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Employer Health Care Choices Raise Questions

With the launch of tax season, employers are asking a flood of questions about mandates in the Affordable Care Act (ACA aka ObamaCare ) and whether they are understanding the choices that are available.  

The Employer Shared Responsibility provisions became effective January 1st of 2015.  No Employer Shared Responsibility payments will be assessed for 2014, but employers are expected to use their 2014 number of employees and their hours of service to determine whether they are subject to the payments in 2015.

ACA in washingtonBusinesses in 2015 employing generally 50 full-time employees, or a combination of full-time and part-time employees that is equivalent to 50 full-time employees, will be subject to the Employer Shared Responsibility provisions under section 4980H of the Internal Revenue Code.   The IRS defines a full-time employee as an individual employed on average at least 30 hours of service per week.

The IRS says, "Under the Employer Shared Responsibility provisions, if these employers do not offer affordable health coverage that provides a minimum level of coverage to their full-time employees (and their dependents), the employer may be subject to an Employer Shared Responsibility payment if at least one of its full-time employees receives a premium tax credit for purchasing individual coverage on one of the new Affordable Insurance Exchanges, also called a Health Insurance Marketplace (Marketplace)."

New Questions

One of the many issues that employers are asking about has to do with acceptable alternatives to providing a company health insurance plan for employees.  

Some businesses are asking if reimbursements to employees for premiums those employees may pay for health insurance (whether it is purchased through the ACA Marketplace or outside the Marketplace) is enough to meet regulations.  The IRS says an employer payment plan generally does NOT include an arrangement under which an employee may have an after-tax amount applied toward health coverage or take that amount in case compensation.

Here is an IRS which provides a question and answer section on this issue:

"Q1.  What are the consequences to the employer if the employer does not establish a health insurance plan for its own employees, but reimburses those employees for premiums they pay for health insurance (either through a qualified health plan in the Marketplace or outside the Marketplace)?

Under IRS Notice 2013-54, such arrangements are described as employer payment plans. An employer payment plan, as the term is used in this notice, generally does not include an arrangement under which an employee may have an after-tax amount applied toward health coverage or take that amount in cash compensation. As explained in Notice 2013-54, these employer payment plans are considered to be group health plans subject to the market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing.  Notice 2013-54 clarifies that such arrangements cannot be integrated with individual policies to satisfy the market reforms.  Consequently, such an arrangement fails to satisfy the market reforms and may be subject to a $100/day excise tax per applicable employee (which is $36,500 per year, per employee) under section 4980D of the Internal Revenue Code.

Q2. Where can I get more information?

On Sept. 13, 2013, the IRS issued Notice 2013-54, which explains how the Affordable Care Act’s market reforms apply to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs) and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy.

The Department Labor (DOL) has issued a notice in substantially identical form to Notice 2013-54, DOL Technical Release 2013-03. On Jan. 24, 2013, DOL and HHS issued FAQs that address the application of the Affordable Care Act to HRAs. On Nov. 6, 2014, DOL issued additional FAQs that address the application of the Affordable Care Act to HRAs and other payment arrangements."

There are a number of questions related to the ACA you may have, whether you employ 3 or 300 or 30,000 workers.  Answers depend upon a number of factors and can have a number of financial consequences.  Contact us at McRuer CPAs for a session with one of our tax experts to help you have confidence the decisions you make will be the best for the bottom line of your business.


Last Minute Tax Act Passes New Details - Act Now!

McRuer CPAs closely monitors federal and state tax laws affecting our clients and friends using the CPA industry’s best research materials and services.

We recently learned from our Bloomberg/Bureau of National Affairs Tax Management Staff (Bloomberg/BNA) that President Obama had signed into law the Tax Increase Prevention Act of 2014.  We have monitored the slow progress of this Act since the summer.  The final version has a number of provisions that could affect your tax return.  We have put together a shortened summary with the information that we believe will specifically affect our individual and business tax clients highlighted in yellow.  Click on the link below to download the printable document for more information.

Please note that most of these provisions are only effective for ten days – through December 31, 2014.  Click here to: Download McRuer CPAs Tax Act Information December 2014

The summary uses part of the Bloomberg/BNA’s review of the Act.  Those topics of particular interest include:

  • Internal Revenue Code 179 expense elections restored to $500,000 with certain limitations
  • Bonus depreciation restored
  • Research and development credit restored
  • Deduction for educational expenditures extended
  • Tax-free retirement plan distributions for charitable donations extended

There is also a new provision increasing late payment and underpayment penalties to be indexed with inflation.

If you have questions about the opportunities this Act may provide you, please contact us at: 816.741.7882 or www.kccpa.com/contact_us.html.



2015 Tax Brackets Now Available

Federal tax return with penEstimated taxable income brackets and rates are now available for the 2015 tax year.  Each year, the IRS adjusts more than 40 tax provisions for inflation to prevent “bracket creep”.  Bracket creep is what happens when inflation causes taxpayers to be pushed into a higher income tax bracket or have a reduced value from credits or deductions even though they may have had no actual real income increase.

The IRS adjusts income thresholds, deduction amounts and credit values using the Consumer Price Index (CPI) to calculate the past year’s inflation. Yet, in a bit more complicated approach, each tax provision is also adjusted from a specified base year.

In 2015, the standard deduction will increase by $100 to $6,300 for single taxpayers and $200 to $12,600 for married couples filing jointly. The personal exemption for 2015 will be $4,000.

Also in 2015, the highest marginal income tax rate of 39.6% will be levied on single taxpayers whose adjusted gross income is $413,000 and higher and $464,850 and higher for married taxpayers.  The remaining federal income tax rates are:

  • $0-$9,225 single/$0-$18,450 married – 10%
  • $9,225-$37,450 single/$18,450-$74,900 married- 15%
  • $37,450-$90,750 single/$74,900-$151,200 married- 25%
  • $90,750-$189,300 single/$151,200-$230,450 married- 28%
  • $189,300-$411,500 single/$230,450 to $411,500 married- 33%
  • $411,500-$413,200 single/$411,500-$464,850 married- 35%

For more information on 2015 federal income tax rates, click here to see the Tax Policy Center’s Tax Facts chart.

Individual state and local income taxes are also complex and vary from state to state.  Their 2015 rates are harder to find and calculate.  To read more about 2014 state income tax rates, click here to see the latest review by a professional tax information organization.


Wireless Device Service Fees & Taxes Out of Sight

Uncle-Sam-iPhone-TaxWireless communication services may be invisible, but the hefty tax bill attached to them can make a major household budget dent that’s hard to ignore.  A new report shows wireless telephone service fees and taxes are now at an all-time high.  In fact, with an average tax rate of 17.05%, the taxes you pay to use your wireless phone are now more than double most general state and local
sales taxes.

The Tax Foundation has released an extensive study comparing wireless device use tax rates to general sales taxes for each state as Congress is preparing to debate whether to levy new taxes on wireless Internet services.

Of the average 17.05% rate, 5.82% is a federal tax and the rest is made up of a combination of state and local taxes and fees.

The report shows consumers in seven states pay wireless taxes and fees that exceed 20% of their bills.  Those seven states include:

Washington – 18.6% + 5.82% federal tax

Nebraska – 18.48% + 5.82% federal tax

New York – 17.74% + 5.82% federal tax

Florida – 16.55% + 5.82% federal tax

Illinois – 15.81% + 5.82% federal tax

Rhode Island – 14.58% + 5.82% federal tax

Missouri – 14.58% + 5.82% federal tax

The state of Kansas is ranked 11th on the list with state and local wireless taxes and fees amounting to 12.87%.  Iowa is included with states that charge lower wireless taxes ranking 31st at 8.61%.  The states with the lowest state and local rates include Oregon (1.76%), Nevada (1.86%), Idaho (2.62%), Montana (6%) and West Virginia (6.15%).

The national average for general sales and use tax is 7.51%. So the report’s findings confirm taxes and fees on wireless telephone services are more than twice the average sales tax rates for most other taxable goods and services. In fact, if you happen to live in the cities of Chicago, Baltimore, Omaha or New York City, your effective tax rate for wireless services are in excess of 25% of the total bill.

The Tax Foundation’s summary calls the taxes and fees “excessive” and points out that “cell phones are increasingly the sole means of communication and connectivity for many Americans, particularly those struggling to overcome poverty.”  A government survey confirms that more than 56% of low income adults rely only on wireless communications and nearly 40% of all adults use only wireless telephone services.

The report is adding fuel to the heated debate about taxing access to the Internet and charging extra fees for high-speed Internet delivery services.  Currently, the Internet is considered an “information service” and access to it is not taxed.  The Federal Communications Commission has been in hot water since last April when a series of public hearings were launched on its plan to reclassify the Internet as “telecommunication services”.  The reclassification would make it easier to not only regulate, but also tax.

Reclassification has been a political hot potato.  Many Democrats argue it would help preserve the Internet as a communications tool for all Americans by guaranteeing unrestricted access while Republicans argue regulations would lead to taxation and eventual access restrictions because of higher costs.

Some Internet providers have requested Internet reclassification to support their efforts to charge website owners higher rates for faster consumer access.  Opponents argue that would allow only larger, richer companies to have more accessible ‘fast lane’ websites giving them an unfair advantage over competitors in the access ‘slow lane’.

Currently, a federal moratorium is in effect on state and local internet access taxes.  The news about the high wireless taxes on communications devices could put pressure on Congress to not only keep the moratorium in place, but also regulate the amount of state and local taxes that can be charged on all wireless services.


April 15th Tax Deadline and Filing an Extension

April 15 tax deadline calendar date pageThe April 15th tax deadline to file your 2013 federal and state individual income tax returns is here. The IRS reports as of April 9th it had already received 100 million federal income tax returns and expects another 35 million before the filing deadline.

If you need more time to file your tax return, you may request an extension through Form 4868.  You’ll need to complete and file this form no later than April 15th to avoid a late-filing penalty.  

You will also need to calculate the estimated taxes that you owe and pay those taxes no later than the 15th to avoid additional penalties and interest charges.  The interest charges are currently 3% per year, compounded daily, and the late-payment penalty is typically 0.5% per month.

For more information here is the recent IRS release:

WASHINGTON — The IRS has received almost 100 million tax returns so far this year and expects to receive about 35 million more by the April 15 filing deadline. However, about 12 million taxpayers will have requested extensions by the filing deadline, giving them an extra 6 months to file.

The fastest and easiest way to get the extra time is through the Free File link on IRS.gov. In a matter of minutes, anyone, regardless of income, can use this free service to electronically request an automatic tax-filing extension on Form 4868.

Filing this form gives taxpayers until Oct. 15 to file a return. To get the extension, taxpayers must estimate their tax liability on this form and should also pay any amount due.

By properly filing this form, a taxpayer will avoid the late-filing penalty, normally five percent per month based on the unpaid balance, that applies to returns filed after the deadline. In addition, any payment made with an extension request will reduce or eliminate interest and late-payment penalties that apply to payments made after April 15.

Besides Free File, taxpayers can choose to request an extension through a paid tax preparer, using tax-preparation software or by filing a paper Form 4868, available on IRS.gov. Of the more than 12 million extension forms received by the IRS last year, over 7 million were filed electronically.


Actual Taxes for Virtual Money

Virtual currency is the latest product of the global internet-connected marketplace we live and work in today.  The most popular form of virtual currency is called Bitcoin. Now the IRS has issued new guidance ensuring the same old tax rules apply to this new kind of money.

Bitcoins are under scrutiny for a variety of reasons.  First, let’s look at what virtual money is and how it works.  Bitcoin is a payment network where a user can anonymously use their country’s currency to quickly purchase any amount of bitcoins on an exchange.  The digital bitcoins may then be used to buy any kind of product or service that accepts virtual money payments.

Bitcoin_bigToday, everything from webhosting services, to pizza and even manicures can be purchased with bitcoins. Bitcoins make international payments easy and cheap because this kind of currency has not yet been subject to any country’s regulations nor is it controlled by a Central Bank.

Think about how you and your family may attend a local fair.  In order to ‘purchase’ a seat on the latest spinning carnival ride, you must use your cash to purchase a ticket at a booth.  Then you give the ticket to the ride’s operator in order to take your seat.  Some rides cost more tickets than others and price adjustments can be made seamlessly and quickly.  Virtual money operates in the same way. 

When you exchange your currency for bitcoin, you have proof of the bitcoin value in what is called a “digital wallet” which you can choose to set up on your own computer, mobile device or in the cloud. You may now use the virtual account to send or accept bitcoins for selling or buying products and services.  The wallet ID is all a buyer or seller sees, so the purchase is virtually anonymous.

More merchants nationwide are beginning to accept these kinds of virtual currency payments, because they avoid paying the 2% to 3% credit card transaction fees or other transaction costs charged by their ‘middle man’ bank.  The bitcoins received can be exchanged right away for deposit as the business’ currency of choice.  This kind of payment is rapidly growing in popularity for companies who provide technical and online services to a worldwide client base.

Bitcoins are becoming so popular that even money market investors are buying and selling the bitcoins as a commodity.  In fact, speculators are now fueling price volatility because they are buying and selling bitcoins at a far greater rate than the rate of general commercial use.

That leads us to the downside.  Because of the anonymous nature of purchases, bitcoins have become the currency of choice for the online purchase of illegal drugs, illicit activities and paying for legitimate services with the provider expecting to be able to avoid taxes.  There is also a warning about investing in currencies like this that have no Central Bank authority to guarantee or insure values.  

Now, as bitcoins are making a noticable impact in the marketplace, the IRS is issuing new warnings to end any questions about the taxability of bitcoins and virtual money payments.  In a new IRS guidance, the agency makes it clear that, for U.S. federal tax purposes that the same general tax principles that apply to property transactions also apply to transactions using virtual currency.

The Journal of Accountancy explains that “in computing gross income, a taxpayer who receives virtual currency as payment for goods or services must include the fair market value (FMV) of the virtual currency (measured in U.S. dollars) as of the date the virtual currency was received.”

There are also several tax rules affecting virtual currency transactions and income.  For example, some people participate in what’s called “mining” to earn bitcoins.  It is a type of reward system for solving complex math problems.  This kind of bitcoin income is reportable.

Some global service providers and contractors are accepting bitcoins for payments to employees or themselves.  Wages paid to employees are taxable to the employee and independent contractors also face the same self-employment tax rules with payers required to issue Form 1099.

Experts say some form of virtual money is here to stay as our internet-connected world provides global accessibility 24 hours a day.  Your decision about how and when you choose to use virtual money should be carefully considered, especially if you are considering whether to accept bitcoins as payment for goods or services.  For more information on how this issue may affect you or your business, please contact us at McRuer CPAs for a review of your goals and the possible tax consequences.


Overtime Rules Set for a Change

If overtime rules apply to more workers, will that put jobs in jeopardy or create new jobs?  Will it cause an increase or decrease in wages?  These questions are at the heart of debate over last week’s executive order from President Obama directing the Labor Department to revise federal overtime pay rules.

Current federal regulations allow salaried workers who are categorized as “professional, administrative, executive or outside sales” to be denied overtime under what’s commonly referred to as the “white-collar exemption”.   Also, employers are only officially required to pay time-and-a-half overtime pay to workers who make less than $455 per week. Overtime with windup clock

The President says his order is a response to a “crisis of economic inequality” evidenced in recent years by soaring corporate profits, but worker wage decline to all-time lows.  The President’s order seeks a raise in the minimum weekly exemption salary level to $1,000 per week and a revision of the description of the kind of work that allows an employer to exempt workers from overtime pay.

For example, a report from the Economic Policy Institute explains under current rules an employer may declare a worker’s responsibility is ‘executive’ in nature because that worker supervisors other employees.  Even if a worker spends a majority of time performing tasks, if that worker manages even one other employee or vendor, that worker could be exempted from receiving overtime pay.

Reports predict changing the overtime exemption rules could affect five million workers.  Employees have been putting in longer workweeks in recent years and it’s now estimated it adds up to an average of 30 overtime hours a month or 360 extra hours per year.  That can be a major source of extra income if the worker is not exempted from overtime pay.

The rules changes also address workers with supervisory ‘management’ jobs, such as fast-food managers, who work long hours doing tasks and also manage a team of workers, but receive a salary.

Small business associations have already been lobbying hard against a push to increase the minimum wage.  Now the overtime order is causing additional concern.  They fear overtime changes would mostly harm small businesses by increasing the cost of doing business, while having little effect on major corporations and their highly paid executives, boards and shareholders which are supposed to be the target of political pressure.

They also point out that the Bureau of Labor Statistics shows that only 4.7% of hourly workers receive minimum wage and more than 20% of that number were 16 to 19 years of age.  They say that shows that the issue that affects generally the least experienced part-time worker has been blown out of proportion.

Opponents claim overtime changes would result in fewer jobs, because small businesses would no longer achieve profitable production levels and would be forced to close their doors.  They also fear businesses would simply cut back worker hours, causing an overall decrease in income.  

Proponents say qualifying more workers for overtime would lead businesses to hire more workers to cover daily production to escape overtime costs.  They also claim businesses would hire more workers at higher wages to avoid the higher overtime hourly pay threshold.

In Missouri, the minimum wage is $7.50 per hour and overtime is mandated at a minimum 1.5 times that rate to $11.25 per hour.  In Kansas, the minimum wage is $7.25 per hour and overtime is set at $10.88 an hour.  Neither Missouri nor Kansas has a daily overtime limit.

Already, the President has issued an executive order requiring an increase in the minimum wage paid to federal workers be raised to $10.10 and requesting companies that do business with the federal government raise their minimum wage.

The Labor Department must go through a public comments process on the new overtime regulations.  Typically, that process takes at least six months to complete depending upon how controversial the requested change may be.

For more information on how the regulation changes may affect you or your business, contact us a McRuer CPAs.


W-2 and 1099 Tax Deadline Dates to Watch in New Year


Here are important deadlines for employers and businesses to highlight on their calendars: Deadline clock


January 31, 2014

  • deadline to mail employee W-2 copies
  • deadline to mail recipient copies for Form 1099
  • deadline for trustees and custodians to issue Form 1099-R

February 18, 2014

  • deadline to mail Form 1099-MISC (if reporting payments in boxes 8 or 14)
  • deadline for employees to file W-4 to claim exemptions
  • deadline for financial institutions to mail out Form 1099-B (stocks, bonds, mutual funds sales)
  • deadline for financial institutions to mail out Form 1099-S (real estate transactions)

February 28, 2014

  • deadline to mail Copy A to federal agency on paper (W-2 to SSA, 1099 and 1096 to IRS) OR  March 31, 2014 if filing electronically

March 17, 2014

  • deadline to file 2013 corporate tax returns or extensions

April 15, 2014

  • deadline to file individual income tax return or extension

May 1, 2014

  • deadline for non-profit organizations to file information returns

For more information on tax deadlines for businesses and individuals, you can download the annual IRS calendar.  


W-2 Surprise on Health Care Costs

Doctor figure with patient formThe new 2013 W-2 disclosure requirement of the 2010 health care reform law may surprise some employees.

Employers must now report the amount they pay on their employees’ behalf for health care benefits and the portion, if any, paid by the employee on W-2s. 

This applies if the employer distributes 250 or more W-2s.  Soon, employers with fewer employees may also be disclosing these amounts.

Health benefits are not considered taxable income….yet.  Detailing the costs is a response to the debate about whether such benefits should be taxed.

The Kaiser Family Foundation reports the average annual premium for employer-sponsored health insurance is $5,615 for single coverage and $15,745 for family coverage.  Efforts are underway to attempt to tax part or all of these benefits.

Other statistics from Washington reveal that over the last 5 years, the costs of employer-sponsored health insurance has increased 25% for individual coverage and 30% for family coverage as some employers have offered increases in benefits versus increases in hourly wages.


Tax Calendar Squeeze

Calendar with magnifying glassThis tax season, the IRS is delaying until late February or early March issuing a number of forms that affect more complex returns, like those used to claim general business credits, depreciation of property and residential energy credits.

Also, the IRS won’t begin accepting individual tax returns for 1040 filers until January 30th, instead of the originally scheduled date of January 22nd.

All this means refund checks could be delayed about a week and the filing window shrinks from 12 weeks down to 11 weeks.  The filing deadline remains April 15th, which falls on a Monday this tax season.

Click here for more information on forms and dates that may affect you.

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