Payroll Tax and 1099 Compliance: What You Need to Know and What You ll Need to Comply

Transcription

1 Payroll Tax and 1099 Compliance: What You Need to Know and What You ll Need to Comply Brought to you by ADP, Inc. This presentation was made available by ADP for general informational purposes only and should not be construed or relied upon as a comprehensive legal and compliance review. The ADP Logo and ADP are registered trademarks of ADP, Inc. 11/10/ ADP, Inc. 1

2 Eye On Washington ADP is committed to assisting small businesses with the increasing compliance requirements resulting from legislative reform. Our goal is to minimize your administrative burden across the entire spectrum of payroll, tax, HR and benefits resulting from employment related legislation so that you can focus on running your business. Please visit our Eye On Washington legislative update (in the Tools & Resources section), where you ll find additional resources regarding the content covered in this webinar. 2

3 Today s Speakers Rich Wilson Senior Vice President, ADP Small Business Services Rich leads product development for ADP s Small Business Services division which includes small business payroll, professional employment organization (PEO) and retirement services. Rich is also the primary designer for ADP s small business mobile product offering which gives business owners the freedom to manage their payroll remotely. Pete Isberg Vice President, Government Affairs, ADP Pete is responsible for monitoring and analyzing proposed and newly issued regulatory changes that affect ADP s Employer Services business. Pete is a former member of the IRS Information Reporting Program Advisory Committee (IRPAC), and serves on several state and national advisory boards concerning unemployment insurance policy matters. 3

4 What You ll Learn Overcoming today s challenges for small business owners Compliance on the move Legislative compliance update Federal and state electronic tax payment and filing mandates Expanded 1099 reporting obligations Payroll tax savings in the HIRE Act Q&A 4

5 Overcoming Today s SMB Challenges Increasing productivity, realizing growth Doing more with less Staying competitive Balancing growing business vs. running business Remaining compliant Understanding the law Making changes to comply with the law 5

6 The Definition of the Office Is Changing 90% of small business owners spend at least some time outside of the office, with an average of 9 hours per week about one day a week of a typical 40 hour workweek 30% say that the amount of time spent outside of the office is increasing Source: Recent ADP survey of small business owners 6

7 Growing Business vs. Managing Business Technology is the key to that balance 1/3 believe that redeploying time spent on payroll to other activities would lead to an increase in company revenue 1/2 indicate that they d be interested in using their mobile devices to aid with administrative tasks (e.g., payroll) 7

8 Easing the Burden Increasing Productivity 8

9 Smartphones = Efficiency 6 out of 10 executives surveyed own a Smartphone and 80% of Smartphone users use them for business Top management actions on mobile devices: 77% customer relations 53% time management 9

10 You re Mobile. Your Office Should Be, Too! 10

11 Tax Payment Mandates 11

12 Electronic Tax Payment Mandates Effective January 1, 2011, virtually all businesses will need to switch to the IRS Electronic Federal Tax Payment System (EFTPS) for all federal tax payments 12

13 Electronic Tax Payment Mandates New regulations will eliminate the IRS paper tax deposit system that employers have used since World War I Businesses must use EFTPS or face 10% penalties for taxes paid by check 13

14 Electronic Payment Mandates: What could go wrong? The IRS EFTPS is an improvement, but don t forget it s mandatory Many of the same traditional banking risks apply when filing electronically: Bad weather or disaster conditions Office manager is unexpectedly out sick on the due date 14

15 Electronic Payment Mandates: What could go wrong? The IRS EFTPS is an improvement, but don t forget it s mandatory Among the roughly 671 new possible mistakes: Power outages or Internet connectivity problems; Didn t receive or lost EFTPS PIN/password; Neglected to update the EFTPS system with bank account changes 15

16 State e Payment Mandates States are under tremendous pressure to do more with less; to be more efficient and to collect more under existing laws Electronic tax payment and reporting mandates improve efficiency and accelerate tax collections 16

17 State e Payment Mandates Today we will focus primarily on electronic tax payment mandates affecting businesses Watch for: Wide variations in state payment and collection requirements Two or three agencies, each with different websites, may be involved within each state for payment of payroll taxes and withholding 17

18 State e Payment Mandates Recent changes Income Tax Withholding Georgia HB334 lowered the mandate threshold for sales or withholding tax payments to $500 in 2011 Includes employers with as few as 5 workers Penalty for payment by check is $25 or 5% of the tax due Illinois reduced its electronic tax payment threshold to $12,000 annually, effective January 2011 Businesses with just 8 employees will likely qualify Connecticut HB 5494, signed into law in June, requires electronic payments for more than $2,000 in tax liability, per year Impacts almost every employer in the state 18

19 State e Payment Mandates More Recent changes Income Tax Withholding Nebraska LB 879, effective in June 2010, authorizes mandatory electronic payments from businesses owing more than $5,000 Kansas SB 430 requires all employers to pay sales and withholding taxes electronically, beginning September 2010 Massachusetts expanded their mandate last week: Now all businesses that pay over $5,000 annually in all state taxes combined must remit electronically New Jersey recently discontinued paper returns for reporting and remitting income tax withheld and unemployment insurance 19

20 State e Payment Mandates At least eleven states require electronic payment of child support withholding. Some examples: California employers that are required to pay any taxes electronically Florida employers with 10 employees Indiana employers with 50 employees Pennsylvania employers with 15 employees Massachusetts and Oregon employers with just 5 employees 20

21 State e Payment Mandates Penalties apply: Indiana employers can be fined $25 per incident In Pennsylvania it can be $1,000 per failure 21

22 Navigating Change and Remaining Compliant Electronic Filing 22

23 Electronic Filing More difficult than e payments Often a different state website than the tax payment site Type in W 2s or wage records on a state fill in page; or, Get current software to format the information for uploading. State formats vary: EFW2, ICESA, state custom, CSV... 23

24 Electronic Filing Rules Separate rules apply for payroll tax returns, W 2s and Wage Reports Mandate thresholds and agency web sites and file upload protocols apply to employer filing obligations: Quarterly payroll tax returns Annual W 2 filings Quarterly wage reports 24

25 Electronic Filing W 2 Filings The IRS threshold for electronic filing (250 W 2s) is widely viewed as outdated Several states require electronic reporting starting at 25 W 2s (CT, RI) Minnesota lawmakers recently broadened its e file mandate from 25 employees for 2010 W 2s to include businesses with 10 employees in

26 Electronic Filing Wage Reports For unemployment insurance wage reporting, several states recently adopted rules requiring all businesses to file electronically: 1 employee MA, MN, NJ 10 employees FL, KY, TX 26

27 Preparing for Electronic Filing Keep up to date on announcements from the IRS.gov and state tax authorities Electronic filing and payment laws are evolving rapidly Coordinate with tax advisors and others Many mandates affect all tax types (e.g., sales and use, corporate tax, unemployment insurance ) 27

28 Preparing for Electronic Filing Register early to allow time for PIN/password delivery Initiate tax payments early to avoid last minute problems Such as power outages, Internet connectivity problems or unexpected illnesses Make sure that more than one person is authorized and trained to make tax payments 28

29 Navigating Change and Remaining Compliant Health Care Reform verview 29

30 Health Care Reform Impact on 1099s How 1099 reporting is expanded by the Patient Protection and Affordable Care Act of 2010 (PPACA) We ll cover: Basics on 1099 reporting What is now covered How you can prepare Possible changes to the legislation 30

31 1099 Reporting Basics Prior Law A business that makes payments of $600 or more to another person in the course of the payer's trade or business is required to: Solicit the name and TIN of payees File a Form 1099 MISC with the IRS Send a statement to the payee 31

32 1099 Reporting Basics Prior Law Non employee compensation only Use IRS Form SS 8 if in doubt on worker classification pdf/fss8.pdf Caution: Some states have different criteria 32

33 1099 Reporting Basics Backup Withholding: Applies when a transaction is reportable, regardless of dollar amount, if a TIN is not supplied by the payee Or if the IRS notifies you that a name and/or TIN is incorrect Action: Register for the free IRS TIN Matching System at 33

34 1099 Reporting Basics Background: Penalties for Late or Incorrect 1099 Reporting $15 per 1099 received up to 30 days late $30 if more than 30 days late but before August 1 $50 if filed after August 1, not filed, or incorrect 34

35 1099 Reporting Basics Background: Penalties for Late or Incorrect 1099 Reporting But the recent Small Business Jobs Act (H.R. 5297) doubled these penalties retroactively. New penalties apply to 2010 Forms W 2 and 1099 filed in

36 1099 Reporting Expansion What the New Law Requires Section 9006 of the PPACA For payments made after 2011 Added section 6041(h) for payments made to corporations Amended section 6041(a) to add payments "for property" and "gross proceeds" e.g., the aggregate total paid in 2012 for office supplies to Supply Depot, Inc. 36

37 1099 Reporting Expansion Impact IRPAC and the IRS Taxpayer Advocate expect a tenfold increase in 1099 reporting: 4.2 million businesses file roughly 85 million 1099s today Over 40 million are expected to have a reporting obligation The IRS may receive a billion 1099s under the new law 37

38 1099 Reporting Expansion Why Businesses Are Upset: Problems with Expansions Recipients may be nervous about IRS matching It won t match Reporting is cash basis but corporations are generally accrual basis Reporting is calendar year basis but corporations are often fiscal year taxpayers Reporting of gross proceeds (sales price) won t relate to income 38

39 1099 Reporting Expansion Impact and Issues TIN Solicitation Businesses must solicit TINs and legal names Many use Form W 9, but it is not required 39

40 1099 Reporting Expansion Impact and Issues Incorrect names Businesses often use DBA names, not legal names Is an organization tax exempt? This may be more difficult than getting the organization's TIN Action: Consider using credit or debit cards for purchases 40

41 1099 Reporting Expansion Additional Complexities Businesses will need to sum amounts paid through the calendar year to each payee Similarly named payees? Affiliates? Subsidiaries? Factor in returns? Trade discounts? Rebates? This could be difficult for businesses that make payments from multiple locations 41

42 1099 Reporting Expansion Backup Withholding Issues How would backup withholding apply to the purchase of goods? Unless purchased on credit or in recurring purchases, there may be no funds to withhold 42

43 1099 Reporting Expansion Backup Withholding Issues A business that withholds 28 percent from a corporation or service provider may find itself without a product or service it needs Withholding from a contractor may prevent the contractor from fulfilling the contract Hint: Use credit or debit cards 43

44 1099 Reporting Expansion Understand Exclusions Tax exempt entities Government entities Foreign corporations or persons TBD: How will you know? Eyeball test Form W 9 check box? ( Exempt ) Payments via Payment Cards 44

45 1099 Reporting Expansion Proposals to Modify 1099 Reporting Expand Exceptions Publicly traded corporations Publicly regulated entities Private companies with audited financial statements Intercompany payments Backup withholding should not apply to payments under $600 $10,000 is suggested 45

46 1099 Reporting Expansion Proposals to Modify 1099 Reporting Legislative proposals would exempt payers with less than 25 employees from reporting Increase the dollar amount for reportable "gross proceeds" and goods/property" to $5,000 46

47 Navigating Change and Remaining Compliant Are you leaving free money on the table? Hire Act it s not too late 47

48 Take Advantage of the HIRE Act Employers can save up to $6,622 in employer Social Security taxes for each qualifying new hire in 2010 Hired after February 3rd, and previously unemployed for at least 60 days 48

49 Take Advantage of the HIRE Act Employers may also receive an additional tax credit up to $1,000 for qualifying employees who work for at least 52 weeks To calculate your savings go to: 49

50 HIRE Act It s Not Too Late File (or amend) IRS Forms 941 to claim the employer S.S. tax exemption New hires must sign IRS Form W 11 Claim the HIRE Act retention credit Qualifying employees must work for at least 52 weeks and earn at least 80% of first half wages in the second half of the year For details see or visit 50

51 Stay Current, Compliant, Productive

52 Small Business Resources: Q&A STAY CURRENT Understand the federal rules and any new mandates in the states in which you operate Visit Visit Federation of Tax Administrator s website to check your state s e payment requirements ( 52

53 Small Business Resources: Q&A STAY CURRENT Subscribe to IRS Newswire Topics cover the entire range of tax administration, including tax law changes, filing season updates, statistics and more HealthCare.gov A federal government website managed by the US Department of Health & Human Services U.S. Department of Health & Human Services Provides information for small business owners ( 53

54 Small Business Resources: Q&A YOU SHOULD IMMEDIATELY Understand the procedure involved for filing EFTPS Visit the website and 54

55 Small Business Resources: Q&A SECURE ELIGIBLE TAX CREDITS Apply for small business health care tax credit to help you afford the cost of covering your employees Apply for a tax exemption and tax credit through the HIRE Act Visit IRS.gov and 55

56 Stay Current, Compliant, Productive

57 You may contact ADP directly at: Phone: (877) Web: E mail: request_info@adp.com Twitter: PayrollADP hashtag #EFTPS This presentation was made available by ADP for general informational purposes only and should not be construed or relied upon as a comprehensive legal and compliance review. The ADP Logo and ADP are registered trademarks of ADP, Inc. 11/10/ ADP, Inc. 57

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