Archive for the ‘Payroll Taxes’ Category

Required Minimum Distributions

Tuesday, October 28th, 2014

Authored by: John Kane, CPA. John is a Junior Manager in the Logan office of Cook Martin Poulson, P.C. John primarily works with tax issues affecting small businesses and individuals. John is a CPA licensed in Utah.

Several weeks ago, a financial planner called wondering why we didn’t monitor our client’s required minimum distribution.  I explained that we don’t have access to the fair market value of each client’s account, which is an integral part of calculating the Required Minimum Distribution.  Based on my conversation, I thought understanding RMD’s and the tax consequences behind them would be a good blog topic that would provide useful information.

What is an RMD?

RMD stands for required minimum distribution.  This represents the amount an individual is required to withdraw from a retirement account(s) after reaching age 70 ½.  This amount is calculated based on age and the total balance in the individual’s retirement account(s).  These accounts include IRA, 401k, profit sharing, 403(b), or other defined contribution plans.

The purpose of the RMD is to prevent indefinite tax postponement.  If individuals were not required to take RMDs, they would not withdraw retirement funds which would create a huge tax shortfall to the government.

What are the penalties for noncompliance?

Failing to take the required minimum distribution subjects the account holder to a 50% excise tax on the amount that was not distributed as required.  In addition to the 50% excise tax, these RMD amounts may be included in income and subject to ordinary income tax rates from both the IRS and state tax commission.

What should I do if I didn’t take my RMD?

The best course of action to take when dealing with unknowingly noncompliance is taking proactive action to correct the wrong.  Guidance we suggest is to catch up the missing RMD in the current year, file Form 5329, and request the penalty be waived on the Form 5329.

IRS matching programs will ensure the IRS will eventually find you.  Taking a proactive approach will show the IRS that you have taken corrective action to ensure future compliance.

Each tax situation is different, and there are some specific rules for different types of accounts.  It is important to understand RMDs and to work closely with your financial planner and CPA to develop a strategy that fits your needs.  Contact your tax professional at Cook Martin Pouslon, PC to discuss your individual tax situation and ensure compliance.


Tuesday, December 10th, 2013

Authored By: Connie Ward, Bookkeeper at CMP

As 2013 comes to an end, employers, employees and self-employed individuals should make sure they are complying with the new 0.9 percent additional Medicare tax requirement.

While this new requirement was effective January 1, 2013, the effects may not be fully felt until wages earned during 2013 reach in excess of $200,000, which may not occur until the last quarter of the year.

The tax applies only to employees and self-employed individuals and is in addition to the 1.45 percent regular Medicare tax that all individuals pay.

Required withholding of the additional Medicare tax may result in over or under withholding of the actual tax you owe based on your individual filing status. Employers should be checking their payroll systems to make sure they have properly begun to withhold from their high earners. The employers will be required to withhold the additional Medicare tax on wages over $200,000. Employees should project their income to see if they need to increase their withholding to account for their spouses income, and self-employed individuals should be talking with their tax return preparers to insure proper estimated tax payments are being made.

The thresholds for the new Medicare Tax is as follows:

Filing Status / Threshold Amount

Married filing jointly - 250,000
Married filing separately - 125,000
Single – 200,000
Head of household (with qualifying person) – 200,000
Qualifying widow(er) with dependent child) – 200,000

An additional tax of 3.8% Medicare tax will apply to “net investment income.” Net investment is defined as follows:

• Interest and dividend income
• Royalties
• Annuities
• Net Rental Income
• Gross income from passive activities
• Net gain from the disposition of property; stocks bonds mutual funds, capital gain distributions from mutual funds, investment property, sale of second residence
• Gain from rental property subject to tax
• Gain on the sale of a principal resides subject to tax (any gain over $500,000)

If you have any addition questions regarding the additional Medicare tax on wages as well as net investment income please contact any of our professionals at either our Salt Lake or Logan Offices.

Small Businesses May be Subject to Increased Payroll Audits

Tuesday, October 15th, 2013

Authored By: Sheri Lewis, Staff Accountant, has worked at Cook Martin Poulson since November 2011. She recently received her Master of Accounting Degree and is in the process of taking the CPA exams.

A recent study conducted by the Treasury Inspector General for Tax Administration (Employers Do Not Always Follow Internal Revenue Service Worker Determination Rulings; June 14, 2013. Reference Number: 2013-30-058) called for the IRS to provide better follow-up to ensure small employers are complying with worker classification ruling. Better follow-up translates to more payroll audits. The study indicated that only 17% of employers appeared to comply with the “employee” worker classification rulings that resulted from the filing of Form SS-8 (Determination of Worker Status for Federal Employment Taxes and Income Tax Withholding). Filing a Form SS-8 requesting a “worker status” determination means the business or the worker is asking the IRS to establish if the services provided to the firm are those of an employee or an independent contractor. Receiving the determination from the IRS can be a relatively long process. The crackdown, in part, may be intended to increase tax revenue by assessing back payroll taxes and penalties.

Unfortunately, there is no clear cut way to determine whether or not a worker is an employee or an independent contractor. There are three general guidelines that outline the factors the IRS considers in making a worker classification. The guidelines are summarized as follows:

1. Degree of Control: To what extent does the employer have the ability to direct how, what, when and where the worker performs his duties?
2. Financial Opportunities: How is the worker paid? Are expenses reimbursed? Is the pay a set or regular amount? Does the worker provide his own tools and/or supplies?
3. Relationship Type: Is the position permanent or temporary? Is there a written contract? Can the worker pursue other means of obtaining income? What benefits does the employer provide?

The classification of an employee or independent contractor can had significant tax consequences for all involved. Employers must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. Employers do not have to withhold or pay any taxes on payments to independent contractors. Independent contractors must pay the full share of Social Security and Medicare taxes themselves. The study showed that an employer, on average, can save around $3,700 annually per worker with a salary of $43,000 if the worker is classified as an independent contractor. This savings potential can unduly influence some small business owners to misclassify workers as independent contractors. Additionally, employers are trying to contend with the new health care law requirement to provide health insurance if they have 50 or more employees. The Wall Street Journal reports that studies have shown that local businesses misclassify workers anywhere from 10% to more than 60% of workers as independent contractors (WSJ, Payroll Audits Put Small Employers on Edge, March 13, 2013 by Angus Loten). Ironically, due to the lack of a clear definition as to what constitutes an employee or independent contractor, many employers are unsure if they are complying with the worker classification rules until they have a payroll audit.

Work Opportunity Tax Credit (WOTC)

Thursday, July 18th, 2013

Authored By: Connie Ward, from the Logan Bookkeeping Department

What is WOTC?
The Work Opportunity Tax Credit (WOTC) is a Federal tax credit available to employers for hiring individuals from certain target groups who have consistently faced significant barriers to employment.

What does WOTC do?
WOTC helps targeted workers move from economic dependency into self-sufficiency as they earn a steady income and become contributing taxpayers, while participating employers are able to reduce their income tax liability.

How large is the tax credit?
The maximum tax credit ranges from $1,200 to $9,600, depending on the employee hired.

Eligible New Hires
A veteran who is:
• A member of a family that received SNAP benefits (food stamps) for at least a 3-month period during the 15-month period ending on the hiring date.
• Entitled to compensation for a service-connected disability:
o Hired within 1 year of discharge or release from active duty
o Unemployed at least 6 months in the year ending on the hiring date
o Unemployed:
o At least 4 weeks in the year ending on the hiring date
o At least 6 months in the year ending on the hiring date

Please note that to be considered a veteran eligible for WOTC, an individual must meet these two standards:
• Have served on active duty (not including training) in the U.S. Armed Forces for more than 180 days or have been discharged or released from active duty for a service-connected disability
• Not have a period of active duty (not including training) of more than 90 days that ended during the 60-day period ending on the hiring date

Long-term Temporary Assistance for Needy Families (TANF) Recipient:
A member of a family that meets one of the following circumstances:
• Received TANF benefits for at least 18 consecutive months ending on the hiring date.
• Received TANF benefits for at least 18 consecutive or non-consecutive months after August 5, 1997, and has a hiring date that is not more than 2 years after the end of the earliest 18-month period after August 5, 1997.
• Stopped being eligible for TANF payments during the past 2 years because a Federal or state law limited the maximum time those payments could be made.

Short-term TANF Recipient:
• A member of a family that received TANF benefits for any 9-month period during the 18-month period ending on the hiring date.

SNAP (food stamp) Recipient:
• An 18-39 year old member of a family that received Supplemental Nutrition Assistance Program (SNAP) benefits for the 6 months ending of the hiring date or received SNAP benefits for at least 3 of the 5 months ending on the hiring date.

Designated Community Resident:
• An 18-39 year old who lives within one of the federally designated Rural Renewal Counties or Empowerment Zones.

Vocational Rehabilitation Referral:
• An individual with a disability who completed or is completing rehabilitative services from a state-certified agency, an Employment Network under the Ticket to Work program, or the U.S.
Department of Veteran Affairs.

• An individual who has been convicted of a felony and has a hiring date that is not more than 1 year after the conviction or release from prison.

Supplemental Security Income (SSI) recipient:
• A recipient of SSI benefits for any month ending during the past 60-day period ending on the hire date.

Summer Youth Employee
• A 16 or 17 year-old youth who works for the employer between May 1 and September 15 and lives in an Empowerment Zone.

Employers use Form 8850 to pre-screen and to make a written request to a state workforce agency to certify an individual as a member of a targeted group.

Household Employers

Wednesday, June 19th, 2013

Authored By: Jessica Haddock, Salt Lake City Office

Recently I have had many who have wondered if they are a household employer so I thought this might be a good topic to address in a blog post. How do you know if you are considered a household employer and if the worker is considered your employee? An easy way to determine whether or not you are considered a household employer is if the employee is working in or around your home and under your control and if he/she follows your instructions by way of what work is done and how it is done, and you provide any tools or items needed to complete the job. Any worker who does the job in their own way and uses their own tools and also provides their services through their own separate business would not be your employee.

An example of types of jobs that could be considered household work would be:

• Babysitters and Nannies
• Caretakers, Health Aids and Private nurses
• House cleaning workers/Housekeepers/Maids/Yard Workers
• Domestic workers
• Drivers

Please be advised that if the person doing the work has their own company and offers their services to the public and brings their own tools would not be considered your employee. For example, if you hire a person to come in and clean your house and that person owns their own business and also gives those services to others and they bring their own supplies/tools they would not be considered your employee.

Another example would be if you have someone who performs child care for you out of their own home or child care service and they have their own supplies that would not be considered a household employee. If that person takes care of your child in your home under your instructions on the duties included in caring for this child and you provide the items needed to provide these services this person would be considered your household employee.

If you determined that you have a household employee you will need to collect the required forms from the employee to keep on file. First you and the employee will need to complete the U.S. Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. You will need to keep the complete form in your records as this provides proof of your employee’s work eligibility status in the United States as it is illegal to hire and employ anyone who cannot legally work in the United States.

You will then need to determine whether or not you will need to pay employment taxes on your employee. If you pay wages of $1,800 or more in 2013 to any one household employee or pay wages of $1,000 or more in any calendar quarter for 2012 or 2013 to the household employee you will be required to pay employment taxes. You do not have to count wages you pay to your spouse, your child under the age of 21, any employee under the age of 18 at any time in 2013 (unless this is considered their principal occupation) and you also do not count wages paid to your parents. There is an exception also to the wages paid to parents where you will need to count the wages paid to your parent if both of the following conditions apply:

• Your parent cares for your child who is either of the following:

o Under the age of 18, or
o Has a physical or mental condition that requires the personal care of an adult for at least 4 continuous weeks in each calendar quarter services were performed.

• Your marital status is one of the following:

o You are divorced and have not remarried,
o You are a widow or widower, or
o You are living with a spouse whose physical or mental condition prevents him or her from caring for your child for at least 4 continuous weeks in each calendar quarter services were performed.

The taxes that are required to be paid on household employees are Social Security, Medicare, Federal Unemployment Tax (FUTA) and you may also owe State Unemployment Tax (SUTA). You will need to collect a W-4 from your employee and determine if the employee would like to withhold any federal withholding. You are not required to withhold any federal or State withholding if they employee does not want to. The Social Security Tax is 6.2% each for both the employee and employer and the Medicare tax is 1.45% (subject to certain income limitations) each for both the employee and employer totaling 15.3% for both employee and employer portions of FICA (Social Security and Medicare). You will also owe a small amount towards your Federal Unemployment Tax and State Unemployment tax. You can either chose to withhold the employee’s portion of the taxes from their pay or you can chose to pay those for the employee with the employers portion that you are required to pay for your employee, either way the taxes will be your responsibility to report and pay. Any tax you pay for your employer without withholding it from the employee’s wages must be included in the employee’s wages for federal income tax purposes and also must be included in the Social Security, Medicare and Federal Unemployment wages as well.

Unlike regular payroll taxes the federal portion of the taxes are not reported on the same forms and are not reported quarterly. As a household employer you will pay and report the taxes on Schedule H included with your Form 1040. Your state withholding, if you have any, and your State Unemployment Tax could be either on a quarterly or annual filing period and also get reported on their own separate forms not on your Schedule H.

You will want to keep records of all your payroll items for your household employee as you will be required to pay and record all such items on your Schedule H at the end of the year and also provide your employee with a W-2. Since you will be providing your employee with a W-2 and having to file the required employment tax forms you will also want to receive an Employer Identification Number (EIN) as the household employer instead of using your own social security number.

More details about household employers can be found in IRS Publication 926. Please feel free to call any of our payroll specialists at either our Salt Lake City or Logan offices.


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Fat Boy Ice Cream

Utah Accountant and CPA

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