It will take months — years in some cases — to clean up Sandy’s devastation, and the need for help will continue long after the headlines have faded into memory.

There are countless businesses in the storm’s swath seeking disaster relief assistance for their employees, property, etc.

One great way to help: Businesses can offer employees the opportunity to donate vacation time, sick time or personal leave time in exchange for an employer’s contributions to charitable groups helping disaster victims.

The Internal Revenue Service has stepped up and made it easier for businesses and employees to donate to the disaster relief effort.

From the IRS news release:

The Internal Revenue Service … alerted employers and other taxpayers that because Hurricane Sandy is designated as a qualified disaster for federal tax purposes, qualified disaster relief payments made to individuals by their employer or any person can be excluded from those individuals’ taxable income.

Qualified disaster relief payments include amounts to cover necessary personal, family, living or funeral expenses that were not covered by insurance. They also include expenses to repair or rehabilitate personal residences or repair or replace the contents to the extent that they were not covered by insurance. Again, these payments would not be included in the individual recipient’s gross income.

The IRS also announced that the designation of Hurricane Sandy as a qualified disaster means that employer-sponsored private foundations may provide disaster relief to employee-victims in areas affected by the hurricane without affecting their tax-exempt status.
The IRS also issued a more detailed legal explanation of the opportunity.

It opens the door and eases restrictions on employer-sponsored charities so they can be of even more assistance.

It’s also easier for a “charitable organization” to help any kind of disaster-relief programs or employee hardship assistance efforts.

Of course, it’s always best to seek legal counsel on how something like this applies to your business before passing the proverbial hat and proceeding.

The post IRS makes it easier for businesses and employees to help disaster victims appeared first on HR Daily Report.

Time is becoming a factor for businesses and HR managers, though.

The veterans must begin work by Jan. 1, 2013, in order for businesses to qualify.

It’s all part of the Work Opportunity Tax Credit (WOTC) program, which has been updated to make the program available to more veterans and make it easier for businesses to meet the act’s requirement and earn tax credits.

The VOW to Hire Heroes Act of 2011 made significant updates in how the WOTC is administered.

Two new categories were added to broaden the base of eligible veterans.

At the same time, non-profit employers can use the credit earned under the WOTC program against what the employer is required to pay in Social Security taxes.

It was also decided at that time that the WOTC could be claimed by employers that hire qualified vets who start working before Jan. 1.

What’s necessary for veterans, employers to qualify

For businesses to qualify for the WOTC by hiring veterans, there are two major requirements:

• The person must have been on active duty (training not included) in the U.S. Armed Forces for more than 180 days, or have been discharged or released from active duty due to a service-connected disability, and
• The veteran must not have had a period of active duty (excluding training) of more than 90 days that ended during the 60-day period ending on the hiring date.

The potential payoff for employers can be significant:

• For-profit businesses can earn credits as much as $9,600 for each qualified veterans employed.
• Not-for-profit businesses/tax-exempt organizations could earn credits up to $6,240.

Several factors determine the amount of the credit a business earns for each veteran hire, including:

• How long the veteran has been unemployed before the business hired him or her
• The number of hours the veteran is assigned to work, and
• The first-year wages paid to the veteran.

There’s always another hoop or two for employers to jump through (of course).

For-profit businesses need to procure proof the employee is an eligible veteran, and the veteran must be certified by the applicable State Work Force Agency.

Then, for-profit employers must take a trip to the appropriate IRS website to locate the two forms required to earn the credit, which is filed as part of the business’ income tax return.

The post Hire qualified veterans before Jan. 1 and earn higher tax credits: What to do now appeared first on HR Daily Report.

It’s a good time to ask yourself: Is your company staying within the boundaries of laws governing how these tips should be taxed?

The Internal Revenue Service has issued fresh guidelines that address many of the questions employers have about how tip money should be handled under the Federal Insurance Contributions Act (FICA).

The IRS document explains employers’ tax obligations and employees’ tax obligations under FICA, including:

• the difference between a tip and a service charge
• when the section 45B employer tip credit should be applied
• how tips are reported to an employer
• how employers report tips to the IRS, and
• what the consequences are for not following the rules.

One thing that’s not changed: Employers still are responsible for paying both the employer and employee FICA taxes on tip wages, following the same guidelines governing non-tip wages.

To offer help, the IRS is providing eight questions-and-answers about employer responsibilities for reporting tip income and paying appropriate tax amounts on the tips.

As is the case with many government documents — especially when the IRS is involved — it’s best to verify what applies to your business straight from the source.

The post Taxing tips: IRS has new guidelines, just in time for summer help appeared first on HR Daily Report.

The changes, triggered by an increase in the cost-of-living index, mainly consist of the following:

• The elective tax-deferred contribution limit for employees who participate in 401(k), 403(b) and most 457 plans increases from $16,500 to $17,000.
• The catch-up contribution limit for those age 50 and over stays at $5,500.
• The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes of $58,000 to $68,000, up from $56,000 to $66,000 in 2011.
• For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000.
• For an IRA contributor who isn’t covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is $173,000 to $183,000, up from $169,000 to $179,000.
• The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000 in 201. For singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.
• The AGI limit for the saver’s credit — also known as the retirement savings contributions credit — for low-and moderate-income workers is $57,500 for married couples filing jointly, up from $56,500 in 2011; $43,125 for heads of household, up from $42,375; and $28,750 for married individuals filing separately and for singles, up from $28,250.

For the full IRS announcement, go here.

The post IRS releases 2012 COLA changes for retirement plans appeared first on HR Daily Report.

The IRS program is called the Voluntary Compliance Settlement Program (“VCSP”). It essentially allows employers to resolve worker misclassifications as independent contractors by paying a small amount of tax in exchange for reclassification of those contractors as employees. The program comes on the heels of an announcement of a joint effort by the IRS and at least 10 states to uncover classification violations under the Fair Labor Standards Act.

To be eligible for the program, an employer must:

• consistently have treated the workers in the past as nonemployees
• have filed all required Forms 1099 for the workers for the previous three years, and
• not currently be under a classification audit by the IRS, the Department of Labor, or a state agency.

Employers can apply by filing Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before they want to begin treating the workers as employees. Upon acceptance into the program, the employer will:

• agree to treat the class or classes of workers as employees for future tax periods
• pay 10% of the employment tax liability that would otherwise have been due on compensation paid to the workers for the most recent tax year
• not be liable for any interest and penalties on that amount, and
• not be subject to an employment tax audit because of the previous classification of the workers under the program.

Note: Application for the program doesn’t amount to the employer’s admitting to misclassifying all independent contractors.

For more info and details, go to the IRS web page on the Voluntary Compliance Settlement Program.

The post IRS offers partial amnesty for FLSA violations appeared first on HR Daily Report.

The participating states have agreed to work with the feds in various ways — some more extensive than others. Those states are:

• Connecticut
• Maryland
• Hawaii
• Illinois
• Massachusetts
• Minnesota
• Missouri
• Montana
• Utah
• Washington

The agreement is part of the so-called “misclassification initiative” started last year by the DOL and announced in its budget proposals. The department has contended that too many businesses are misclassifying workers as ICs to avoid paying employment taxes and benefits.

And why are the IRS and states involved, too? You probably know the answer: revenue. The suspicion is that lots of workers who are falsely classified as ICs aren’t reporting and aren’t paying full taxes on their income.

The message: If you’re an employer, especially in one of the 10 states, be careful about classifying workers as ICs.

The post Feds team up with 10 states to crack down on ICs appeared first on HR Daily Report.

The IRS recently sat down with the American Bar Association and employers to confirm the opinions.

Wellness programs

Of all the efforts to contain ever-climbing healthcare costs, wellness programs are one of the few to make any headway. Which is why many employers are embracing them. But could the way you set up the program create compliance issues? IRS tackled two common scenarios during the recent ABA sit-down:

Question 1: As an incentive to participate in its wellness program, a firm “pays” employees in points every time they take a biometric screening, walk a certain number of miles, etc. Points are then traded in for prizes like $25 gift cards and company logo T-shirts. Are these taxable to the employee? IRS says: Yes … and no. The gift cards are considered taxable because there’s a clear monetary value to the reward, while the T-shirts would be exempt as a de minimis fringe benefit.

Question 2: This company’s health insurer runs a wellness plan the company takes part in. If an employee goes to the gym three times a week in a month, the insurer will pay $20 of that person’s monthly gym membership. Are the payments taxable income? IRS says: Yes. The Taxman differed with the ABA on this one. Because the insurer appears to be acting as an agent for the employer, the company is responsible for tracking, withholding and reporting employment tax on these pre-tax payments. (It’s not unreasonable or administratively tough to do so.)

Flex spending plans

Besides wellness, your peers are latching onto other plan types to help employees and themselves offset their health costs. IRS hit them, too:

Question: An employee’s doctor prescribes an over-the-counter pain reliever and a cold medication. Can they be reimbursed under the company’s flexible spending account? IRS says: Yes. Even though OTC meds were recently eliminated as FSA eligible, because they were prescribed by a physician, they are reimbursable.

Hardship withdrawals

Unfortunately, there’s a phenomenon more employers are facing more and more frequently: employees who need to tap into their benefits for some fast cash. IRS tackled 401(k) hardship withdrawals:

Question 1: A cash-strapped employee charges medical expenses on a credit card, then requests a hardship withdrawal. Is that acceptable? IRS says: Probably not. Since the employee paid by plastic, there’s a question of how much “immediate and heavy financial need” is involved.

Question 2: An employee participates in a 401(k) and a deferred comp plan. The deferred comp plan allows for emergency distributions. Can he take the 401(k) safe-harbor withdrawal first? IRS says: No. The employee isn’t eligible until he’s taken all available distributions and loans from other plans.

Note: While questions were answered by an IRS official, the Service maintains they may not reflect the official IRS position. Though they certainly give you an idea how IRS leans.

The post How some benefits affect your firm’s tax status appeared first on HR Daily Report.

The “SEAL 401(k) Savings Act” would:

• reduce the number of loans workers may take from a 401(k) to a maximum of three, while giving employers the option of lowering that number
• give participants more time to repay a 401(k) loan after losing a job
• allow savers to contribute to their plan after taking a hardship withdrawal, and
• ban debit cards linked to the accounts.

The impetus for the bill: 28% of participants in 401(k)-type accounts had an outstanding loan at the end of 2010 – the highest ever. Legislators fear that employees will deplete their retirement savings if the trend continues unchecked.

Right now, most plans stipulate that participants can borrow for any reason and pay the loan back with interest. IRS rules state that workers can borrow as much as 50% of their vested account balance up to a maximum of $50,000. The loan must be repaid within five years, unless the money was used to buy a primary home.

The post Senate bill: No more easy 401(k) loans appeared first on HR Daily Report.

The Internal Revenue Service just issued new guidance to employers on reporting the value of employee health benefits, and gave small business an extended exemption on reporting.

IRS issued interim guidance to employers on informational reporting on each employee’s annual Form W-2 of the cost of the health insurance coverage they sponsor for employees. The new reporting is for information only, to inform employees of the cost of their health coverage, and does not cause “excludable” employer-provided health coverage to become taxable.

The Affordable Care Act originally provided that employers were required to report the cost of employer-provided health care coverage on the Form W-2. Notice 2010-69, issued last fall, made this requirement optional for all employers for the 2011 Forms W-2, generally furnished to employees in January 2012. Under the new guidance, the IRS extended the optional reporting to small employers — those filing fewer than 250 W-2 forms — through at least 2012 and until further notice.

IRS Notice 2011-28 also provides guidance for employers that are subject to the reporting requirement for the 2012 Forms W-2 and those that choose to voluntarily comply with it for either 2011 or 2012. The notice includes information on how to report, what coverage to include and how to determine the cost of the coverage.

The post Small firms get break on reporting benefits to IRS appeared first on HR Daily Report.