have been employees, you can be subject to all back taxes due as well as interest and penalties on those taxes. The Dept. of Labor may also become involved as overtime might also come into play. As you can imagine, while many business people think they may be saving money by using the independent contractor classification, the IRS’s diligence in this area can result in significant additional costs due to the fines and penalties.

How do you judge the difference between an employee and an I.C. In the simplest terms, it often boils down to a control issue; How much control does the business have over the individual(s) they have hired to do the work? If you have a certain degree of control, the individual is an employee.  For example if you tell them what hours to work and/or track their time on the job, they are an employee. If you provide them with tools to do their job, most likely they are an employee. The following link points to an IRS page that will provide you with detailed guidance as to how to classify your workers: Classification of Workers. There is also great deal of information on the web in general concerning this subject because of all the issues and confusion surrounding the topic and the potential liability.

Be aware of situations where an individual works for you during the day as an employee and then as a supposed independent contractor “after hours”. Issuing a 1099 and a W-2 to the same individual in the same year raises a red flag to IRS officials. Make sure you can truly justify that classification of independent contractor for that “after hours” work.

While the use of independent contractors can be beneficial for your business, be aware of the regulations regarding the classification of workers and the serious consequences of failing to comply. While you may have no bad intentions, the regulating bodies generally have no sympathy for ignorance of the law. The IRS considers misclassification as payroll tax avoidance.  ( See Article ) While you may think you are making a good business decision, misclassifying your workers may be one of the most expensive, incorrect decisions you can make. We read about companies who make such decisions, and the associated costs, every week. If you have any doubts about how to classify your workers, please give us a call. We would be glad to help you in the determination.

Posted in News

New Mileage Rates Announced by IRS

The Internal Revenue Service has increased the optional standard mileage rates for the final six months of 2011 to 55.5 cents per mile, up from 51 cents per mile set in January, 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes.

In response to this year’s increase in gasoline prices, IRS made this special adjustment for the final months of 2011.This rate increase will be effective for all business miles driven from July 1, 2011, through Dec. 31, 2011. This comes at a time when fuel costs are on the decline.

The new six-month rate for computing deductible medical or moving expenses will also increase to 23.5 cents a mile, up from 19 cents for the first six months of 2011.

Unlike this standard mileage rate, the rate for providing transportation services for charitable organizations is set by statute, not by the IRS. It will remain at 14 cents a mile.

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When it Comes to Payroll, Banks Stress Computer Security!

This week, Time & Pay’s management met with our ACH processing center to discuss best practices in regards to security and controls for protecting the integrity of ACH files. The computer hacking community works 24 hours a day on trying to make life miserable for those folks who work hard at making an honest living. Businesses must be vigilant.  Time & Pay is constantly working at setting up systems and controls to make sure the integrity of our ACH data is not compromised. Our ACH processing center assured us they were very confident in the systems, controls and procedures we are using to maintain the required safety and security of our data.

One of the key areas banks are focused on is verifying the integrity of the data they process. And one of the means that the data can be compromised is by hackers who obtain the ability to clandestinely read the key strokes of a user’s computer. Viruses, such as the one currently called the Zeus virus, allow hackers to virtually read all the key strokes a user is keying. Thus, once the virus is installed on a user’s computer, when the user enters their log-in and password to a secure site, such as their on-line banking site, the hacker can be on the other side of the globe easily learning how to get into that user’s banking system. Our ACH processor sited numerous examples of how hackers, once they obtained the ability to get into a businesses banking system by monitoring key strokes, would create multiple bogus ACH transactions that funneled 10′s of thousands of dollars out of that business’s bank account into multiple accounts all over the world.

These key stroke  reading viruses are usually sent via email denoting some urgent message, usually related to a money transaction, that tells the reader to click on a link to learn more about a recent money transaction issue. It may be a credit card message noting that some, supposedly, recent transaction was not able to be processed, or some payment such as bank bill-paying transaction, that was not able to be processed.  Never click on those links. Your bank, your credit card company, PayPal, all the legitimate financial institutions you work with are very concerned about fraud and well aware of how hackers operate. They understand the lack of security in the email process. They will never send you an important message relating to your account via email.  If you receive an email of this nature, never click on the links inside that email. If you are concerned there may be an issue with your account, call the party instead to confirm if there is an issue. Always act on the side of caution. A careless click on a questionable email link may end up being a very costly mistake.

While your bank is doing all they can to protect your assets, you must always be vigilant. Even a good antivirus software system, which often can’t keep up with the computer underworld, won’t offer 100% protection from this kind of attack.  If you would like to talk to us more about this topic, give our operations dept. a call.

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A while back, the state came to our office to audit our payroll records. When the auditor found out Time & Pay did our payroll, she stopped, packed her briefcase and informed us there was no need for the audit. She was very confident we were compliant.
-K B – GR&P Co. Bristol, TN

Time & Pay is a  godsend for a small business like mine. I no longer have to worry about paying my employees or my payroll taxes accurately or on time!  Time & Pay takes care of everything for me!
-B M – Stellar Studios, Johnson City, TN

“We find your integrated timekeeping and payroll easy to use and more accurate than the time sheets we were using. My time is now freed up to take care of my patients and other aspects of my business. Thanks for making the transition to outsourcing my payroll easy and cost effective.”
-B W – Westmoreland, DDS, Johnson City, TN

“After working with one of the national firms, the transition to Time & Pay was easy and beneficial. Their products and services exceeded what we were getting, were more cost effective, and their customer service goes above and beyond. We are very happy we made the change.”
-R V – Mountain Treasure Corral, Kingsport, TN

“We had been doing payroll in-house for years and was looking for a cost effective alternative. Your systems and services have been able to provide us with information and reports we were not able to produce with our old system. You have freed our time to concentrate on more important accounting aspects of our business. With the excellent services you provide, we would not consider any other payroll processing system.”
-Kwick-Way Transportation Co, Gray, TN

“Opening up a large retail operation, the last thing I wanted to concern myself with was payroll and all the compliance hassles. Time & Pay takes care of all my payroll needs. With their services, my payroll worries are eliminated. We would recommend your services to any one.”
-D K – DW Express LLC, Bristol, VA

“From the start, Time & Pay has worked with us in many aspects of payroll and HR as we have grown from a single facility to a multi-state operation. They have allowed us to concentrate on that expansion while they have focused on keeping us compliant with payroll and timekeeping regulations. There customer service is exemplary! They are great to work with.”
-J G – Prime Choice Foods, Denver, CO

“We had been doing our payroll in-house. When we reviewed your products and services, we found them to be both affordable and cost-effective. The transition to Time & Pay went very smoothly. We are very confident our payroll tax issues and confidentiality issues are now a thing of the past.”
-S T – D & S Dental, Johnson City, TN

“As a new company to Johnson City, we were glad to find a local quality payroll service provider. We had used a national provider in Florida and were well aware of the advantages of outsourcing. Time & Pay offers all that the big national firms provide and more, including local, prompt and courteous customer service!”
-K H – JD Squared, Johnson City, TN

“Time & Pay saved us from hiring another employee to do our payroll. Along with providing great payroll services, they have given us the ability to easily track our labor cost for job costing.”
-J K – American Calendar, Greeneville, TN

9-17-2014

Over-The-Counter Employee Drug Testing

Employers need to be very aware of the integrity of their employees and new hires as well as the safety of the work place.  Many employers utilize drug testing to make sure they have an effective, reliable, safety conscious staff. … Continue reading

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9-15-2014

Help Your Employees Determine Their Social Security Benefits

Are your employees setting aside enough for their retirement? As part of the payroll process, employees and their employers are setting aside something every payroll payroll period as both parties contribute to the employees’ social security account. These contributions have … Continue reading

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9-9-2014

GSA Announces Per Diem Rates for 2015

The General Services Administration announced in a travel bulletin issued Aug. 6 that per diem rates will remain unchanged for the fiscal year starting Oct. 1. The standard rate remains $129 for all states, excluding Alaska and Hawaii. The lodging … Continue reading

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