MAY 13TH, 2009
By CPA SAM
Happy National Small Business Week! This happens to be the illustrious week designated for increased awareness of issues surrounding the small business community. In honor of this week, I wanted to highlight three very big issues facing small employers.
1. Health Care Costs – The Obama administration is looking to find a way to cover everyone with health insurance. While arguments could be made either way of the necessity of this proposal, it could take shape as mandatory coverage provided by employers. It could also look like a removal of pre-tax health insurance benefits with everyone receiving a credit on their tax return for all or part of premiums paid throughout the year. Because health insurance is one of the biggest expenses in business, owners and managers need to keep close tabs on this one.
2. Taxes – Self-employed business owners need to make sure they are reporting all income and expenses incurred in the operation of the business. By under-reporting income or exagerating expenses, individuals are cheating the system and not paying their fair share. A reputable accountant or tax preparer can help with keep things above board by asking the right questions.
3. Human Resources – Issues relating to employee retention, discipline, training and compensation all are equally important. Being in the payroll industry, it is my opinion that most employers simply don’t take the payroll function seriously enough. Employers are the first line of “defense” in ensuring that taxes are paid. By withholding and remitting the proper amounts, employees can make the best tax planning decisions possible. Employers should be keeping up with tax changes in the appropriate jurisdictions. They should also be referring their employees to online tools for employees to be educated about their checks. One good place is PaycheckCity.com which has free paycheck calculators. I use these frequently in planning my check as well.
FEBRUARY 6TH, 2009
By CPA SAM
Q. What is the law regarding employer paid medical/dental premiums for opposite sex partners in a domestic partnership? We pay 80% of one dependent premium for our employees. For same sex domestic partnerships we add the 80 % amount as income for tax purposes each pay period. We would do the same for opposite sex domestic partnerships?
A. This whole area of tax becomes very confusing when employers are in multiple states. There are only two states that recognize same-sex marriage in the first place; Massachusetts and Connecticut. Other states do not have official laws on the books, but have legal decisions recognizing the practice. Most states do not recognize this status anyway, neither does the IRS. Therefore, for federal tax purposes, any medical insurance paid by the employer on behalf of the employee’s domestic partner becomes taxable income. For most states, the same thing applies. Therefore, what you are describing is correct. In the case of opposite sex domestic partnerships, the premium paid for the non-employee non-spouse is again taxable income to the employee. The only deduction allowed in this case would be for spouses and dependent children.
Because this practice can be considered discriminatory, many instructors in the courses I have taken on this topic suggest that the employer who wishes to pay the medical insurance premium on behalf of the employee should really focus on the employee him/herself. Whether the employee has a domestic partnership, civil union, is married or just plain single, the employer is not even giving the appearance of discrimination if it only covers the employee portion.
Keep in mind also that if this is an employer group health plan, premiums could not be deducted on a pre-tax basis in those states where domestic partnerships/civil unions are not recognized. The deduction for health insurance would need to be taken on an after tax basis only.
NOVEMBER 19TH, 2008
By CPA SAM
Q. I am new to the Health Savings Account world, having elected this option this calendar year. I am confused about what I can have deducted and what my limits are within this year. I currently have deducted $4400 and my company has funded $268. I am over 50, are there any differences in terms of limits? What are the top limit amounts you can put into your HSA in 2008 and 2009?
A. It would be nice if all pre-tax investment and healthcare alternatives actually made sense. In the case of the HSA, it is important to remember that there are two parts to these types of plans. First, there is a high-deductible health plan. For 2008, your deductible must be at least Read more »
APRIL 7TH, 2008
By CPA SAM
Q: Can I use my Health Savings Account (HSA) for over-the-counter (OTC) cough medicines?
A: This question gets to the heart of the coolest benefit from an HSA plan. The savings account portion is meant to cover the deductible expenses that you incur now that the deductible is much higher than a traditional indemnity plan. However, you are not limited to just insurance-covered items when using the savings account portion. There is a list issued by the provider of the HSA portion (bank, credit union, etc) of “Qualified Medical Expenses”. In general, these line up with the amounts that you can claim on Schedule A of your tax return each year. Over-the-counter medicines are covered in certain cases as well.
Here is the scenario: Let’s say you have contributed $750 to the savings account portion of the HSA plan. You have a debit card to Read more »
APRIL 3RD, 2008
By CPA SAM
Q. My employer just switched to a Health Savings Account plan for our insurance. How does this work? It seems so expensive.
A. The Health Savings Account is a fairly recent concept delivered by Congress. The attempt is to get away from the entitlement mentality to more of an ownership mentality. Under the standard insurance plan concept, you pay the first $500 or so in medical costs as your deductible and then get transferred to a $20 copayment each time you visit the doc. Some plans allow regular medical visits at $20 without any deductible. This type of thinking leads people to go to the doctor for every little Read more »
MARCH 24TH, 2008
By CPA SAM
Q. What’s the difference between a W-2 and a W-4?
A. Through my tenure on the IRS IRPAC advisory group, I have learned one great rule, there are thousands of abbreviations and acronyms thrown around the government. Just in payroll there are so many of them that is hard for someone who works in that field to keep them straight, let alone those who are regular employees. You have the W-2, the W-4, the 1099, the I-9, 941, 940, 94X, 2678 and the list goes on. As time goes on, I hope to decode what some of these forms are used for in the payroll world. This is the first issue in that (probably very long-running) series.
Employers use the W-2 to report annual wages paid to their employees. If you have more than one job, you will receive one W-2 per employer. The numbers in those boxes are used by your tax preparer to determine your tax liability. If you are in the company 401(k) or pre-tax medical plan, the gross wage boxes will likely be different. This is ok.
Employees use the Form W-4 to report allowances and filing status to their employer. The numbers you submit will be used by your employer to determine your withholding amounts for Federal income tax only. Social Security and Medicare are calculated as flat percentages and are not affected by your filing status. The Form W-4 is your best tax planning tool. If you work with your CPA or tax adviser on completing this form correctly, you can minimize extra tax due and minimize the refund you receive at the end of the year. Whenever a major life change occurs, make sure you adjust your W-4 values accordingly as quickly as possible.
While they both start with W’s, they have distinctly different uses. Using the correct terminology will make your communication with the payroll department much more efficient and less confusing.
