The IRS Wishes You a Happy Valentines Day

In December of 2009, Congress passed an extension of the Bush tax cuts. A number of the provisions impacted your 2010 tax return. It was mainly on Schedule A, itemized deductions, and education credits. Since the Act passed Congress so late in the year, the IRS needed time to integrate the changes into the tax processing system. They are now finished with that integration.

At last, most individual tax returns can be e-Filed with the IRS. This means that you can file your return and finally get your refund in a couple of weeks.

You may not have caught the news that the rate used to calculate Social Security withholding taxes from your employees has been reduced for 2011. It goes back up on January 1, 2012. The rate is now 4.2% rather than 6.2%. So, in effect, your employees are getting a raise and you are not paying for it. The Medicare tax rate has not changed.

The rate that a company contributes for Social Security taxes has not changed. It is still 6.2%. You should take this into account when you calculate the payment of taxes each month. You should multiply the gross payroll by 13.3% to calculate the Social Security and Medicare payment that you make.

You don’t need to worry about this if you are using a payroll service. They should take care of it.

The IRS is also changing the rules for paying the taxes. Starting January 1, 2011 you are required to pay the taxes using the Electronic Federal Tax Payment System (EFTPS). See my blog posted on December 21, 2011 for more details. http://www.thomstaxtalk.com

IRS Requirement to pay your business taxes electronically

If you are in business you probably got a notice from the IRS recently telling you that you must pay your taxes electronically. This new rule takes effect January 1, 2011.

Up to now, businesses could pay most of their taxes by completing Form 8109 and paying their taxes at their bank. This system has been in effect for decades and worked well. The Internet has changed all that. It is now easier, and cheaper, for the government to have you use the Electronic Federal Tax Payment System (EFTPS) than to have you go to your bank to make the payments.

Use of the EFTPS system is required for business taxes. So if you must remit payroll taxes, income taxes, and various excise taxes, this system must be used starting January 1, 2011. Individuals may use the system to pay their federal income taxes and estimates.

Here is a link to some basic information about the system:

https://www.eftps.gov/eftps/direct/HelpAboutMain.page


The system is fairly easy to sign up for and to use. Here is the link to sign up:

https://www.eftps.gov/eftps/enrollment/new-enrollment-flow?execution=e1s1

You can always go to the IRS website at http://www.irs.ustreas.gov/ and search for information.

Massachusetts has required businesses to remit taxes electronically for several years. Information can be found at:

https://wfb.dor.state.ma.us/webfile/business/Public/Webforms/Login/Login.aspx

These systems are reasonably easy to use and will save you the time of driving off to the bank when you have to make these payments.

Health Insurance and Our S Corporation

Health insurance is a benefit that most companies offer. It is a great way to attract and keep good employees, and it provides some tax benefits as well. Even the share of the premiums that the employee pays can be treated as a pre-tax deduction and save the employee and the company significant money. What becomes a little more complicated is if you are the owner of an S Corporation and you participate in the health insurance program.

IRS regulations require that you report the company paid portion of health insurance as compensation for anyone who owns more than 2% of the company stock. This is the case for more than 99% of owners of S Corporations. Massachusetts also follows this rule.

Here is an example: Suppose your salary is $50,000 and you also paid $10,000 for your health insurance. (I know, you wish it were only $10,000.) Your W-2 should show federal taxable wages of $60,000. It also should show this amount as state wages in Massachusetts and probably others states as well. The Social Security and Medicare wages should only be $50,000. This add back to your income is not subject to Social Security or Medicare taxes.

You might be about to panic because you think you will be paying more in income taxes because of this adjustment. I have good news. It is true that you will report $60,000 on line 7 of your personal tax return. But you will get to deduct the $10,000 on line 29 of your return and thus pay tax only on the $50,000 of salary.

If it does not have any impact, why do it? Reason one: The IRS requires it. Why challenge them? Reason two: If you do not put the health insurance on your W-2, you will have to report it as income anyway and then you can deduct it as a medical expense on Schedule A of your return. Medical expenses are subject to a 7.5% of income floor and you may lose some or all of the deduction. It could cost as much as 40% of the cost of the health insurance in additional taxes. Now that’s a great reason to do it.

I’d be happy to talk with anyone who has any questions about this.

IRS Scams

My spam filter intercepted three emails allegedly from the IRS telling me that a payment to them had been rejected because of a problem with my employer identification number. I also have been receiving calls and emails from my clients on the same topic.

The IRS does not use email to make initial contacts with taxpayers. These emails are a phishing scam trying to get information from you that can be used to steal your money. Do not respond and do not open any links. You will regret it if you do.

Where’s My Refund?

Right about now I get a lot of calls from clients who have not received their federal refunds. There is an easy way to find out where it is.

First, go to this link

https://sa2.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp

You will need to enter the following information

* Your Social Security Number (or Individual Taxpayer Identification Number)
* Your Filing Status
* The exact whole dollar amount of your refund

And VOILA you will get information on what is happening with your refund.

Just remember, if the IRS says they mailed the check last Friday, it probably means that it actually got to the post office next Friday. This is a great argument for having the IRS do a direct deposit your refund.

Take Your Business Electronic

For years the Commonwealth of Massachusetts has required businesses to pay their taxes electronically. The Department of Revenue has a web site designed to accomplish this. And the web site is actually fairly easy to use. Here is the website:

https://wfb.dor.state.ma.us/webfile/business/Public/Webforms/Login/Login.aspx

You take a few minutes to register and then it goes live a couple of days later. Then you can use its full capabilities.

You would use this to pay essentially any tax that you owe to the Commonwealth. The most common ones would be state tax withholdings, sales and meals taxes collected, and corporate excise taxes. You are required to pay even the more obscure taxes electronically.

The Massachusetts unemployment office has set up the QUEST system for employers to file and pay returns and process unemployment claims. It is located at

https://wfb.dor.state.ma.us/webfile/business/Public/Webforms/Login/Login.aspx

Again you need to register with them and this can be a difficult process. You need a user name and password and can call 617-626-5075 for assistance. Expect a wait.

The QUEST system is not as user friendly as other government sites.

The IRS is getting into the game of requiring direct payments rather than using paper checks. The system is relatively easy to use and it is required for all but the smallest business starting in 2011.

Here is the registration site
https://www.eftps.gov/eftps/

Good luck.