April 2010 Newsletter Volume III Number 4
Business Tax Changes in the 2010 HIRE Act
By Scott Voorhis, CPA, Senior Accountant
On March 18, 2010, President Obama signed into law the Hiring Incentives to Restore Employment (HIRE) Act. The new law offers some attractive tax saving opportunities for businesses. Read on for a brief overview of the key tax changes.
Extension of enhanced small business expensing (Section 179). The new law gives a one-year lease on life to enhanced expensing rules, which allow qualifying businesses the option to currently deduct the cost of business machinery and equipment, instead of recovering it via depreciation over a number of years. For tax years beginning in 2010, the maximum amount that a business may expense is $250,000, and the expensing election begins to phase out when a business buys more than $800,000 of expensing-eligible assets. These dollar limits are the same as those that were in effect for 2008 and 2009.
Payroll tax holiday and up-to-$1,000 credit for employers who hire unemployed workers. To help stimulate the hiring of workers by the private sector, the new law exempts any private-sector employer that hires a worker who had been unemployed for at least 60 days from having to pay the employer's 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010. A company could save a maximum of $6,621 if it hired an unemployed worker and paid that worker at least $106,800—the maximum amount of wages subject to Social Security taxes—by the end of the year. As an additional incentive, for any qualifying worker hired under this initiative that the employer keeps on payroll for a continuous 52 weeks, the employer is eligible for an additional non-refundable tax credit of up to $1,000 after the 52-week threshold is reached, to be taken on their 2011 tax return. In order to be eligible, the employee's pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.
Workers hired after the date of introduction of the legislation (Feb. 3, 2010) are eligible for the payroll tax forgiveness and the retention bonus, but only wages paid after the date of the new law's enactment receive the exemption for payroll taxes.
Here are some additional features of the new hiring incentive:
The tax benefit of the new incentive is immediate. It puts money into a business' cash flow immediately, since the tax is simply not collected in the first place.
The tax benefit generally applies only to private-sector employment, including nonprofit organizations—public sector jobs are generally not eligible for either benefit. However, employment by a public higher education institution would qualify.
There is no minimum weekly number of hours that the new employee must work for the employer to be eligible, and there is no maximum on the dollar amount of payroll taxes per employer that may be forgiven.
For workers that would otherwise be eligible for the “Work Opportunity Tax Credit,” the employer must select one benefit or the other for 2010—no double dipping.
An employer can't claim the new tax breaks for hiring family members.
A worker who replaces another employee who performed the same job for the employer is not eligible for the benefit, unless the prior employee left the job voluntarily or for cause.
For the hiring to qualify, the new hire must sign an affidavit, under penalties of perjury, stating that he or she has not been employed for more than 40 hours during the 60-day period ending on the date the employment begins. The affidavit form can be found at: http://www.irs.gov/pub/irs-pdf/fw11.pdf.
The incentive is not biased towards either low-wage or high-wage workers. Under the measure, a business saves 6.2% on both a $40,000 worker and a $90,000 worker.
The payroll tax holiday does not apply with respect to wages paid during the first calendar quarter of 2010, but the amount by which the Social Security payroll tax would have been reduced under the payroll tax holiday provision during the first calendar quarter is applied against the tax imposed on the employer for the second calendar quarter of 2010.
The Act creates a similar new set of rules permitting a payroll tax holiday for railroad retirement tax purposes.
The credit for retaining qualifying new hires is the lesser of $1,000 or 6.2% of the wages paid by the taxpayer to the retained worker during the 52-consecutive-week period. Thus, the credit for a retained worker will be $1,000 if, disregarding rounding, the retained worker's wages during the 52-consecutive-week period exceed $16,129.03. However, the credit is not available for pay not treated as wages under the Code (e.g., remuneration paid to domestic workers).
Please contact our office at 765-236-2300 in Kokomo or 260-563-0567 in Wabash for details on how the new changes may affect your specific business.
Don't Just Throw Your Property Tax Statements in a Drawer!
By Troy Parton, CPA, Manager
County Auditors across the state recently began mailing 2010 property tax statements. If your real estate taxes are escrowed you may not pay much attention to the annual notices. However, this year more than ever, it is important to review all documents included in the packet of information - specifically, the new pink homestead verification form.
Individuals and married couples may lose their homestead deduction beginning in 2013 if they do not complete the homestead verification form. Homestead fraud occurs when an individual or married couple receive the benefit of more than one homestead deduction or claim the deduction on property that is not their primary residence. Homestead fraud causes taxpayers who follow the law to pay more money.
Beginning in 2010, House Enrolled Act (HEA) 1344-2009 requires the tax statement (TS-1) to include a form that allows taxpayers to verify their residency and eligibility for the homestead deduction. Each individual (and his or her spouse, if any) claiming the homestead deduction also is required to provide the last five digits of his or her social security number and driver’s license number. This information will be used to populate a secure homestead database, which will be used by county auditors to track homesteads statewide and prevent fraud. This will help reduce taxes for all by ensuring that everyone shares equally in the property tax burden.
You can visit the Department of Local Government Finance website at http://www.in.gov/dlgf/8455.htm for additional information about the homestead deduction, the new law and answers to frequently asked questions.
Updating Quickbooks for Recent Payroll Changes
By Stephanie Ziems, Staff Accountant, QB ProAdvisor
Updating QuickBooks is more important now than ever. With all the new tax laws affecting payroll, businesses need to be sure payroll taxes are being calculated properly. On March 25, 2010, Governor Mitch Daniels signed the Senate Enrolled Act 23, which delays the higher unemployment tax rates and taxable wage base increase to $9,000 until January 2011, http://www.in.gov/dwd/2731.htm. Businesses should have received their 2010 merit rate notices from the Indiana Department of Workforce Development earlier this month. Form UC-1 for first quarter 2010 will be considered timely filed if postmarked by May 31, 2010. Additionally, all penalties and interest will be waived, http://www.in.gov/dwd/2427.htm#iiid.
QuickBooks released payroll update 21010 on April 15, 2010 to correct the Indiana unemployment taxable wage base. To ensure proper calculation and reporting for first quarter, businesses should download and install the new payroll update as well as verify the Indiana unemployment tax payroll item is setup with the new 2010 tax rate for all four quarters. Due to an incorrect taxable wage base and possible increase or decrease in the tax rate, the QuickBooks payroll liability calculation may be inaccurate. Please follow the steps given by QuickBooks payroll support to correct any errors in computation, http://payroll.intuit.com/support/kb/kbitem/1013006.html.
QuickBooks has not released an update to handle the effects of the HIRE Act. Please read the following QuickBooks support link, http://payroll.intuit.com/support/kb/kbitem/1012934.html. If you have any concerns or questions, please feel free to call our office. We can help!
Web of Deceit
By Julie Tracy
I recently read an excellent article on rogue security software. This is software that pretends to be legitimate security software. This article gives great suggestions on how to remove this from your computers and also how to protect yourself from these infections. Here is the link to the article:
http://www.scmagazineus.com/rogueware-web-of-deceit/article/165831/