GTM Household Help BLOG

Compliance Update

Social Security Wage Base Remains at $106,800 in 2010

The Social Security Administration (SSA) announced on Thursday, October 15, 2009, that the 2010 social security wage base will be $106,800, unchanged from 2009. As in prior years, there is no limit to the wages subject to the Medicare tax; therefore all covered wages are still subject to the 1.45% tax.

The FICA tax rate, which is the combined social security tax rate of 6.2% and the Medicare tax rate of 1.45%, remains at 7.65% for 2010. The maximum social security tax employees and employers will each pay in 2010 is $6,621.60. This is unchanged from the 2009 maximum.

The social security wage base for self-employed individuals in 2010 will also be $106,800. There is no limit on covered self-employment income that will be subject to the Medicare tax. The self-employment tax rate remains 15.3% (combined social security tax rate of 12.4% and Medicare tax rate of 2.9%). In 2010, the maximum social security tax for a self-employed individual will be $13,243.20. This is unchanged from the 2009 maximum.

FICA coverage threshold unchanged for domestic workers

The threshold for coverage under social security and Medicare for domestic employees will be $1,700 in 2010, unchanged from 2009.

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At GTM we aim to provide access to the most comprehensive services & solutions available with better advice, better service and better value...for an easier life!

The items included in this update are informational only and are not meant to exclude the tax advice from an accredited representative.  Please consult GTM for more information and to determine how any item may apply to your personal tax scenario.

Five Tax Facts about Summertime Child Care Expenses for Parents currently NOT utilizing DCAP options for Summer Child Care

Many parents who work, or are looking for work, must arrange for care of their children under 13 years of age during the school vacation.

If you’re a parent currently not utilizing the DCAP options available to you, here are five facts the IRS wants every parent to know about tax credits available for child care expenses.

The Child and Dependent Care Credit is available for expenses incurred during the lazy hazy days of summer, and throughout the rest of the year.

1. The cost of day camp can count as an expense towards the child & dependent care credit.
2. Expenses for overnight camps do not qualify.
3. If your childcare provider is a sitter at your home or a daycare facility outside the home, you'll get some tax benefit if you qualify for the credit.
4. The actual credit can be up to 35 percent of your qualifying expenses, depending upon income.
5. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

For more information, including rules for claiming this credit for your spouse or a dependent age 13 or over who is not able to care for himself or herself, review IRS Publication 503, Child and Dependent Care Expenses.

This publication is available from the IRS or on GTM.com under Tax Resource Center. For specific questions, contact GTM’s Household Tax & Payroll Specialists at (888) 432-7972. Since many qualifications and limitations apply to the various credits, additional information is available at www.IRS.gov.

At GTM we aim to provide access to the most comprehensive services & solutions available with better advice, better service and better value...for an easier life!

The items included in this blog are informational only and are not meant to exclude the tax advice from an accredited representative.  Please consult GTM or another professional tax advisor for more information and to determine how any item applies to your personal tax scenario.

Federal Minimum Wage Rates To Increase In July

Under the Fair Labor Standards Act (FLSA), the federal minimum wage for covered nonexempt employees will increase to $7.25 per hour, effective July 24, 2009.

The federal minimum wage is the minimum amount per hour an employer (households and businesses (most business labor types) must pay their employees unless the state of employment has a higher state minimum wage or local prevailing wage. In that case, where an employee is subject to both the state and federal minimum wage laws, the employee is entitled to the higher minimum wage rate.

More information on this increase can be found on the U.S. Department of Labor website. And for more information on tax, payroll and HR services, visit the experts at GTM.com.

COBRA Answers for Employers

Please be advised - The IRS is implementing tax-related provisions under the new American Recovery and Reinvestment Act of 2009 as quickly as possible.

• COBRA: Health Insurance Continuation Subsidy. The IRS has provided extensive guidance online for employers, including an updated Form 941, as well as information for qualifying individuals.
• Payroll Checks Increase This Spring. In relation to the Making Work Pay Tax Credit, the IRS has issued new withholding tables for employers (Notice 1036). The IRS asks that employers begin using these new tables as soon as possible, and no later than April 1, 2009.

GTM Payroll Services encourages all clients to maintain proper supporting documentation for the COBRA credit claimed. Such documentation includes, but is not limited to:

• Information on the receipt, including dates and amounts, of the assistance eligible individuals’ 35 percent share of the premium.
• In the case of an insured plan, copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier required under COBRA.
• In the case of a self-insured plan, proof of the premium amount and proof of the coverage provided to the assistance eligible individuals.
• Declaration of involuntary termination, including the date of the involuntary termination (which must be during the period from Sept. 1, 2008, to Dec. 31, 2009), for each covered employee whose involuntary termination is the basis for eligibility for the subsidy.
• Proof of each assistance eligible individual’s eligibility for COBRA coverage at any time during the period from Sept. 1, 2008, to Dec. 31, 2009, and election of COBRA coverage.
• A record of the SSN’s of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for one individual or two or more individuals.
• Other documents necessary to verify the correct amount of reimbursement.

This documentation must be maintained, but is not be required to be submitted to the IRS.

A few general items you need to be aware of regarding the new recovery package:

Could the new law affect 2008 tax returns?  Generally, no. The new law does not have any major impact for the vast majority of individuals preparing their 2008 tax returns due April 15. Instead, these changes will largely impact 2009 tax returns filed next year, in 2010. Taxpayers should continue to prepare their 2008 tax returns as they normally would.

There are a few limited areas in the law that could impact 2008 tax returns. For some small businesses, changes in the net operating loss provisions could affect 2008 tax returns. 

Where can I find more details on the tax provisions of the recovery law?  The IRS will be providing more details on this web site as they become available. Currently a summary of the key provisions is currently available from the Senate Finance and House Ways and Means committees, as well as information available in the SSA/IRS Newsletter for Employers (Spring 2009).

COBRA Information for Employers

Under the American Recovery and Reinvestment Act of 2009, certain individuals who are eligible for COBRA continuation health coverage, or similar coverage under State law, may receive a subsidy for 65 percent of the premium. These individuals are required to pay only 35 percent of the premium.

The employer may recover the subsidy provided to assistance-eligible individuals by taking the subsidy amount as a credit on its quarterly employment tax return. The employer may provide the subsidy — and take the credit on its employment tax return — only after it has received the 35 percent premium payment from the individual.

• How will an employer be reimbursed for the COBRA subsidy that it has provided to eligible individuals?  The COBRA subsidy amount is reimbursed by being claimed as a credit on the Form 941. The Form 941 has been revised to allow for this credit.
• How does an employer claim the credit for the COBRA subsidy?  The credit is claimed on Line 12a of the January 2009 revision of the Form 941, which was posted on the IRS website on Feb. 20. In addition, the Form 941 filer also needs to include the number of individuals provided COBRA premium assistance on Line 12b.
• Is the employer required to provide the COBRA subsidy?  The subsidy requirement applies to group health plans that are subject to the Federal COBRA continuation coverage requirements or to similar requirements under State law. If you are an employer with such a plan and you receive a 35 percent payment from an assistance-eligible individual, you are required to make the remaining 65 percent payment.
• What if the employer’s group health plan is self-insured?  Do the subsidy requirements apply? Yes, the subsidy requirements apply to all plans subject to the COBRA requirements, including self-insured plans. In that case, the employer must provide the COBRA coverage if the assistance eligible individual pays 35 percent of the otherwise required premium. The remaining 65 percent is treated as a payment of payroll taxes by the employer maintaining the plan.
• Is the employer required to claim the credit on Form 941 for the quarter during which the COBRA subsidy is provided to assistance eligible individuals?  No. Instead of claiming the credit on Form 941 for the quarter during which the COBRA subsidy is provided, the employer may generally choose to claim the credit on Form 941 for a later quarter in the same calendar year.
• Alternatively, if the employer has not claimed the credit on the original Form 941 for the quarter during which the COBRA subsidy was provided, the employer can file Form 941X for that quarter. In all cases, however, if an employer chooses to reduce its payroll tax deposits during a quarter by the amount of subsidy provided during the quarter (or during a previous quarter), it must claim the credit for that subsidy amount on Form 941 for the quarter during which its payroll tax deposits were reduced. In addition, of course, an employer may not claim credit for the same subsidy amount on Form 941 for more than one quarter.
• Is there a specific date when employers can no longer take this credit?  An individual can be eligible for the COBRA subsidy based on an involuntary termination of employment that occurs as late as Dec. 31, 2009 (the qualifying event), and the subsidy can apply for up to nine months of COBRA coverage, which generally begins shortly after the qualifying event.  It is therefore expected that eligibility for the subsidy will be exhausted by the end of 2010 and Form 941 for the fourth quarter of 2010 will be the last time to take the subsidy credit.

GTM's Business Resource Center offers clients and partners with valuable tools and resources needed to help address your tax and payroll needs.

Quick Links for Businesses

• Publication 15 Circular E, Employers Tax Guide
  
• Publication 15 T - New Wage Withholding & Advanced Earned Income Credit Payment Tables (NEW for 2009*)
• Tax & Payroll Responsibilities
• Tax Calendar
• Tax Calculator

More information on the COBRA subsidy, and answers to common questions, are available from the U.S. Department of Labor and the IRS Newsroom. 

At GTM we aim to provide access to the most comprehensive services & solutions available with better advice, better service and better value...for an easier life!

The items included in this blog are informational only and are not meant to exclude the tax advice from an accredited representative.  Please consult a professional tax advisor for more information and to determine how any item applies to your personal tax scenario.

Child & Dependent Care Tax Credit Reminder

GTM Payroll Services would like to remind you of 2 important tax credits available from the IRS, as you prepare and file your tax returns… Check it out!

Tax Credits

If you’re a parent, you could be eligible for additional tax credits!! It could even mean you might receive a refund rather than owe any taxes.

1. The Child & Dependent Care Tax Credit is for expenses paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent, to enable you to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.
2. The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.

See below for more information...

Top Ten Facts About the Child & Dependent Care Credit

If you paid someone to care for a child, spouse, or dependent, you may be able to reduce your tax by claiming the Child and Dependent Care Credit on your federal income tax return. Below are the top ten things you need to know about claiming a credit for child and dependent care expenses.

1. The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child under age 13. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons. You must identify each qualifying person on your tax return.
2. The care must have been provided so you – and your spouse if you are married – could work or look for work.
3. You – and your spouse if you are married – must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment. One spouse may be considered as having earned income if they were a full-time student or they were physically or mentally unable to care for themselves.
4. The payments for care cannot be paid to your spouse, to someone you can claim as your dependent on your return, or to your child who is under age 19, even if he or she is not your dependent. You must identify the care provider on your tax return.
5. Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.
6. The qualifying person must have lived with you for more than half of 2008.
7. The credit can be up to 35 percent of your qualifying expenses, depending upon your income.
8. For 2008, you may use up to $3,000 of the expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals.
9. The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you exclude from your income.
10. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer. If you are a household employer, you may have to withhold and pay social security and Medicare tax and pay federal unemployment tax. For information, see Publication 926, Household Employer's Tax Guide.

The following forms and information can be found online at GTM’s Household Tax Resource Center, under Tax Forms.

    * Publication 926 - Household Employment Tax Guide for Wages Paid in 2008
    * Form 2441 - Child & Dependent Care Expenses (2007) - File with Personal Federal 1040 Return
    * Form 2441 - Child & Dependent Care Expenses Instructions (2007)
    * Form W-10 - Dependent Care Provider's Identification and Certification (DO NOT FILE THIS FORM WITH TAX RETURN )

For more information on the Child and Dependent Care Credit, see Publication 503, Child and Dependent Care Expenses.  Since many qualifications and limitations apply to the various credits, additional information is available at www.IRS.gov.

At GTM we aim to provide access to the most comprehensive services & solutions available with better advice, better service and better value...for an easier life!

The items included in this blog are informational only and are not meant to exclude the tax advice from an accredited representative.  Please consult a professional tax advisor for more information and to determine how any item applies to your personal tax scenario.

Important Changes on IRAs & Retirement Planning To Keep in Mind For 2008 & Looking Ahead To 2009

Here are a few tax law changes you may want to keep in mind for your 2009 federal tax return:

Contribution Limits Rise for IRAs and Other Retirement Plans

This filing season, more people can make tax-deductible contributions to a traditional IRA.  The deduction is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $53,000 and $63,000, compared to $52,000 and $62,000 last year.

 

For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $85,000 to $105,000, up from $83,000 to $103,000 last year.

 

Where an IRA contributor who is not covered by a workplace retirement plan is married to someone who is covered, the deduction is phased out if the couple’s income is between $159,000 and $169,000, up from $156,000 and $166,000 in 2007.  The phase-out range remains $0 to $10,000 for a married individual filing a separate return who is covered by a retirement plan at work.

 

The worksheet in the instructions for Form 1040 Line 32 or Form 1040A Line 17 can help taxpayers figure the IRA deduction.

 

For 2009, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b) and most 457 plans rises to $16,500, up from $15,500 in 2008.  The catch-up contribution limit for employees aged 50 to 70-½, rises to $5,500 in 2009, up from $5,000 in 2008.

 

The adjusted gross incomes (AGI) phase-out range for taxpayers who contribute to a Roth IRA is $159,000 to $169,000 for joint filers and qualifying widows and widowers, compared to $156,000 to $166,000 in 2007. For singles and heads of household, the comparable phase-out range is $101,000 to $116,000, compared to $99,000 to $114,000 in 2007.

For more information, click on the IRS links below:

• IRS FS 2009-1 Highlights of 2008 Tax Law Changes
• Form 1040 instructions (PDF 941K)
• Publication 526 Charitable Contributions

GTM’s expertise in the household and business employment arenas enable us to offer the information, tools and resources our clients need. For a FREE – No Obligation Consultation on Employee Benefits for your household or business, contact GTM at 800.929.9213 today! Or chat LIVE with one of GTM’s Tax & Payroll Specialists at www.GTM.com.

At GTM we aim to provide access to the most comprehensive employee benefit plans & solutions available with better advice, better service and better value...for an easier life!

Top 5 Reasons For Paying The “Nanny Tax”

 Top 5 Reasons For Paying The “Nanny Tax”

5. Establishing a legally compliant and professional arrangement with your household employee benefits both of you.

a.     Appropriate payments to household employees, including those to a person who cleans your house, might qualify for the child-care credit. That’s a dollar for dollar credit if you qualify.

b.     It helps your employee establish work history, credit, U.S. citizenship, and other benefits. A legal employee can take advantage of Social Security and Medicare benefits, and may be eligible for unemployment compensation and the Federal Earned Income Credit.

4. Not reporting payments to household employees could cost you big bucks in terms of penalties and interest should you get caught.
   
   
   1. Employers who do not pay legally risk the chance of an audit, which can be costly and very time-consuming. There is no standard penalty. Penalties are determined by the IRS based on its analysis and the severity of each case.

3. Not paying social security taxes, assisting with withholding, or meeting state requirements for workers’ compensation and health insurance (as applicable) isn't just cutting through administrative hassles, it's illegal!
   
   
   1. Every fiscal quarter of sitting, housecleaning, nanny-ing, personal assistant-ing, or under-the-table anything - doesn't count toward the employee’s Social Security benefits unless the Nanny Tax has been paid.   

2. Opening the door to other legal issues, avoidance of “paying on the books” could result not only in IRS penalties, but state issues should your employee or former employee ever file for disability benefits.
   
   
   1. The best route is to make payroll taxes a condition of employment.

1. If you ever run or are appointed to political office, you can unequivocally state with a clear conscience that you legally abide by, and are compliant with, the Nanny Tax....
   
   “Next Question Senator?”

  

For more information, consult IRS publication 926 (available online at www.GTM.com), or for a FREE – No Obligation Tax Consultation, contact GTM at 800.929.9213 today! Or chat LIVE with one of GTM’s Tax & Payroll Specialists at www.GTM.com.