---HAEFELE FLANAGAN

---         CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS

 

 

 About Us

 

 Mission Statement

 

 Company History

 

 Meet the Partners

 

 Affiliations

 

 Links

 

 Home

 

 Payroll Tax Highlights

           2009

           2010

 

 Mileage Rate

 

 

 

 

          About Us   Services   Tax Tips    Record Retention  Career Opportunities    The Buzz

 

 

Minimum Wage Is Going Up

Effective July 24, 2009, the last of the scheduled increases to the federal minimum wage will take effect. The federal minimum wage will increase to $7.25 per hour.

 

The City of Philadelphia Wage Tax Rate is Reduced

Effective July 1, 2009, the Philadelphia wage tax rate is reduced to 3.9296% (.039296) for residents and 3.4997% (.034997) for non-residents.

 

New Jersey Enacts a Tax Amnesty Program

New Jersey recently enacted a new law creating a tax amnesty program.  New Jersey Tax Amnesty begins May 4th, 2009 and ends at midnight on June 15, 2009.  During the amnesty period, taxpayers can pay unpaid tax they owe and one-half of the balance of the interest due as of May 1, 2009.  Referral recovery fees, one half of the balance of the interest due and the imposition of civil and criminal penalties will be waived provided amnesty eligibility requirements are met.

 

Almost everyone qualifies for amnesty.  However, there are taxpayers who are not eligible for amnesty.

 

Tax amnesty applies to an outstanding tax liability on any tax return due on or after January 1, 2002 and prior to February 1, 2009.

 

The tax amnesty program requires:

 

            1.  All filing requirements must be satisfied for delinquent tax returns.

            2.  Payment of all unpaid New Jersey tax liabilities related to tax returns for the above referenced periods.

            3.  Complete and submit a Payment/Waiver statement.  The Payment/Waiver statement is your agreement    

                  that you owe the tax and acknowledges that you waive your right to appeal.

 

After the amnesty period ends on June 15, 2009, a 5% penalty is assessed.  This penalty cannot be waived or abated and is in addition to all other penalties, interest and other costs authorized by law.

 

Please contact our office should you have any questions or would like our office to assist taking advantage of the New Jersey Tax Amnesty Program. 

 

IRS Regulation 7216 – Consent to Disclose Tax Return Information

On January 1, 2009, IRS Regulation 7216 came into effect.  The regulation updates the rules regarding the disclosure and use of tax return information by tax return preparers.  It is intended to protect confidential financial or contact information from being given out to and used by third parties.  Accordingly, we are not permitted to transfer that data to a third party without obtaining the express written consent of the taxpayer. Click here to obtain a copy of the Consent Form.

 

Waiver of Required Minimum Distributions for 2009

 

For 2009, the required minimum distributions generally applicable to retirement plans are suspended with respect to defined contribution arrangements, including IRAs, (as added by the Worker, Retiree, and Employer Recovery Act of 2008).  Thus, for 2009, the required minimum distribution rules do not apply to any qualified defined contribution plan (under Code Sec. 401(a)), any defined contribution qualified annuity plan (under Code Sec. 403(a)) or tax-sheltered annuity plan (under Code Sec. 403(b)), any defined contribution plan that is an eligible deferred compensation plan of a government employer (under Code Sec. 457(b)), or any traditional or Roth IRA (under Code Sec. 408 and Code Sec. 408A).  As a result, plan participants and beneficiaries will not be required by law to take required minimum distributions for 2009.


Each individual's required beginning date, for purposes of applying the required minimum distribution rules in years after 2009, will be determined without regard to the temporary waiver of the requirements.


Example:  Gerald was born April 15, 1939.  He turns 70 on October 15, 2009.  Under prior law, Gerald would be required to take a distribution from his IRA for 2009 not later than April 1, 2010.  Under the new law, Gerald is not required to take any distribution for 2009.  However, he must take a distribution for 2010 by December 31, 2010.


If the participant dies before minimum distributions have begun, and the entire remaining interest must be distributed within five years of the participant's death, then 2009 will be excluded from the five-year period.

 
The change in the law suspends, for 2009 only, the requirement that covered plans and arrangements contain provisions requiring required minimum distributions.  It does not require that any plan or arrangement actually eliminate the plan's distribution requirement for 2009.  Plans and arrangements must be formally amended to eliminate the requirement.  An amendment will be treated as timely as long as it is made on or before the last day of the first plan year beginning on or after January 1, 2011 (January 1, 2012 for government plans).  The plan must operate in accordance with the amendment after its effective date and through the end of 2009.

 
The provision does not apply to any required minimum distribution for 2008 that the participant elects to delay withdrawal until April 1, 2009.


Participants who have set up automatic distributions from their retirement plans should consider changing or suspending the automatic distributions for 2009.

NJ Paid Family Leave – Get Your Posters Now 

 

For employers in New Jersey, mandatory workplace posters have been issued by the New Jersey Department of Labor and Workforce Development, which must be distributed and posted by December 15, 2008.

New Jersey joined a handful of states in mandating that qualified family leave be paid, through a state system, for up to six weeks, funded by payroll taxes on employees.  The new law takes effect next year, with employees being eligible for paid leave beginning in July 1, 2009.  Tax deductions will begin in January of 2009.

To help explain the program, and educate employees as to their new rights, the New Jersey Department of Labor and Workforce Development has just proposed extensive regulatory guidance on its website at http://lwd.dol.state.nj.us/labor/fli/fliindex.html.  A mandatory poster also has been developed (you can find it at http://lwd.dol.state.nj.us/labor/forms_pdfs/tdi/fli_poster.pdf.), and must be posted by covered employers by December 15, 2008, and distributed to all employees (in paper form or electronically), as well as to new hires at the time of hire. 

 

Deduction:  Health Insurance Premiums: S Corporation:  Two Percent Shareholder

 

An S Corporation is a pass-through entity that is treated very much like a partnership for federal income tax purposes.  Because an S corporation has a unique tax structure, it is important for S corporations and their shareholders to understand how and when items of income and expenses are taxed.  An important issue that is often overlooked is reporting of health insurance premiums paid by S corporations on behalf of more than two percent shareholder-employees.

 

The IRS released special rules regarding the deduction by more than two-percent shareholder-employees of S corporations of health insurance premiums that are paid by or reimbursed by the S corporations and included in the shareholders’ income.  A more than two-percent shareholder-employee may deduct amounts paid for insurance under Code Sec. 162(l) if the insurance plan was established by the S corporation.  A plan is considered to be established by the S corporation if the S corporation makes the premium payments in the current tax year or the more than two-percent shareholder makes the premium payments and is, then, reimbursed by the S corporation in the current tax year.  Payments, whether made directly by the S corporation or reimbursed by the S corporation, must be included in the shareholder’s wages and reported on the shareholder’s Form W-2, Wage and Tax Statement.  The shareholder reports that amount as gross income on Form 1040 for 2008.

 

The shareholder-employee can take a deduction in computing adjusted gross income on line 29, Self-employed health insurance deduction, of Form 1040 for amounts paid during the taxable year for insurance that constitutes medical care for the taxpayer, his or her spouse, and dependents.

 

New Jersey --Corporate Income Tax: Elimination of "Throwout" Rule Proposed

 

The New Jersey Assembly passed proposed legislation that would eliminate the "throwout" rule for corporation business tax apportionment purposes.

 

The removal ("throwout") of sales assigned to states where the corporation is not subject to tax from the denominator of the sales fraction increases the fraction, which increases the portion of the entire net income of a corporation apportioned to New Jersey.  The proposed legislation would also eliminate a provision that requires a corporation to have a regular place of business in another state in order to apportion less than 100% of its income to New Jersey.  If the proposed legislation becomes law, these changes would apply to privilege periods beginning on or after July 1, 2010.

 

Similar legislation was introduced in the state Senate on October 27, 2008.  The elimination of the "throwout" rule was part of the package proposed by Governor Corzine, which also includes the adoption of combined reporting.

 

 

New Jersey Governor Jon Corzine has proposed an economic stimulus package to a joint session of the Legislature that contains the following tax proposals:

 

§         support for pending legislation to allow businesses to carry forward net operating tax losses for up to 20 years (currently, New Jersey allows net operating loss carryforwards for seven years);

 

§         support for the elimination of the "throw out" rule and the regular place of business designation;

 

§         a move toward a single sales factor tax computation;

 

§         a two-year job creation incentive program targeted at businesses with 500 or fewer employees. The proposal would provide small to mid-size businesses in the state with a $3,000 incentive for each new full-time job they create and retain for one year;

 

§         a sales tax credit for qualifying capital investments; and

 

§         a change in the senior property tax freeze program by increasing the income eligibility cap to $80,000 over the next three years, up from the present ceiling of $53,000.

 

Website Taxpayer Identification Number (TIN) Matching

TIN Matching is part of a suite of internet based pre-filing e-services that allow  “authorized payers”  the opportunity to match 1099 payee information against IRS records prior to filing information returns. An authorized payer is one who has filed information returns with the IRS in at least one of the two past tax years.  Interactive TIN Matching will accept up to 25 payee TIN/Name combinations on-screen while Bulk TIN Matching will allow up to 100,000 payee TIN/Name combinations to be matched via a text file submission.

Both programs will:

  • Match the payee with W-9 name and TIN with IRS records;
  • Decrease backup withholding and penalty notices;
  • Reduce the error rate in TIN validation.

The TIN Matching system is accessible 24 hours a day, 7 days a week.  Support services include an on-line tutorial to assist customers with the registration, application and TIN Matching process.  E-services customer assistors are also available toll-free at 1-866-255-0654, 8:30 a.m. to 7:00 p.m., EST, Monday through Friday.

E-services users must register to have access to products such as TIN Matching.  To get started using TIN Matching, please visit our e-services.

 

Social Security Number Verification Service

There are two Internet verification options you can use to verify that your employee names and Social Security numbers match Social Security’s records. 

 

Verify up to 10 names and SSNs (per screen) online and receive immediate results.  This option is ideal to verify new hires.

 

Upload overnight files of up to 250,000 names and SSNs and usually receive results the next government business day.  This option is ideal if you want to verify an entire payroll database or if you hire a large number of workers at a time.

 

While the service is available to all employers and third-party submitters, it can only be used to verify current or former employees and only for wage reporting (W-2) purposes.

 

The website for the Social Security Number Verification Service is – www.socialsecurity.gov/employer/ssnv.htm

 

IRS Reminds Taxpayers About Hobby Loss Rule

The IRS has released a fact sheet (FS-2008-23) to help taxpayers determine whether an activity is engaged in for profit or merely as a hobby. The fact sheet discusses the hobby loss rules and lists several non-inclusive factors to be considered when making this determination, including:

 

§         Does the time and effort put into the activity indicate an intention to make a profit?

§         Do you depend on income from the activity?

§         If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?

§         Have you changed methods of operation to improve profitability?

§         Do you have the knowledge needed to carry on the activity as a successful business?

§         Have you made a profit in similar activities in the past?

§         Does the activity make a profit in some years?

§         Do you expect to make a profit in the future from the appreciation of assets used in the activity?

 

If an activity is not for profit, losses from that activity may not be used to offset other income and deductions cannot exceed the gross receipts from the not for profit activity.

 

2008 Economic Stimulus Payment Schedule

The IRS has announced that, starting May 2, it will begin sending more than 130 million taxpayers economic stimulus payments.  Payments will be deposited or mailed weekly through July 11.  Taxpayers can determine the projected amount of their payment by using a calculator located on the IRS website at irs.gov

 

Economic Stimulus Act of 2008

President Bush has signed the Economic Stimulus Act of 2008 (the Act) which is intended to infuse $152 billion into the economy to help the nation avoid sliding into recession.<read more>

 

New IRS Regulations – Deemed Election to Amortize Start-up Expenses & Organizational Costs

The IRS has issued final, temporary and proposed regulations that eliminate the requirement to file an election statement in order to deduct start-up and organizational expenses.

 

Effective for expenses paid or incurred after September 6, 2008, taxpayers are not required to file a separate election statement to deduct costs under IRC § 195, IRC § 248, or IRC § 709.  Instead, taxpayers are deemed to have made the appropriate election for the year in which the active trade or business begins, or the year in which the corporation or partnership begins business.

 

A taxpayer may irrevocably choose to forgo the deemed election by clearly electing to capitalize its start-up or organizational expenses on a timely-filed Federal income tax return (including extensions) for the tax year in which the active trade or business begins.

 

IRS issues temporary regulations that reduce the extension period

The IRS has issued temporary regulations that reduce, from six months to five months, the automatic extension period for partnerships filing Form 1065, U.S. Partnership Return of Income, or Form 8804, Annual Return for Partnership Withholding Tax, and estates and trusts filing Form 1041, U.S. Income Tax Return for Estates and Trusts.  This one-month reduction in the six-month extension period is effective for returns due on or after January 1, 2009.

 

IRS Increases Mileage Rates through December 31, 2008

On June 23, 2008 the Internal Revenue Service announced that it would be increasing the standard mileage rate for the final six months of 2008.  <read more>

 

Save Those Receipts – New rules for Charitable Donations

It has always been a good idea to keep proper documentation of tax deductible expenses, and now Congress has added a new motivator.  New rules were added by the Pension Protection Act of 2006 for individuals making charitable contributions in tax years beginning with 2007.  Any taxpayer claiming such deductions must now be prepared to prove that the contributions were actually made, in the amounts claimed on the tax return. <read more>

 

Caution:  Beware of the Kiddie Tax!

The Small Business and Work Opportunity Tax Act of 2007 (2007 Small Business Act) includes a provision that raises the "kiddie tax" age from under 18 to under 19 (or under age 24, for students) after 2007.  <read more>

 

Social Security Administration Issues Incorrect 1099’s

The Social Security Administration has informed the IRS that 2.5 million SSA 1099’s were issued in error and that corrected forms are scheduled to be issued the week of January 25, 2008.

 

Increased Password Complexity for EFTPS

As an additional security measure, EFTPS online will increase the complexity of passwords beginning February 7, 2008.  Passwords must be 8 to 12 characters long, composed of the following character types: 

·         Uppercase Alpha (A, B, C, etc.)

·         Lowercase Alpha (a, b, c, etc)

·         Numeric (1,2,3, etc) or the following Special Characters (!, @, #, $, *, +, -).

Each password must contain UPPERCASE AND LOWERCASE ALPHA CHARACTERS at least one character that is either a numeric or a Special Character.  For more information go to www.eftps.com

 

New Federal Wage Posting Requirements

Effective July 24, 2007, the Department of Labor requires all employers, regardless of size to post the most recent Minimum Wage poster, even if your state's minimum wage differs.  Find more information and a copy of the poster at www.dol.gov/elaws/posters.htm

 

Increase in Federal Minimum Wage

On May 25, President Bush signed a spending bill that, among other things, amended the Fair Labor Standards Act (FLSA) to increase the federal minimum wage in three steps:  to $5.85 per hour effective July 24, 2007, $6.55 per hour effective July 24, 2008 and $7.25 per hour effective July 24, 2009.

 

Pennsylvania Form 1099-G and 1099-INT Error

In January, the Pennsylvania Department of Revenue mailed incorrect

Forms 1099-G and 1099-INT that contained information for PA refunds and PA interest paid in 2005, rather than 2006.  Corrected 1099-G and 1099-INT forms will be mailed by February 9, 2007

 

Pennsylvania residents - 

Pennsylvania now allows contributions to Section 529 Qualified Tuition Programs to be deducted for Personal Income Tax purposes. The annual deductible contribution limit per beneficiary is $12,000.00 per year. These plans provide an excellent opportunity to invest on a tax-free basis for your children/grandchildren's education. In addition, these plans may also provide significant estate tax benefits.

 

Pension Protection Act of 2006

This significant tax legislation was signed into law by the President on August 17, 2006.  The new law is designed to not only strengthen traditional defined benefit pension plans, but also improve and extend many retirement plans, provided by IRA's, 401(k) and other defined contribution plans. click here for the full story.

 

President Bush Signs $70 Billion Tax Relief Reconciliation Bill

The Tax Increase Prevention and Reconciliation Act (Tax Reconciliation Act), signed into law on 5/18/06, provide benefits to business, investors, and middle-class alternative minimum tax relief. click here for details.

 

Federal Posting Notice For All Employers

For more information about the Uniformed Services Employment and Reemployment Act (USERRA) Notification Requirement click here

 

Changes in filing New Jersey Annual Report

New Jersey is mandating electronic filing of Form CAR-100

for corporations, limited liability companies, limited liability 

partnerships and limited partners click here for more info

 

Important Information for S Corporations

Beginning in late 2005, the IRS will introduce a study to evaluate the

reporting compliance of S corporations.  click here for details.

 

Increase in New Jersey's Minimum Wage

Effective October 1, 2005, the hourly minimum wage is $6.15 per hour.

The next increase will be effective on October 1, 2006, when it will be raised to $7.15 per hour - click here for details.

 

Flexible Spending Accounts

IRS extends use it or lose it deadline for Employees' Flexible Spending Accounts - click here for details

 

Qualified Retirement Plan Alert

Employers who sponsor qualified retirement

plans, such as 401(k) or profit sharing plans,

should be aware of a new requirement concerning automatic distribution of account balances

click here to learn more

 

New Banking Legislation Alert

Congress passed the Check 21 Act, allowing banks to transfer funds using electronic facsimiles of checks.  To learn more about the Check 21 Act - click here

 

The American Jobs Creation Act of 2004

President Bush has signed the American Jobs Creation Act.  To find out how it affects you - click here

 

 

Pennsylvania

To find out about tax changes in Pennsylvania -

  click here

 

 

New Jersey

 

Governor Jim McGreevey approves decoupling NOL Changes - click here to find out more

 

New Jersey has enacted the Business Tax Reform Act (A.B. 2501), which provides a major revision of the New Jersey corporation business (income) tax - click here to find out more

 

U.S. Supreme Court Allows IRS to Use Aggregate Method to Determine FICA Tax Liability on Tip Income  

As a result of a recent United States Supreme Court case, many employers who include income from tips in their FICA tax calculation may be significantly understating their FICA tax liability. For the full story click here