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How Will Taxmageddon Affect You?

June 20, 2012

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How Will Taxmageddon Affect You?

June 20, 2012

Authored by: Serena Yee

In the event the U.S. Supreme Court strikes down the entire 2010 health care reform bill, individual and married taxpayers with income in excess of $200,000 and $250,000 respectively will dodge the 0.9% Medicare surtax on earned income and 3.8% Medicare surtax on most investment income scheduled to take effect January 1, 2013.  But that’s not the end of the scheduled tax increases for 2013.

Assuming Congress takes no action and the Bush-era tax cuts expire at the end of 2012, the individual tax rates for 2013 will be as follows:

 

2012

2013

Ordinary Income Tax Rates andShort-Term Capital Gains Rates

35%

33%

28%

25%

15%

10%

39.6%

36.0%

31.0%

28.0%

15%

15%

Long-Term Capital Gains Rates

15% (35% income tax bracket)

15% (33% income tax bracket)

15% (28% income tax bracket)

15% (25% income tax bracket)

0% (15% income tax bracket)

0% (10% income tax bracket)

20% (39.6% income tax bracket)

20% (36% income tax bracket)

20% (31% income tax bracket)

20% (28% income tax bracket)

10% (15% income tax bracket)

Dividend Rates

15%

0%

Dividends will be taxed at ordinary income rates.

In addition, the following individual income tax limitations/phase-outs are scheduled to be reinstated in 2013:

  • The “Pease” limitations on certain itemized deductions for higher income taxpayers were temporarily repealed through 2012. The limitation reduces

Spring is Around the Corner…Do You Need a Plan Audit?

The employee benefit plan audit season is quickly approaching for calendar year plans. If the number of participants in your defined contribution plan, defined benefit plan, or employee stock ownership plan crossed the magical threshold of 100 or more participants in 2011, your annual Form 5500 filing responsibilities now include engaging an independent accounting firm to perform an audit of your plan. Form 5500s are due by the seventh month following the end of the plan year. Therefore, if you sponsor/administer a calendar year plan, you must file the Form 5500 by July 31; however, a 2½ month extension is automatically made available by filing IRS Form 5568. Even with an extension, it is important to get the audit process underway sooner rather than later (even if this isn’t your first plan audit).

As part of the audit process, the auditor will examine various documents to determine your adherence to the terms of the plan, timeliness of deposits (especially, 401(k) salary deferrals and loan repayments), accuracy and completeness of personnel files, and the handling of forfeitures.  If plan assets are held by a trust company or an insurance company, your plan may qualify for a limited-scope exemption.  Although you will still be required to have independent audit, the scope of the audit will not include an audit of plan investments.

Perhaps the most daunting task from the perspective of a plan administrator is gathering all the required documents – so start now. You don’t

The Final Rule for 408(b)(2) – Fee Disclosures

Yesterday, the Department of Labor (“DOL”) issued the final rule on the disclosures that a covered service provider must furnish to a plan fiduciary in order for a contract or arrangement for services for a covered plan to be “reasonable” as required under ERISA §408(b)(2).  These fee disclosure requirements become effective July 1, 2012 and apply not only to service contracts and arrangements entered into on or after that date but existing contracts and arrangements entered into prior to July 1, 2012.

For those of you who remember in detail the disclosure requirements under the interim rules issued in July, 2010, the DOL has posted an overview of the changes from the interim final rule its website.  For everyone else, the disclosure requirements under the final rule are briefly described below.

Covered Plans

The final rule generally applies to ERISA-covered defined benefit and defined contribution pension plans.  However, simplified employee pension plans, simple retirement accounts, individual retirement accounts, individual retirement annuities and certain Keogh plans and 403(b) annuity contracts and custodial accounts are excluded.

Covered Service Providers

Disclosure is required in the case of a service provider who enters into a contract or arrangement with the covered plan and reasonably expects to receive at least $1,000 in direct or indirect compensation in connection with the provision of services in one or more of the following categories:

  • Services as an ERISA fiduciary or as an investment advisor registered under either the Investment Advisors Act of 1940

IRS Establishes a Voluntary Classification Settlement Program

The Internal Revenue Service (“IRS”) recently announced a new settlement program for employers with misclassified workers. Under the Voluntary Classification Settlement Program (“VCSP”), employers can get a significant reduction in their federal employment tax liability associated with past nonemployment treatment by agreeing to properly classify their workers for future tax periods. This announcement comes on the heels of recent announcements that the IRS, Department of Labor (“DOL”) and various state agencies are collaborating on examining worker misclassification issues.

The VCSP is generally available to employers who want to voluntarily change the prospective classification of their misclassified workers from independent contractors (or other nonemployee status) to employees. To be eligible, the employer must have consistently treated the workers as nonemployees and for the three previous three years filed all required Forms 1099 for such workers. Further, the employer cannot be under audit by the IRS or by the DOL or a state government agency concerning the classification of the workers. An employer who has been previously audited by the IRS or DOL concerning the classification of workers is eligible for the VCSP only if it has complied with the results of that audit.

In exchange for agreeing to prospectively treat the class of workers as employees for future tax periods, the employer will pay only 10% of the employment tax liability that otherwise would have been due on the compensation paid to the workers for the most recent tax year, but determined under the reduced rates of Section 3509 of the

IRS Treatment of Employer-Provided Cell Phones and Employer Reimbursement of Personal Cell Phone Use

September 21, 2011

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With the issuance of Notice 2011-72, the Internal Revenue Service finally addressed the uncertainty relating to the tax treatment of employer-provided cell phones (or other similar telecommunications equipment) and of the personal use of an employer-provided cell phone by the employee.

Historically, cell phones provided by an employer to its employees for business use were deductible to the employer and excludable from the employee’s income as a “working condition fringe benefit”, subject to stringent recordkeeping requirements. However, the Small Business Jobs Act of 2010 removed the cell phones from the definition of listed property for tax years beginning after December 31, 2009. As a result, employers could arguably exclude the value of certain employer-provided cell phones from employee wages without complying with the substantiation requirements applicable to other employer provided property.

This new guidance offers good news for employers. Pursuant to Notice 2011-72, an employee’s use of an employer-provided cell phone for reasons related to the employer’s trade or business will be treated as a working condition fringe benefit and excludable from the employee’s income if the cell phone is issued primarily for business reasons. A cell phone is considered to be issued primarily for business purposes if there are substantial reasons relating to the employer’s business for providing the employee with a cell phone (other than to provide compensation to the employee). But perhaps the best news for employers is that any substantiation requirements that would otherwise be needed to take a deduction will be deemed to

Getting Ready for Open Enrollment

Getting Ready for Open Enrollment

September 16, 2011

Authored by: Serena Yee

The fall is the time many employers with calendar year group health plans begin to prepare for open enrollment.  Below is a list of required notices that employers should consider including in their enrollment materials.   

  • COBRA Notice.  Plan administrators must provide a written initial COBRA notice to each employee and his or her spouse when group health plan coverage first commences of his or her rights under the Consolidated Omnibus Budget Reconciliation Act of 1986 (“COBRA”).  This notice must contain specific information, and the Department of Labor has issued a model notice.
  • HIPAA Privacy Notice.  If the group health plan is required to maintain a notice of privacy practices under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), the notice must be distributed upon an individual’s enrollment in the plan.  Notice of availability to receive another copy must be given every three years.
  • Special Enrollment Rights.  A group health plan must provide each employee who is eligible to enroll with a notice of his or her HIPAA special enrollment rights at or prior to the time of enrollment.  Among other things, this notice must describe the recently enacted rights afforded under the Children’s Health Insurance Program Reauthorization Act.

2012 PPACA Checklist

2012 PPACA Checklist

September 12, 2011

Authored by: Serena Yee

While most of the design changes required for group health plans under the Patient Protection and Affordable Care Act, as amended (“PPACA”), became effective in 2010 or 2011, some additional requirements must be implemented for 2012.

All group health plans subject to PPACA must comply with the following requirements, regardless of its status as a “grandfathered health plan”:

  • Provision of a Summary of Benefits.  The summary must include the information specified in the regulations but cannot exceed four double-sided pages. A summary must be provided to participants and beneficiaries as part of any written enrollment materials and a summary must be included for each benefit package offered for which the participant or beneficiary is eligible. However, upon renewal, only the summary for the benefit package in which the participant is enrolled needs to be furnished, unless the participant or beneficiary requests a summary for another benefit package. Unless an extension is granted, summaries must be issued no later than March 23, 2012.  Instructions and a template of a draft summary of benefits is published in the Federal Register and can be viewed at http://www.gpo.gov/fdsys/pkg/FR-2011-08-22/pdf/2011-21192.pdf.
  • W-2 Reporting Obligation.  Employers must begin reporting the aggregate cost of applicable employer-sponsored coverage on an employee’s Form W-2 beginning with the Form W-2 issued in January 2013 for the 2012 tax year.  Make sure that you have appropriate systems in place to collect and determine the value that must be reported.  IRS Notice 2011-28, available at http://www.irs.gov/pub/irs-drop/n-11-28.pdf, provides interim guidance
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