Summit Blog
Monday, November 29, 2010
Changes To Medicare Tax For High Earners
Recent legislation is changing the Medicare tax starting in 2013. The Medicare tax rate will increase from 1.45% to 2.35% on wages earned over $200,000 for single filers and $250,000 for joint filers ($125,000 for a married individual filing separately).
Because employers will not know the wages of an employee’s spouse, they are directed to withhold the increased amount from all workers with wages exceeding $200,000, regardless of the marital status claimed on their Form W-4. Overwithholding and underwithholding for employees will be reconciled when they file their tax returns.
Employers do not have to match the increased Medicare tax amounts withheld from employees’ wages. Self-employed individuals will also be subject to the Medicare
tax increase if they meet the income thresholds, and will not be allowed to deduct the
additional tax as a business expense.
If you have any questions about this change feel free to contact your payroll specialist.
Steven J. Kessler C.P.P.
Payroll/HR Advisor
Summit HR and Payroll
Wednesday, October 13, 2010
Changes to Health Saving Accounts
On March 23, President Obama signed into law the Patient Protection and Affordable
Care Act. This act affects what an employee can claim under a health FSAs, Health Reimbursement Arrangements (HRAs) or Health Savings Accounts.
The definition of “medical expense” with respect to medicines, for purposes of Health FSAs, Health Reimbursement Arrangements (HRAs), Health Savings Accounts
(HSAs) is conformed to the definition used in determining the itemized deduction for medical expenses, except that “prescribed drug” is determined without regard to whether the drug is available without a prescription. This means that only the cost of medicine prescribed by a doctor and insulin can be reimbursed through a health FSA or HRA or on a tax-free basis through an HSA. This changes the current rule allowing such reimbursements for nonprescription drugs if the plan provides for it. This change only affects over-the-counter medicines, not other medical products, such as bandages, braces, etc., which can still be reimbursed on a tax-free basis. This change takes effect for tax years beginning after December 31, 2010. Also, salary reductions by an employee into a health FSA are limited to $2,500, effective for tax years beginning after December 31, 2012 (indexed for inflation after 2013 to the next lowest multiple of $50). This does not limit the exclusion for health coverage offered through an HRA.
So when filling out the 2011 heath deduction from please keep this information in mind.
Steven J. Kessler C.P.P.
Payroll Specialist
Summit HR & Payroll
Wednesday, August 25, 2010
Tipped Employees
Tipped Employees
Who must report tips?
• Employees of food and beverage operations who receive tips. But, reporting is also required from any workers who receive tips, such as: hair dressers, cab drivers and casino dealers.
• As an employee, tips are used to determine the amount of Social Security benefits you and your family may receive if you retire, become disabled or die.
• If you are an employer who has workers receiving tips, give Summit Payroll and HR a call. They can simplify the withholding and reporting of tips for you.
Employee’s responsibility:
• The law requires you to report tip income to your employer.
• An employee who received tips of $20.00 or more in a month, is required to report total tips to employer. An employer may require employees to submit the report by the 10th of the month following any month in which tips were received.
• Tips are subject to Social Security, Medicare and Income taxes
• Unreported tips may be subject to a penalty of 50% of your Social Security and Medicare taxes if the IRS discovers tips have been under-reported.
What payments are tips?
• A tip is a voluntary payment from a customer.
• Tip payments may be made in cash, by check or charged on the customer’s credit card to be collected by the employer and paid over to you later as cash
• Some payments to employees appear to be tips, but really are wages. THREE EXAMPLES OF NON-TIP PAYMENTS:
• Hotel banquet manager negotiates a service charge with customer and distributes the proceeds to employees.
• A club bills members for all services rendered and includes a mandatory gratuity for employees, then distributes the proceeds to employees.
• Employer requires the employees to turn over all tips to employer, and distributes the proceeds among all employees.
• If you are involved in tip pooling or tip splitting with other employees, report only the amount of tips you actually receive and keep. For example, if you receive $500 in tips a month and give another employee (like a busboy) one-fourth, you report $375 in tips and the other employee should report $125.
How to report your tips
• You may use IRS Form 4070 to report tips to your employer.
• Otherwise, here is the information required
• The amount of tips
• Your employer’s name and address
• Your name, address, Social Security Number, signature
• The month (or shorter time) covered
• The date of the report
When to report your tips
• Your employer may require you to report your tips more frequently than monthly. However, as long as you submit your report by the 10th of the month following any month in which tips are at least $20, you have satisfied the law.
• If the 10th day falls on a Saturday, Sunday or legal holiday, you may report on the next business day.
Mireya Gutierrez, Payroll Specialist, Summit HR & Payroll
| PermalinkMonday, July 26, 2010
Employees vs. Independent Contractors
Employees verses Independent Contractors
The determination of if a worker is an employee or independent contractor is important!
Workers are employees if they meet the following criteria:
• Required to comply with employer’s instructions about when, where, and how to work
• Works exclusively for the employer
• Hired by the employer
• Subject to dismissal; can quit without liability
• Has a continuing relationship with the employer
• Work done personally
• Performs services under the company’s name
• Paid a salary; reimbursed for expenses; participates in company’s fringe benefits programs
• Furnished tools, equipment, materials, and training
• If an outside salesperson: company provides leads, sets terms and conditions of the sale, assigns a territory, and controls the sales process
These workers will have Federal Income Tax, State Income tax (where applicable), Social Security, Medicare and other mandatory taxes deducted from their paycheck. In addition to the employee’s taxes the employer will also have to pay taxes in the form of: Federal Unemployment Tax, Social Security, Medicare and State Taxes.
Independent Contractors are workers that:
• Sets own hours; determines own sequence of work
• Can work for multiple employers; services available to the public
• Is self-employed
• A contract governs how the relationship can be severed
• Works by the job
• Permitted to employ assistants
• Performs services under the worker’s business name
• Payment by the job; opportunity for profit and loss
• Furnishes own tools, equipment, and training; substantial investment by worker
• Controls the sales process and terms
These workers are not taxed upfront by the Federal or State government. Instead they pay the full share (both employee and employer share) of taxes when they file their personal income tax return.
This may seem like a great deal for employer looking to hire help at a discounted rate. However, if the IRS finds that an employer had a misclassified employee the company is liable. If the employer unintentionally misclassified a worker the penalty for federal income tax is 1.5% of wages paid and 3% if the employer did not file correct 1099 documentation. Also, the employer is responsible for 20% of the employee’s portion of the Social Security and Medicare tax and 40% if the correct 1099 documentations were not filed. If the employer intentionally misclassifies a worker the employer is subject to 100% of the employee’s Federal Income Tax, Social Security and Medicare, plus penalties and interest.
So next time you think of hiring a new worker and are concerned about if they are an employee or an independent contractor, a call over to Summit Payroll and HR can help you out.
Steve Kessler CPP, Payroll Support, Summit Payroll and HR
Thursday, July 08, 2010
Update your W-4
Chris works for Quicksand Investments. Chris still owed $100.00 loan to Quicksand when he was terminated for cause. When Chris’ final check was calculated he his federal withholding came to $126.77. To satisfy the balance owed on the loan his employer reduced the withholding to $26.77 and applied $100.00 toward the outstanding loan balance.
Did Quicksand Investments take proper action to recover its’ possible loss by providing this service to Chris?
The answer is no. The IRS Publication 15 (Circular E) states that the amount of federal income tax to withhold from an employee’s wages is determined by the marital status and number of allowances claimed form W-4. Additionally the IRS suggests you get an updated W-4 from your employees each year. However, if the employee does not provide a new one to you each year, it is acceptable to use the most current form you have on file.
You can find a current year W-4 on our website under the Downloads section.
Timothy Castillo, Summit HR & Payroll, Operations Manager