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Year End Insight Seminar presented by Sandra Bruno, CPA and Brooke Murphy, EA
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YEAR-END INSIGHT
SEMINAR
Sandra Bruno, CPA and Brooke Murphy, EA
November 2013
Information and training provided by Smith Elliott Kearns & Company, LLC as part of “Year-End and Payroll Tax Update” is intended for reference only. As the information is designed solely to provide guidance to the participants, it is not intended to be a substitute for someone seeking personalized professional advice based on specific factual situations. Although Smith Elliott Kearns & Company, LLC has made every reasonable effort to ensure that the information provided is accurate, Smith Elliott Kearns & Company, LLC and its Members, managers and staff, make no warranties, expressed or implied, on the information provided. The participant accepts the information as is and assumes all responsibility for the use of such information.
Agenda
2014 Cost of living adjustments Maryland & Pennsylvania tax updates Affordable Health Care Act (Business & Individual
provisions) Sec 125 Plans Independent Contractor vs. Employee 1099 Reporting Federal Ruling on Same-sex Marriage Online Banking Security
2014 Cost of Living Adjustments
Social Security Wage Base and Tax $117,000 - 6.2%
Medicare rate 1.45%
New Additional 0.9% Medicare Tax No employer portion
Wage excess of $200,000 (Single) and $250,000 (MFJ)
2014 Cost of Living Adjustments401(k), 403(b) and 457 Plans
$ 17,500Catch up - $ 5,500
Simple Plans$ 12,000 Catch up - $ 2,500
IRA $ 5,500 Catch up $ 1,000
Mileage Rate
Jan – Dec 2013: $ 0.565, Charity $0.14 (2014 rate not released)
Maryland Income Tax Withholding
Effective January 1, 2012
Changes to income brackets, income tax rates and personal exemption limits
No tax rate change for single filers less than $100,000 and married joint less than $150,000
Maryland Income Tax Withholding Example: Spouses filing jointly and head of household
brackets and rates:
For Maryland taxable income of $3,001 through $150,000, the rate is 4.75%;
For Maryland taxable income of $150,001 through $175,000, the rate is 5%;
For Maryland taxable income of $175,001 through $225,000, the rate is 5.25%;
For Maryland taxable income of $225,001 through $300,000, the rate is 5.5%;
For Maryland taxable income in excess of $300,000, the rate is 5.75%
Maryland Income Tax Withholding
Taxes for counties range from 1.25% to 3.2%Washington 2.8%Frederick 2.96%Baltimore City, Howard & Montgomery 3.2%
Pennsylvania Act 32Local Tax Changes
Highlights of Act 32
January 1, 2012
Objective – to remedy lost revenue by streamlining collection and standardizing forms
560 tax collectors reduced to no more than 69
ACT 32 does not apply to:
Businesses/employers located only in Philadelphia
Businesses/employers not located in PA, even if employing PA
residents
Self-employed individuals (unless they have employees)
Fines and Penalties
Pennsylvania Act 32Local Tax Changes
ACT 32 Requirements
Register with the tax collector in your business’s jurisdiction
Have EVERY employee fill out a Certificate of Residency Form
Withhold the higher rate of: Where the employee resides or
The nonresident tax rate for the municipality where the employee works
File quarterly and annual forms Businesses in multiple areas can elect combined filing with one tax
collector but must file and remit electronically on a monthly basis
Pennsylvania e-filing of Unemployment Compensation
Electronic filing is here! Are you ready? January 2013-Unemployment Compensation
Management System (UCMS) allows employers and third party administrators to access information and file quarterly reports online
Mandatory e-filing of PA Unemployment Compensation
Effective with the first quarter 2014 filing, employers will be required to electronically file quarterly UC tax and wage reports
Department of Labor & Industry will not be mailing forms to employers
www.paucemployers.state.pa.us
PA Increase in Taxable Wage Base for UC
YearTaxable Wage Base for
Employer Contributions (per employee per year)
Maximum State Adjustment Factor
2013 $8,500 1%
2014 $8,750 1%
2015 $9,000 1%
2016 $9,500 1%
2017 $9,750 0.85%
2018 and thereafter
$10,000 0.75%
Patient Protection & Affordable Health Care Provisions
Changes for business:FSA limitsW-2 reporting Summary of benefitsMedical Loss Ratio RebateSmall Business Health Care CreditMinimum essential coverage
Reporting of Healthcare Coverage on W-2 Form
Cost of employer-sponsored health insurance must be reported on W-2 in Box 12 – Code DD
Reporting is for informational purposes only
Reporting of Healthcare Coverage on W-2 Form
Reporting Requirements
Reporting began for 2012 W-2 (filed in 2013)
Additional Relief for Small Employers
Less than 250 W-2s in prior year are not required to report until further notice
Reporting of Healthcare Coverage on W-2 Form
What to Report on Form W-2
Aggregate reportable cost of the coverage
Employee and employer portion
IRS website:
http://www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage
Year End W-2 Reporting
Important W-2 Reporting Items
Health Savings Accounts
S-Corp Shareholder Health Insurance
Personal Use of Auto
Retirement Plan Withholdings
Preparing for Year End
Miscellaneous InformationElectronic Filing of Employment Returns
941 and 9402013 Forms W-2 to be filed electronically
Maryland - 25 or more
Pennsylvania - 250 or more must file electronically
Federal – 250 or more
W-2 Reporting Due Dates
Employees January 31, 2014
Paper Forms W-2 to SSA February 28, 2014
Electronic Forms W-2 to SSA March 31, 2014
Preparing for Year End
Health Insurers Summary of Benefits
Uniform summary of benefits and coverage explanations in plain language
Must be provided at plan renewal on or after 9/23/12
Revised summary of changes must be given 60 days prior to effective date
Penalty of up to $1,000 per failure to provide
Insurers required to spend so much of premiums on claims-excess refunded to employer
Employer must distribute rebates to participants in some way…Distribute to enrollees/improve benefits/reduce
future employee contributionsAllocation amongst participants must be fair
and reasonableMust be used within 3 months of receiving
Medical Loss Ratio Rebates
Healthcare Credit
2010-2013 credit is 35% of the premium cost for small business (25% for nonprofits)
Employers must cover at least 50% of the cost of single coverage
Must have fewer than 25 full-time equivalent employees
Average wages less than $50,000
Healthcare Credit
2014 & 2015-credit is available if employer purchases health insurance coverage for their employees through a health exchangeCredit is worth up to 50% of premium cost (35%
nonprofits)
2015- employers with 50 or more employees who DO NOT offer health coverage Must offer insurance to full-time employees or
pay a penaltyFine is $2,000 per employee, but first 30
employees are not counted….so with 65 employees penalty is only paid on 35 of them
Minimum Essential Coverage “Pay or Play”
2015- employer with 50 or more employees who DOES offer health coverage…but has at least one full time employee receiving a tax credit in the exchange will pay the lesser of….$3,000 for each employee receiving a credit or
$2,000 for each full time employee
Minimum Essential Coverage “Pay or Play”
How can an employee receive a tax credit in the exchange?Family income up to 400% of federal poverty
level is eligible for credit if:Value of employer coverage is less than a minimum
standard (does not cover 60% of costs)Employer requires employee to contribute more than
9.5% of employee’s family toward coverage
Minimum Essential Coverage “Pay or Play”
Patient Protection & Affordable Health Care Provisions
Changes for individuals:Additional Medicare withholdingMedicare Surtax or Net Investment IncomeMedical expense deductionFailure to maintain health insurancePremium Assistance Credit
Additional Medicare Tax Withholding
Effective January 1, 2013
Withholding requirement commences in the pay period where paid wages exceed $200,000 regardless of filing status
0.9% Withholding
No employer match
Form 1040-Earnings over $200,000 for single, head of household, married filing separately, & Qualified Widow(er) with Dependent Child
Form 1040-Earnings over $250,000 for married filing joint
New 3.8% surtax on individual investment income
Calculated on the lesser of: Net investment income OR the Excess of taxpayers’ modified AGI over $200,000
($250,000 for MFJ)
Medicare Surtax or Net Investment Income (NII)
Medicare Surtax
What is included as net investment income?InterestDividendsAnnuitiesRoyaltiesRentCapital GainsPassive income from business (limited
participation)
Example
Barack & Michelle, MFJ Salaries $280,000 + net interest income
$20,000 = AGI $300,000 Taxes on lesser of
1. Net investment = $20,000 OR
2. Excess of AGI over $250,000 = $50,000
Result:
$760= 3.8% surtax on $20,000
Medical Expense Deduction
2013, medical expenses allowable if greater than 10% of AGI
Exception- Taxpayer or Spouse is or turns 65 during 2013-2016, 10% threshold is not effective until 2017
Failure to Maintain Health Insurance
2014 & 2015 phase in period-penalty on individuals who fail to maintain “minimum essential coverage”
Penalty: 2014 = greater of 1% of household income OR $95 per uninsured
2015 = greater of 2% of household income OR $325 per uninsured
Penalty on Health Insurance
Penalty included on 1040 IRS may not impose interest on late payment Not subject to criminal prosecution or assessment IRS may not file lien or levy property
May reduce refund owed to taxpayer
Supreme Court ruled this is a tax
Premium Assistance Credit
2014- refundable credit to cover cost for health insurance purchased through a state health exchange
Credit based on income Low income individuals
Section 125 Plans (Cafeteria Plans)
Types of Plans
Premium Only Plans (POP)
Dependent Care Assistance Program (DCAP)
Flexible Spending Accounts (FSA)
Health Reimbursement Accounts (HRA)
Benefits to both employee & employer
Section 125 Plans (Cafeteria Plans)
Dependent care limit: $5,000
No limitation related to health insurance premiums portion.
FSA Deferral limit: $2,500
May be adjusted in future years for cost of living
New for 2013: $500 Carryover Option
Allowed grace period or carryover, but not both
No effect on $2,500 limit
Plan must be amended to adopt this change
Employee vs. Independent Contractor
Employee or Independent Contractor?
Employee – Job to be completed under the control of employer, collects paycheck, employer pays payroll taxes related to individual
Independent contractor – self employed or non incorporated business
Common-Law Rules
Behavioral control
Financial control
Type of relationship
1099 Reporting Federal Reporting of 1099
Filing requirements (Both IRS & State)
$600 or more paid for rents or services
$10 or more paid in interest, dividends, or royalties
Due dates
Due to the contractor by January 31
Due to the IRS & State by February 28, unless filing electronically then
due by March 31
Penalties
Ranges from $30 - $100 per return with a max of $250,000 - $1,500,000
Small business max ranges from $75,000 - $500,000
Intentional disregard of filing penalty is at least $250 per return, with no
max
1099 Reporting
PA 1099 Reporting
Required for PA-based work & PA-source oil/gas lease payments
Federal form may be used, unless the entity is required to file electronically using e-TIDES
Due dates are the same for PA as for Federal forms
Penalties
$50 penalty for each occurrence of failure to file, or providing fraudulent or false information
1099 Reporting
IRS NoticesContact vendors to verify correct information
Full legal nameCorrect EIN or SSNIf incorrect information may be required to
withhold federal tax (28%) from future payments.May want to send Form W-9 to each vendor for
them to completeForm I-9 & W-9 have been updated
QuickBooks
Consolidated backup of QuickBooks Files Subpoena of QuickBooks files or IRS audits Contact an SEK employee for additional help with
consolidating your QuickBooks files
Sunset Rules/Support QuickBooks should be upgraded every 3 years, since that is
the amount of time Intuit will support each version After the 3 years, key features may not be available or may not
work properly including: Payroll Online Banking Merchant Service Credit Card Download
IRS Ruling on Same-Sex Marriage For federal purposes, same-sex couples, legally married in a jurisdiction
that recognizes the marriage, will be considered married. Will be treated as married for federal income tax, gift, & estate tax purposes Must file either a married filing joint or married filing separate return for 2013 Can possibly amend their 2010, 2011, & 2012 federal income tax returns to file
a married return If they were married during the tax year being amended
Employment related items Employees who purchased same-sex spouse health insurance from their
employer on an after-tax basis may treat the premiums paid as pre-tax & exclude them from income This would be pretax for:
Federal Income Social Security Tax Medicare Tax
To claim a refund, the payroll tax returns would need to be amended
The Treasury & IRS intend to streamline procedures for employers who wish to claim a refund on previously taxed benefits & provide further details for individuals
Online Banking Security Internet risks & fraud trends
From the criminals’ point of view, Internet fraud is a high-growth, profitable industry
Organized crime has moved into the business of Internet fraud, driving a significant increase in incidents & sophistication of incidents
Personal computers rather than bank systems are typically the target of fraudsters, since they are seen as ‘the weakest link’
Fraudsters use targeted social engineering techniques in conjunction with crimeware & malware infections
Online Banking Security Corporate Account Takeover
A type of identity theft in which a criminal steals a business’s valid online banking credentials to initiate fraudulent banking transactions
Fraudsters use malware software on the User’s PC to record keystrokes & gather login information, including usernames & passwords & token values
Using stolen credentials, fraudsters perform unauthorized transactions
Online Banking Security
Examples of fraud scenarios “Phishing” emails
Many payment fraud schemes start with “phishing” emails, which correctly names the recipient & contains either an infected file or a link to an infectious website
The email recipient is generally a person within an organization who can initiate funds transfers or payments on behalf of the organization
Once the email recipient opens the attachment, or clicks the link to open the website, malware is installed on the recipient’s computer
Online Banking Security Examples of fraud scenarios
Cross-channel fraud User experiences abnormal system behavior & then receives
a call from an individual claiming to be from the Bank’s customer service unit. The caller says they noticed the User was experiencing issues & is calling to help.This is an attempt to obtain log in credentials from the User
Company receives an email request from a vendor/supplier to change payment instructions. Often times, the sender stresses a sense of urgency & a need to communicate via email instead of via phone This is an attempt to get the Company to send funds to a fraudster’s
account
Online Banking Security Examples of fraud scenarios
Infected browser Individual navigates to a website that appears to be legitimate but is, in fact,
fictitious Simply visiting the site infects the individual’s PC Once malware has been installed on a PC, the fraudster can take over the browser
to present a fake webpage to gather login credentials Individuals should be familiar with the standard look & functionality of their
bank’s webpage Potential signs of fraudulent activities include:
Lack of full branding Spelling and/or grammatical errors Non-standard log-in screen
System messages targeted to get User to wait so fraud can occur or to have another User log in so secondary set of credentials can be captured
Becoming increasingly difficult to differentiate between a legitimate webpage & a fake webpage as fraudsters improve their tactics
Online Banking Security
Indications your PC may be infected with malware PC performance problems – slowness or dramatic loss of
speed, computer locks up so that the User is unable to perform any functions
Unexplained system behavior – unexpected rebooting or restarting of computer, inability to shut down or restart, new or unexpected toolbars and/or icons, changes in the way things appear
Interruptions from pop ups or spam – unusual pop up messages, an unexpected request for a one-time password
Online Banking Security Best Practices to help reduce fraud risk
Computer network security Carry out all online banking activities from a stand-alone & dedicated
computer Regularly update the anti-virus & anti-spyware programs on each computer
used for internet banking Training your staff
Don’t respond to or open attachments or click on links in unsolicited emails Be very suspicious of emails claiming to be from a financial institution or
taxing authority requesting account information, account verification or banking access credentials
Verify that you are using a secure session (https, not http) Always end your Online Banking Internet sessions by “logging off” Verify email instructions through a different channel & do not rely upon
contact information provided in the email
Online Banking Security
Best Practices to help reduce fraud riskSystem Access
Restrict User permissions Create unique IDs for each online banking user Delegate the minimum requirements to a User to get the job done Review user access & permissions on a regular basis
Implement Dual Administration of Users Segregate permission to create/modify users & user permissions from the
permission to approve such actions
Payment Processing Segregate ACH & wire payment functions, by having one
individual initiate the transaction & a different individual approve the transaction
Establish transaction limits for Users
Online Banking Security Recommendations in the event you become a victim of fraud
Immediately cease all activity from computer systems that may be compromised Log-off & shut down PC Unplug the Ethernet or cable modem connections to isolate system from remote
access Immediately contact your bank to request that the following actions, & any
others you consider appropriate, be taken to help contain the incident: Change online banking passwords Confirm recent accounts transactions Close existing account(s) & open new account(s) as appropriate Ensure that no one has requested an address change, title change, PIN change or
ordered new cards, checks or other account documents to be sent to another address Immediately contact your organization’s security officer or security advisor to
ensure you are following your own appropriate security procedures and guidelines to help contain the situation
Online Banking Security
Examples of possible security procedures that may be offered by banks: User ID & Password Token device Anti-keystroke logging technology Dual authorization of payment profiles/templates Dual authorization of payments Control totals Verification of payments via different means of communicationEmail alerts Payment initiation/approval limits
Review Review payroll setups for employees & employer,
including Medicare, Social Security, FUTA, and SUTA changes
Be alert for updates on the Health Care Provisions
Make any necessary changes to your Cost of Living Adjustments or Sec.125 Plans
Make sure you have correct information for any 1099s to be filed
Be alert while conducting any online banking or other financial transactions
Thank you for attending our seminar!