December, 2016 | RKL LLP
Posted on: December 21st, 2016

2017 Payroll Reference Guide & 2016 1099 Worksheet

As another year draws to a close, your RKL team has compiled payroll and other tax-related information to help you manage your 2016 reporting requirements and plan for 2017. To improve convenience and ease of use, we’ve formatted this information into a handy reference guide for payroll information.

Here are a few things to keep in mind this year:

  • W-2 New Filing Due Date: The new due date for filing W-2s and W-3s with SSA is now January 31, 2017.
  • 1099-MISC New Filing Due Date for Nonemployee Compensation: The new due date for reporting non-employee compensation (Independent Contractor) on 1099-MISC, box 7 with IRS is now January 31, 2017 when you file using paper forms and electronically. All other types of 1099s are due February 28, 2017 if filed using paper or March 31, 2017 if filed electronically.
  • Pennsylvania Electronic UI Tax Payments: Effective January 1, 2017, for any quarter when a Pennsylvania employer accumulates a total liability of at least $5,000 the employer must pay those amounts electronically. After an employer is required to pay these amounts electronically the employer must pay unemployment tax electronically for all subsequent quarters regardless of the total unemployment related liabilities.

If you would like RKL to help you prepare your 1099s, please complete this worksheet to start the process.

As always, the RKL team is happy to help with filing or answer any questions you may have. Please don’t hesitate to contact us!

Posted on: December 20th, 2016

Health Reimbursement Arrangements Available to Employers Once Again

The 21st Century Cures Act revives a popular tool related to employer-provided health benefits. RKL’s tax team explains the impact for certain small businesses.News coverage of the 21st Century Cures Act, passed with large bipartisan support and signed into law by President Obama on December 13, 2016, primarily focused on the provisions that increase funding for medical research and expedite approval of new drugs and medical devices. For certain companies, however, the law also revived a popular tool related to employer-provided health benefits.

The Affordable Care Act currently prohibits a previously common practice of small employers (fewer than 50 full-time employees or equivalents) to reimburse employees who purchased private, individual health insurance coverage. Small employers typically used a Health Reimbursement Arrangement (HRA) to fund employees’ purchase of nongroup plans or reimburse them after the fact.

The 21st Center Cures Act now permits small employers that do not offer group health coverage to employees to instead offer HRAs, starting in 2017. The law places certain requirements on these HRAs, and also caps employer contributions at $4,950 for single employees and $10,000 for family coverage. It also spares small employers who offered a standalone HRA to employees prior to January 1, 2017, from the previous IRS penalty for using this reimbursement method.

Uncoupling the HRA from employer-provided health coverage gives small businesses more flexibility in designing employee benefit packages. Employers should keep in mind that HRA reimbursements will only be tax-free if the employee’s individual or family health coverage meets “minimum essential coverage” as defined by the ACA, and receiving a reimbursement via an HRA may impact the employee’s eligibility for or level of tax credit.

 With 2017 just around the corner, many employees have already designed their benefits program for the next calendar. Furthermore, it is unclear whether this provision would survive any future legislative changes related to health care under the new administration. For the time being, however, employers should consider this new option and how it might support their benefits program moving forward.

For more details on the HRA requirements or to find out how this legislation will impact your company’s employer-provided health benefits, contact your RKL advisor or one of our local offices.

Ethel A.M. Nawrocki, CPAContributed by Ethel A.M. Nawrocki, CPA, Principal in RKL’s Tax Services Group. Ethel has 25 years’ experience providing tax, accounting and consulting services to the manufacturing, wholesale, distribution, construction and real estate rental industries.

 

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Posted on: December 13th, 2016

Are Your Company’s Year-End Compensation Accruals Tax Deductible?

Are Your Company’s Year-End Compensation Accruals Tax Deductible?As the calendar year draws to a close, one item on the mind of many business owners is calculating year-end bonuses for employees. While relevant to employee performance and retention, bonuses and compensation accruals can also impact an employer’s tax obligations. Factors such as compensation type, timing of payment and the ultimate payee may alter the tax deductibility of these accruals.

Meet IRS Criteria When Establishing Accruals

First and foremost, in order for a compensation accrual to be deductible in the calendar year that the accrual originates, the compensation accrual must be established properly according to criteria set forth by the IRS. The criteria must be met for all compensation accruals including holiday pay, vacation pay and year-end bonuses. Criteria to establish proper compensation accruals includes:

  • All the events have occurred that establish the fact of the liability.
  • The business can determine the liability with reasonable accuracy.
  • Economic performance has occurred with respect to the liability, meaning the employee has already provided the services for the accrued compensation.
  • The accruals will be paid within two and a half months from the end of the calendar year.

Business owners should find these criteria pretty straightforward, but there are technical requirements that accompany the first, “all events” litmus test for bonus accruals. In order for bonus accruals to pass the “all events” test, they must follow additional rules set forth by the IRS. The criteria to satisfying the all events test for bonus accruals includes:

  • The total amount of bonuses must be finalized by the end of the year, but the actual distribution to employees may be done after year-end.
  • No amounts can revert back to the employer. In a situation where an employee leaves the company before a bonus is awarded, if that bonus is not allocated to the other employees in the bonus pool, the entire amount of year-end accruals becomes ineligible for deduction.
  • For bonuses or accruals subject to review and approval by a board of directors or executive committee, that process must take place before the end of the year in order for those accruals to be deductible.

Exceptions to Deductible Compensation Accruals

Keep in mind that there are exceptions that preclude business owners from deducting compensation accruals, even if they met the criteria established above. The exceptions for owners and certain related parties are applied by entity type.

  • S corporation shareholders (regardless of percentage owned): No accruals are deductible, including holiday and vacation pay.
  • LLC members and partners: No accruals are deductible, including holiday and vacation pay, with the exception of guaranteed payments determined apart from the income of the partnership. These payments are deductible.
  • C corporation owners (more than 50%): No accruals are deductible, including holiday and vacation pay.
  • Certain related parties: No accruals are deductible, including holiday and vacation pay if an employee is considered a related person according to IRS rules.

Businesses always have the option to pay owner and related party compensation in cash to receive a current year deduction.

Your RKL advisor is available to help determine whether your compensation accruals or bonus payments meet the tax deductibility criteria. Contact one of our local offices today for more information or for assistance.

Josie A. Parr, CPA, manager in RKL’s Tax Services GroupContributed by Josie A. Parr, CPA, manager in RKL’s Tax Services Group. Josie specializes in providing tax planning and compliance solutions for businesses and individuals, including issues surrounding multi‐state taxation. She has considerable experience serving clients in a variety of industries including manufacturing, distribution, food processing, advertising and construction.

 

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Posted on: December 12th, 2016

RKL’s 2016 Tax/A&A Seminar Offers Timely Regulatory and Economic Insights

Amidst significant upcoming regulatory changes and a shift in the political landscape, RKL provided timely updates and valuable insights to nearly 500 tax and accounting professionals and financial executives from across the region at the latest installment of its annual Tax and A&A seminar last week.

The full-day educational and networking event, held at the Lancaster County Convention Center on Tuesday, December 6, offered attendees to gain valuable continuing professional education credits and engage with RKL experts and regional business leaders.

This year’s agenda was packed with important guidance to help attendees prepare for major regulatory changes on the horizon like lease accounting, revenue recognition and government accounting standards. RKL tax experts also previewed the potential impact political changes in Washington D.C. could have on personal and business taxation. In a timely keynote address, noted political historian and commentator Dr. G. Terry Madonna examined the current presidential transition as well as the political dynamic in the nation and the Commonwealth.

Attendees enjoyed a variety of trivia and drawings throughout the day, with lucky winners taking home prizes ranging from local retail and restaurant gift cards to an Amazon Echo and a vacation voucher. Guests and RKL team members concluded the robust agenda with a cocktail reception that gave everyone a chance to toast the holiday season. The RKL team thanks all the presenters and attendees of the 2016 installment of one the most-anticipated educational and networking events in the region.

RKL team members and guests enjoy the breakfast networking session before the event gets underway.

RKL team members and guests enjoy the breakfast networking session before the event gets underway.

 

RKL CEO Ed Monborne kicks off the agenda with welcome remarks.

RKL CEO Ed Monborne kicks off the agenda with welcome remarks.

 

RKL Tax Partner Rob Gratalo offers insights into potential tax legislation in the post-election era.

RKL Tax Partner Rob Gratalo offers insights into potential tax legislation in the post-election era.

 

Attendees take in the Business Tax Update session presented by RKL Partner Tom Kauffman.

Attendees take in the Business Tax Update session presented by RKL Partner Tom Kauffman.

 

RKL’s State and Local Tax Practice Leader Jason Skrinak updates the audience on the latest state tax developments.

RKL’s State and Local Tax Practice Leader Jason Skrinak updates the audience on the latest state tax developments.

 

Dr. G. Terry Madonna’s keynote address examined the recent presidential election outcome.

Dr. G. Terry Madonna’s keynote address examined the recent presidential election outcome.

 

Audit Manager Nick Hoefel presents the latest on changes in lease accounting regulations.

Audit Manager Nick Hoefel presents the latest on changes in lease accounting regulations.

 

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Jill Gilbert, partner in RKL’s Audit Services Group, discusses upcoming changes to government accounting standards, including the accounting treatment of other post-employment benefits.

RKL Audit Partner Mark Zettlemoyer continues the government update with a focus on the Right to Know law and tax abatement disclosures.

RKL Audit Partner Mark Zettlemoyer continues the government update with a focus on the Right to Know law and tax abatement disclosures.

 

RKL Audit Partner Jim Pruzinsky, who also emceed the program, closes out the agenda with an update on revenue recognition.

RKL Audit Partner Jim Pruzinsky, who also emceed the program, closes out the agenda with an update on revenue recognition.

Posted on: December 7th, 2016

‘Tis the Season to Beware Tax & Charity Scams

With year-end tax planning and charitable giving in full swing, RKL’s tax team offers tips to remain vigilant against scams. Phishing emails. Online scams. Callers misrepresenting their identities. It seems like hardly a week goes by without reports of a new scheme to confuse or intimidate individuals into turning over money or financial information.

Remaining vigilant against fraudulent activity is always important, but perhaps even more so as the calendar year draws to a close with a flurry of charitable giving and tax planning actions. Whether it is an IRS poser or a fake charity, let’s take a look at how individuals can protect themselves from scams and ensure they are directing their donations responsibly.

IRS Communication Scams

There is nothing new about scammers posing as representatives of the IRS. What is new, however, is the number of methods the scammers are using. As the IRS always stresses, the agency will never proactively contact taxpayers via email, text messages or social media to request personal or financial information. Should you receive messages of this nature through these channels, do not reply, open or click any attachments and report the incident to the IRS.

IRS contact with taxpayers always begins with official correspondence sent through the mail, but scammers have recently coopted this method by modifying legitimate IRS letters to lure unsuspecting victims into turning over personal or financial information. With tax season just around the corner, it is important that taxpayers remain watchful for these types of scam attempts.

If you receive an unsolicited letter, fax, notice or form from the IRS that you suspect is fraudulent, visit the IRS home page to search for the number on the document. If the communication is legitimate, it will contain instructions on how to proceed. Taxpayers may also call 1-800-829-1040 for assistance in determining legitimacy.

Phone calls from individuals claiming to be IRS representatives also continue to occur. If you receive a suspicious phone call of this nature, the IRS directs taxpayers to ask for the caller’s name and badge or ID number if possible, or at the very least jot down the call back number and caller ID if available. Taxpayers should then call 1-800-366-4484 to find out if the call was legitimate.

Please refer to the IRS guide on how to handle or report a suspicious communication for more guidance and details on a variety of specific scenarios. Your RKL tax professional can also help answer questions about the legitimacy of a certain communication or other IRS tools related to tax or identity fraud, including Identify Protection PIN numbers.

Charity Donation Fraud

The holiday season offers taxpayers a great opportunity to contribute to causes important to them with the added bonus of tax deductibility where applicable. Due to this intersection of philanthropy and tax benefit, many charities ramp up solicitation and outreach to encourage giving before the end of the calendar year. Unfortunately, this opens the door for fraudsters to take advantage of generosity and altruism.

Whether or not a contribution is eligible for tax deduction, it is important that individuals are aware of where they are donating their dollars and for what purpose the funds are being used. Just like the tax scams discussed earlier, donors should be wary of any communications coming from a charity that seem suspicious or out of the ordinary and avoid clicking links or opening electronic messages.

Before making a donation, a best practice is to research the group to find out whether it is a registered charity and if your contribution will be tax deductible. Sites like the ones below are a good place to start:

If you still want to learn more about a particular charity, GuideStar is a good place to turn. One of the largest sources of information on nonprofits, GuideStar maintains a database of tax returns and other financial information, like expenditures and administrative costs, that can lend additional credence to an organization.

RKL’s tax team is available to help clients assess the veracity and legitimacy of any IRS communications or charitable solicitation. Contact your RKL professional or one of our local offices for guidance or assistance.

Contributed by Tamera L. Lobb, Senior Accountant with RKL’s Tax Services Group. Tamera provides tax planning and compliance services to individuals and companies in a variety of industries. She specializes in multi-state compliance and pass-through entity taxation. Tamera is also active in RKL training and employee engagement initiatives.

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