Payroll Information and Reporting Practices in Montana

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1 2016 PAYROLL INFORMATION UPDATE Both the employee s and employer s Social Security tax withholding rates remain at 6.2% of wages. UPDATE FOR 2016 The 2016 Social Security wage base limit remained at $118,500. The 2016 MT Unemployment Insurance Wage base was raised to $30,500. Additional Medicare Tax Employers are responsible for withholding an additional 0.9% Medicare Tax on an employee s wages paid in excess of $200,000 in a calendar year. The tax should be withheld beginning in the pay period in which the $200,000 threshold is met. There is no employer match for the Additional Medicare Tax. Montana minimum wage remains the same. Montana s minimum wage remains at $8.05 per hour while Federal remains at $7.25. Montana employers have to follow the higher rate of pay. O RTT & CO. CPAS, INC Code DD on W-2s If you file less than 250 W-2s for 2015, reporting health care coverage amounts in Box 12 is optional. This is the total amount paid in 2015, by employer and employee, for the employee s health care coverage. The information can be helpful to employees as they make their health care decisions. FUTA will remain at.6% (.006) for 2016 on the first $7,000 of wages. The threshold for your quarterly deposit requirements remains at $500 for State Withholding There will be no new withholding tables for The withholding tables from 2005 are still valid. Your new payment coupons for 2016 should be mailed soon. These coupons also serve as your payroll report, so even if you have zero state withholding, you are required to submit a 0.00 coupon. Montana also has online payment available at bustax IMPORTANT DEADLINES January 20th 4th Quarter payroll report information is due to our office information sheet(s) must be received by us, if we prepare your 1099s. February 1st Forms 1098, 1099 and W-2 due to recipients for certain payments and/or wages paid in February 15th Have any employees who claim exempt fill out a new W-4. Retirement Plans and W-2s If we prepare your W-2s, we will need a list of your employees who are considered active participants in your company pension or profit sharing plan. If you are not sure who is an active participant, contact your plan administrator. Correct information is very critical to the employees when they file their personal income tax returns. In This Issue Hiring Paperwork and Reporting Employer Credits 4 Fraud Protection 5 Travel and Other Related Reimbursements 6 Record Retention 7 Employee vs. Independent Contractor SIMPLE IRA checkup TH QUARTER PAYROLL REPORTS Along with your regular December processing, quarterly and annual payroll reports must be completed. If you have not already brought in your December information, we need the following to complete your payroll reports: The amount and date of your final payroll deposits (both federal and state) for the fourth quarter ending December 31, All pre-labeled federal and state payroll reports which you receive in the mail. The IRS notified certain small employers who are now required to file Form 944 instead of Form 941 to report federal withholding and social security taxes. Bring in your letter from the IRS and/or the Form 944 you received so we can complete the correct form for your business. Also bring in the MW-3 for transmitting your W-2s to the State of Montana.

2 New Hire Paperwork The following forms are required to be completed and maintained in the employer s files. For Employees: Montana New Hire Reporting Form W-4: Employee s Withholding Allowance Certificate Form I-9: Employment Eligibility Verification (Immigration Form) Foreign Workers - see below. Notification of health insurance options. (see Affordable Care Act box on pg 3) For Independent Contractors and Non-Employees: Form W-9: Request for Taxpayer Identification Number ICEC or Proof of Worker s Compensation Policy (see page 8) Foreign Workers: Do not accept an ITIN in place of an SSN. An ITIN is for resident and nonresident aliens who are not eligible for employment in the US. ITINs are formatted like SSNs, but start with the number 9. You will need a copy of the employee s visa in order to complete the I-9 form. The codes on this visa also determine what taxes the employee is subject to and at what rates. If we are preparing your payroll, we will also need a copy of this visa. Hiring Family Exempt Status: Discuss the conditions listed on the W-4 for exemption from withholding with any employee who wants to claim exempt. Exempt status is not recognized for MT withholding. Zero allowances must be used unless your employee fills out a separate W-4. Write Montana across the top of the separate W-4 and the actual number of allowances claimed on line 5. Note: If allowances for MT are more than 10, it must be sent in to the state for approval. Employees who claim exempt on their W-4 need to fill out a new W-4 by February 15th of each calendar year. Family employees continue to be a hot spot in IRS audits. They are looking for evidence of a bona-fide employer-employee relationship. Please review the definition of employment: 1. The employee performs services under the direction of the employer as to what must be done and how it is done. 2. Employees are paid regularly, and if necessary in the particular job, they keep track of time worked. 3. An employer-employee relationship must exist. Following is a suggested checklist to help determine if an employer-employee relationship exists: Suggested 10-Point Checklist for Family Employees (Any box checked NO may indicate a questionable deduction.) YES NO 1. Is there a written employment contract between the parties? 2. Are time records kept at the time of work performance? 3. Is there a written job description? 4. Is the employee paid periodically? 5. Is there an I-9 on file for the employee? 6. Is there a W-4 on file for the employee? 7. Are payroll tax returns filed regularly? (Quarterly 941s & Annual 940) 8. Are W-2s issued? 9. Does the employee deposit the check in his/her own bank account? 10. Are wages comparable to fair market wages for equivalent work? ORTT & CO. CPAs, INC. PG PAYROLL INFORORMATION

3 New Hire Reporting Every employee hired, rehired, or returning to work after a separation must be reported by the employer to the New Hire Reporting Program. The following information must be provided within 20 days of the employee s hire date: Employer s name, address, and ID number Employee s name, address, social security number, and date of hire or rehire New Hire Report forms are found at: employerinfo.aspx. Submission options are: Phone: or Fax: or Online: Mail: Montana New Hire Reporting Program P.O. Box 8013 Helena, MT Contact us about our payroll services geared to your business and let us do the work! QUICKBOOKS REMINDER As of May 31, 2016, QuickBooks will not be providing payroll tax tables for their 2013 programs, or any earlier version. If you are presently calculating your payroll checks in these programs, you must upgrade before 5/31/16. AFFORDABLE CARE ACT Individuals have access to affordable coverage through the Health Insurance Marketplace. The Affordable Care Act requires that employers issue a notice to employees of coverage options available through the Marketplace. Who must receive this notice? All employees must receive this notice. This includes full-time and parttime employees, whether or not they are eligible for coverage. Any new hires after October 1, 2013 must receive this notice within 14 days of their start date. How do I notify my employees of their options? If you DO offer health insurance coverage for your employees, you will need to provide a notice that describes the health coverage offered by your company. If you DO NOT offer health insurance coverage for your employees, you will need to provide a notice that includes employer contact information and states that your company does not offer coverage. The employee needs this notice in order to obtain coverage through the marketplace or to qualify for a subsidy. Blank forms are available at > Agencies > EBSA > Affordable Care Act > Notice to Employees of Coverage Options Do you have more questions? Contact a health insurance agent for specific questions. A FAQ page for small businesses (less than 50 employees) is available at A hotline is also available at ORTT & CO. CPAs, INC. PG PAYROLL INFORORMATION

4 SMALL BUSINESS HEALTH INSURANCE TAX CREDIT The credit is up to 50% of the premiums paid for the employees. This credit is not refundable, but can be carried forward for 20 years. In order to qualify for the credit, the employer must purchase group health insurance through the Small Business Health Options Program or SHOP, have at least one full time but less than 26 full time equivalent employees with average annual wages of $50,000 or less, and the employer pays at least 50% of the premium for each employee. Starting in 2014, the credit may be claimed for a maximum of two consecutive years. What is the SHOP? Small businesses with 50 or fewer full-time equivalent employees can use Montana s SHOP at healthcare.gov to offer coverage to their employees. You must have at least one employee who is not related to you to qualify for the SHOP. The SHOP allows employers to choose coverage offered by different companies. The employer chooses the amount (percent of premium) the business will contribute towards a plan choice from a particular metal level, such as silver or gold. Three Montana health insurance companies are selling plans in the SHOP: Blue Cross Blue Shield of Montana, PacificSource and the Montana Health CO-OP. WORK OPPORTUNITY TAX CREDIT The Work Opportunity Tax Credit (WOTC) program is designed to assist individuals facing barriers to find gainful employment. This program encourages employers in the private sector to hire job seekers from one of the following targeted groups: Qualified recipients of Aid to Families with Dependent Children (AFDC) or Temporary Assistance to Needy Families (TANF) Qualified Disabled Veterans Qualified Veterans Qualified Unemployed Veterans Qualified Ex-Felons Qualified Designated Community Resident Long-term Family Assistance Recipient This employer-friendly tax credit program involves only 3 simple steps to complete: Step 1: Employer and employee must complete form IRS 8850 on or before the date the job is offered and form ETA These forms can be downloaded from wotc.asp Step 2: Employer then utilizes these forms to ascertain if the applicant is a member of a targeted group. Step 3: Completed original forms must be postmarked within 28 days of new hire s start date and mailed to: Department of Labor & Industry Workforce Services Division -WOTC P.O. Box 1728 Helena, Mt The State Workforce Agency (DLI) will determine, and then notify you, regarding WOTC applicant eligibility based on a targeted group. Qualified Vocational Rehabilitation recipients Qualified Food Stamp Recipients Qualified Supplemental Security Income (SSI) Recipients. ORTT & CO. CPAs, INC. PG PAYROLL INFORORMATION

5 PROTECT YOURSELF FROM FRAUD No one wants to believe that their employees are not trustworthy, especially in a small organization where employees and owners work closely and become friends. But, at times, your employees could face increased financial pressure and may act out of desperation if the opportunity presents itself. Top Ten Ways to Prevent Fraud Establish Accounting Controls Send Bank and Credit Card Statements to a Separate Address Reconcile Bank Accounts and Review Statements Back Up Your Data Review Receivables and Payables Do Not Let Anyone Misrepresent Themselves as You Adhere to a Numerical Sequence for all Transactions Use the Audit Trail in QuickBooks Assign Administrative Rights Effectively Use the Voided/Deleted Transaction Report in QuickBooks PROTECT YOUR IDENTITY Identity theft tops the list of consumer complaints that are reported to the FTC and other enforcement agencies every year. Identity theft can be perpetrated using low-tech methods like purse snatching or dumpster diving, or high-tech techniques like phishing s or malicious spyware. Here are some tips to lower your chance of falling victim to identity theft. Place tax documents in a secure location, such as a safe or a locking file cabinet, and store them there until needed to prepare tax forms. Do not leave them in a car. Password-protect your smartphone. Do not follow links in s or text messages to the IRS site. Always type "irs.gov" directly into a browser to avoid vicious links. Report fraudulent IRS s, texts or phone calls to phishing@irs.gov. Keep operating systems and all computer protection software up to date. Do not use public computers to e-file taxes. Tax preparers should tell clients about the security measures employed by their offices. Tax preparers should not ask clients to sign blank tax returns Wipe the hard drive before disposing of or donating an old computer that contains personal or financial information. Monitor credit reports regularly. ORTT & CO. CPAs, INC. PG PAYROLL INFORORMATION

6 Travel and Other Business Related Reimbursements Reimbursements to employees for travel and other business expenses (including amounts allowable under established per diem rates) are not subject to employment taxes (federal and state income tax withholding, social security and Medicare), if they meet established tests for an accountable plan. The following are the three requirements for an accountable plan: 1. There must be a documented business connection and the expense must be reasonable. 2. There must be reasonable accounting for the expenses. (If per diem is paid, amounts paid up to the allowable rates are deemed substantiated without the usual requirements for keeping receipts.) 3. All excess reimbursements must be repaid to the employer in a reasonable time. A plan for reimbursing employees for travel that does not properly track excess payments will fail to qualify as an accountable plan. Then all payments to employees will be reclassified as wages and subject to employment taxes. In order to deduct travel expenses while away from home overnight, you must be gone overnight and be away from home. Home is your "tax home" as defined by the Internal Revenue Code. This is generally your regular place of abode or your principal place of business. As with all deductions, the IRS requires substantiation, i.e., receipts for motels, credit card receipts and statements, receipts for meals if claiming actual or the number of days times the per diem rate. Remember, in order to deduct expenditures for travel meals you must meet the two part test of being away from home and being gone overnight. Therefore, meal expenses related to a day trip to pick up supplies or parts, etc. are not allowable business travel expenses. Note that the per diem rate for lodging plus meals is not available when paid to a related employee or independent contractor. You are considered a related employee when you own 2% or more of the business. Instead you can use the per diem amount for meals & incidentals but must use the actual receipts for lodging. The standard per diem rate thru 9/30/2016 is $140 ($89 for lodging and $51 for meals and incidentals). For more information on High and Low cost localities go to the website ARE MY TRANSPORTATION EXPENSES DEDUCTIBLE? Home: The place where you reside. Transportation expenses between your home and your main or regular place of work are personal commuting expenses. Regular or main job: Your principal place of business. If you have more than one job, you must determine which one is your regular or main job. Consider the time you spend at each, the activity you have at each, and the income you earn at each. Temporary work location: A place where your work assignment is realistically expected to last (and does in fact last) one year or less. Unless you have a regular place of business, you can only deduct your transportation expenses to a temporary work location outside your metropolitan area. Second job: If you regularly work at two or more places in one day, whether or not for the same employer, you can deduct your transportation expenses of getting from one workplace to another. If you do not go directly from your first job to your second job, you can only deduct the transportation expenses of going directly from your first job to your second job. You cannot deduct your transportation expenses between your home and a second job on a day off from your main job. ORTT & CO. CPAs, INC. PG PAYROLL INFORORMATION

7 RECORDKEEPING GUIDELINES FOR BUSINESS EXPENSES IF you have expenses for... Travel THEN you must keep records that show details of the following elements Amount Time Place or Description Cost of each separate expense for travel, lodging, and meals. Incidental expenses may be totaled in reasonable categories: taxis, fees, tips, etc. Dates you left and returned for each trip and number of days spent on business. Destination or area of your travel (name of city, town, or other designation) Business Purpose Business Relationship Purpose: Business purpose for the expense or the business benefit gained or expected to be gained. Entertainment Transportation Cost of each separate meal or other expense. Incidental expenses such as taxis, telephones, etc.; may be totaled on a daily basis. Cost of each separate expense. For car expenses, the cost of the car and any improvements, the date you started using it for business, the mileage for each business use, and the total miles for the year. Date of entertainmen t Date of the expense. For car expenses, the date of the use of the car. Name and address of location of place of entertainment. Type of entertainment if not otherwise apparent. Your business destination. Purpose: Business purpose for the expense or the business benefit gained or expected to be gained. For entertainment, the nature of the business discussion, and the identities of the persons who took part in both the business discussion and the entertainment activity. Relationship: Occupations or other information (such as names, titles, or other designations) about the recipients that shows their business relationship to you. Purpose: Business purpose for the expense. BURIED IN PAPERWORK? Hiring employees and contractors can result in an overwhelming amount of paperwork. It is important to keep complete and accurate records, but for how long? It is recommended that most payroll records be kept for 10 years. This includes records for: Contractors Salary History Payroll Check Stubs Time Reports Commission Reports Large Food or Beverage Employee Withholding Exemption Certificates Establishment Reporting Tips Payroll Register W-2s must be kept PERMANENTLY. I-9s should be kept the longer of 3 years or 1 year after termination. Employee Tip Substantiation Personnel Files Medical / Other Benefits Hiring Records Vacation/ Sick Pay ORTT & CO. CPAs, INC. PG PAYROLL INFORORMATION

8 Independent Contractors Independent contractor status has been a contentious issue with the courts, auditors, employers and independent contractors all seeking fairness and equality under the law. In order to be deemed an independent contractor, anyone who regularly and customarily works away from their own fixed business location must obtain an independent contractor exemption certificate (ICEC) unless they are personally covered under a workers' compensation policy. According to Montana Code Annotated , an independent contractor can obtain a contractor exemption certificate by swearing to and acknowledging the following: A. The applicant has been and will continue to be free from control or direction over the performance of the person s own services, both under contract and in fact -and- B. Is engaged in an independently established trade, occupation, profession or business and will provide sufficient documentation of that fact to the department. A point system is being utilized to determine if an applicant can provide the documentation necessary to meet the 15 point requirement. The new form, the point system and additional information can be found at: If You Hire an Independent Contractor PROTECT YOURSELF If you are audited for taxes, unemployment insurance, worker s comp insurance, etc., you must provide the W-9s and worker s comp coverage verification for each 1099 recipient. Make it a policy to collect the appropriate paperwork every time you hire an independent contractor. We recommend getting this information before issuing the final payment or before you sign a contract. You need: A properly completed W-9 - check address and ID# Worker s Comp Coverage Verification ICEC - or - Worker s Comp Certificate Taking the time to collect these forms at the time of hire will: save you time and stress at year s end when you prepare your 1099s and could save you money if you are one of the lucky ones picked for audit. ORTT & CO. CPAs, INC. PG PAYROLL INFORORMATION

9 SIMPLE IRA Checkup IRS examinations of SIMPLE IRA plans over the last eight years have found that plan sponsors are making common operational mistakes. Be Aware! - If a mistake is significant: the plan will be ineligible for salary deferrals, and employer plan contributions will be nondeductible Fill out this checklist to see if you are in compliance. Yes No 1 Has your SIMPLE IRA plan been amended for current law? 2 Do you have 100 or fewer employees who earned at least $5,000 in compensation for the prior year? 3 Does your business only sponsor this SIMPLE IRA plan? Common mistake: sponsoring any other retirement plan, such as a 401(k) plan. 4 Are all eligible employees allowed to participate in the SIMPLE IRA plan? Common mistake: excluding employees who met requirements (compensation of at least $5,000 in any 2 prior years and who are expected to earn at least $5,000 in the current year) Common mistake: allowing non-employee private contractors to participate in the plan 5 Are you determining each eligible employee's compensation using the definition in your SIMPLE IRA plan document? 6 Are correct contributions being timely made to each participant's SIMPLE IRA? Common mistake: excluding bonuses Common mistake: including section 125 cafeteria plan benefits Common mistake: limiting a participant s compensation to the annual compensation limit Common mistake: not depositing salary deferrals within 30 days after the end of the month 7 Are contributions being made for terminated participants who were eligible during the plan year? 8 Have all SIMPLE IRA plan notification requirements been satisfied? Common mistake: not giving employees the annual election to change their salary deferrals 60 days before the start of the plan year Common mistake: not documenting an employee s election not to make salary deferrals Did you find a mistake in your plan? Check out this fix-it guide from the IRS Contact your plan administrator to answer specific questions and to help you apply fixes. ORTT & CO. CPAs, INC. PG PAYROLL INFORORMATION

10 All topics discussed in this newsletter are based on current law as of 12/31/15. Be aware that change is inevitable and can occur at any time and with little warning. There are often qualifications and phase-outs on many of these deductions and credits. This newsletter is intended to be an overview of payroll changes and a review of existing provisions. We advise you to consult with your Phone: (406) tax preparer regarding aspects of this newsletter before taking action. Fax: (406) For additional information & clarification, please feel free to give us a call. Patti at: pstanfill@orttco.com Sara at: scollins@orttco.com Alyssa at: afoster@orttco.com Justine at: jmorse@orttco.om Angie at: astidham@orttco.com Jerome at: jrangitsch@orttco.com Shannon at: ssedlacek@orttco.com Ruby at: rennis@orttco.com YOUR SOURCE FOR SUCCESS! Ortt & Co. CPAs, Inc Wyoming Avenue Billings MT 59102