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2014 Regulatory Changes …

November 11th, 2013 No comments

2014 REGULATORY CHANGES …

Social Security

The 2014 social security wage base is $117,000 (up from $113,700 IN 2013)

Deferred Compensation

401(k), 403(b), Profit sharing plans, etc.
$ 17,500 Elective Deferral (no change)
$ 5,500 Catch-up Deferral (no change) $260,000 Annual Compensation $ 52,000 Annual Contribution Limit

SIMPLE Plans:

$12,000 Employee Deferrals (no change)
$ 2,500 Catch-up Deferrals (no change)

Health Savings Account Limits

Maximum HSA Contributions:

$3,300 Individual $ 6,550 Family
$1,000 Catch-up Limit

Minimum HDHP Deductible:
$1,250 Individual $ 2,500 Family
Out-of-Pocket Maximum:
$6,350 Individual $12,700 Family

Other Limits – Flexible Spending Accounts
$2,500 Medical Account
$ 5,000 Dependent Account

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Common errors on Forms W-2

November 11th, 2013 No comments

Forms W-2 provide information to your employees, the SSA, the IRS, and state and local governments. Avoid making the following errors, which cause processing delays.

Do not:

1. Omit the decimal point and cents from entries.

2. Use ink that is too light to make entries. Use only black ink.

3. Make entries that are too small or too large. Use 12-point Courier font (which our software uses).

4. Add dollar signs to the money-amount boxes. They have been removed from Copy A and are not required.

5. Inappropriately check the “Retirement plan” checkbox in box 13.

6. Misformat the employee’s name in box e. Enter the employee’s first name and middle initial in the first box. his or her surname in the second box, and his or her suffix (optional) in the third box.

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Do I have to complete IRS Form W-9?

November 10th, 2013 2 comments

This is a common question.  You provided services to someone.  It may have been a small project like mowing the lawn, baby sitting and so on.  It may been been a one time project that you performed for a local business such as computer work or moving boxes. You send the employer an invoice and they send you IRS Form W-9 and ask you to fill that out before you get paid.  Do you have to complete out Form W-9 in order to get paid?

IRS Form W-9 is titled “Request for Taxpayer Identification Number and Certification”.  Its a one page form that asks for the name of the individual or business, appropriate federal tax classification #whether individual/sole proprietor, C or S corporation, partnership, trust/estate, limited liability company or other#, address, account number and TIN (social security number for an individual or employer identification number for a business).  The form also asks for the signature of the U.S. person and date.

An employer will request Form W-9 from independent contractors so they can report the payments to the IRS at the end of the year.  Generally, IRS Form 1099-MISC is completed by the employer and submitted to the IRS and State tax agencies only if the amount of payments made to that contractor exceeds $600 for services on an annual basis.  It is common to request the W-9 in advance just in case an independent contractor breaks that minimum threshold in the future.

An independent contractor will know if the employer reported anything to the IRS if they receive a copy of Form 1099-MISC by the end of January.  Regardless of the amount of money the employer pays an independent contractor, it is the employer’s responsibility to acquire and have on file a completed and signed Form W-9 from every independent contractor.

Employers use Form W-9 to collect the TIN of any U.S. person they plan to engage in a business activity with.  Form W-8 is used for foreign entities or individuals and Form W-7 is for individuals who become U.S. residents for tax purposes but who are not eligible for a social security number.

If an employee does not complete Form W-9 and return it to the employer, the employer may be required to do backup withholding which means that 28 percent of your check will be forwarded to the IRS. An employer must apply backup withholding if the employee fails to provide a TIN or provides a TIN that is incorrect.  The IRS has established a TIN matching program that enables Form W-9 requestors to verify TINs with the IRS for information returns 1099-B, DIV, INT, K, MISC, OID and PATR.

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How SSA W-2 Forms Work

November 10th, 2013 No comments

W-2 forms are a type of information return that documents wage earnings. Wage earnings are earnings paid by employers to workers who are considered employees by the Internal Revenue Service. These earnings are separate from non-wage earnings that are paid to contractors or freelancers.  Non-wage earnings are reported with 1099 forms.

W-2 forms are first sent by employers to the Social Security Administration, where they are processed and sent to the IRS.  W-2 forms are also sent to employees for their own tax information and returns. An employee will receive one W-2 form for each company that he or she worked for during the year. There is usually more than one copy provided so that the employee can keep the information for record keeping purposes and also submit copies to the federal and state revenue services.  Employers are required to submit W-2 forms to employees by February 2nd and to the SSA by March 2nd.

Employers are required to know how to fill out W-2 forms for each employee. The W-2 form has 20 boxes that record income related information and it also includes identifying information on the employee and employer. Here are the first 10 boxes with a short explanation of the information included in each one.

  1. Wages, tips, and compensation – the total payment that the employee received during the year minus pre-tax contributions.
  2. Federal income tax withheld – any income taxes withheld from the employee’s earnings.
  3. Social security wages – the full amount of the employee’s income that is taxed for social security.
  4. Social security tax withheld – the amount of social security tax withheld from the employee’s earnings.
  5. Medicare wages and tips – the full amount of the employee’s wages and tips that are taxed for Medicare.
  6. Medicare tax withheld – the amount of Medicare tax withheld from the employee’s earnings.
  7. Social security tips – any tips that the employee earned.
  8. Allocated tips – tips that are allocated to an employee based on IRS rules for tip reporting.
  9. Advanced EIC (earned income credit) payment – the amount of payment advances given to the employee.
  10. Dependent care benefits – the amount deducted from wages for dependent related care such as day care.

W-2 forms have 10 more boxes that cover other types of income documentation.  W-2 form preparation can be quite time consuming by hand. It is much easier and faster to prepare W-2 forms by using information return software.

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IRS Forms W-2 and 1042-S and International Students

November 10th, 2013 1 comment

International students are non US resident aliens.  Typically they receive some type of income whether it be a stipend, scholarship or fellowship to come to the United States and student.  Consequently, they may receive IRS Form 1042-S and/or Form W-2 depending upon their income type.

SSA Form W-2:

The W-2 form is known as a Wage and Tax Statement and while the form itself is created by the Internal Revenue Service (IRS) the Social Security Administration (SSA) handles the paper and electronic filing. If you are employed in the United States, for any period of time, the employer must report your earnings to both you and the Internal Revenue Service (IRS).

By law, Copy B of the W-2s must be mailed to the recipient no later than January 31.  If you haven’t received a W-2 by mid February, then you would want to contact your employer because its possible they dont have your correct address on file.  The recipient, in this case, the foreign student, will be required to include a copy of each W-2 from with your federal and state income tax forms.

The IRS computer system will match the income paid with what they have received from the employer.

Different kinds of taxes are withheld by employers. The W-2 form has boxes for reporting withholding of Federal Income Tax (Box 2), Social Security (Box 4), Medicare Tax (box 6), State Income Tax (box 18) and local income tax (box 21). Some individuals who received form W-2 will find that all of these boxes have amounts in them, others will find only some or none of the boxes showing tax withheld.

Form 1042-S

Form 1042-S is used to report income paid to a non-resident regardless of whether the payment is taxable. The form has a number of purposes, but mainly used to report scholarship or fellowship income.

It can be used to report wages exempt under a tax treaty, wages earned as an independent contractor, royalties, and scholarship or fellowship grants.

By law, 1042-S forms must be issued by March 15. Many international students receive both form 1042-S and form W-2; some students will receive only form W-2.

The Universities are required to mention only Taxable portions of their scholarships in the Form 1042-S .

Example:

Say, a university paid $26,000 as scholarship split as

Tuition and Fees: $15,000

Educational Tools: $5,000

Room and Boarding: $6,000

1042-S contains only $6000, which are considered non educational expenses, and this amount will be taxed. Usually for students the taxes on non educational expenses is 14% and for other Non Resident Aliens its 30%

Hope you found the information helpful!

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Penalties for filing information returns late, furnishing incorrect payee copies and failing to file

November 10th, 2013 No comments

The Small Business Jobs Act of 2010 increased penalties for filing 1099 information returns late, furnishing incorrect payee copies and failing to file.

The penalty for each information return filed January 1, 2011 or later are:

Filing late…

  • $30 per information return if the payer correctly files within 30 days.  The maximum penalty is $250,000 per year (an outrageous sum!).  For small businesses, the maximum penalty is $75,000 per year.
  • $60 per information return if the payer correctly files more than 30 days after the due date but by August 1.  The maximum penalty is $500,000 per year (again, an outrageous sum!).  For small businesses, the maximum penalty is $200,000 per year.
  • $100 per return if the payer correctly files after August 1. The maximum penalty is $1,500,000 per year and $500,000 per year for small businesses.

Failure to Furnish Correct Payee Copies…

Copy B is sent to the payee.  Here, the maximum penalty for failure to furnish a correct payee statement is $1,500,000 per year and $500,000 per year for small businesses.  The penalties may be reduced if:

  • Reduced $30 per return if the incorrect Copy B is corrected within 30 days after the due date.
  • Reduce to $60 per return if the incorrect Copy B is corrected on or before August 1.

Failure to File…

Failing to file machine readable paper forms or intentional disregard of the 1099 filing requirement is $250 per return for all filers. There is no maximum amount for this penalty.

These penalty amounts will be adjusted annually for inflation.

Needless to say, the failure to file yields the highest penalty.

We with work with alot of companies each year.  The deadline for efiling is April 1 but you can apply for and will be automatically granted a 30-day time extension taking the due date to May 1 (or 2).  Even in May and June, we are still efiling on behalf of businesses.  Even if your late, take the time to prepare quality data and file. All of these penalties use the word “may”.  You may be subject to this penalty.  We have worked with many businesses who have filed extremely late the past few years but have not received a penalty.  Maybe a penalty will eventually come but its possible enough time will pass and the IRS will not take any action.

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8955-SSA Software for Filing New IRS Form 8955-SSA

November 8th, 2013 No comments

Businesses oftentimes have a pension or an arrangement to provide retired employees with regular income when they are no longer working.  Pension benefit plans must generally file Form 5500, Annual Return/Report of Employee Benefit Plan, to report their financial condition, investments and operations. The IRS has announced that Form 5500, Schedule SSA has been replaced by Form 8955-SSA, Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits. Plan administrators must file this new form with the IRS and not through the EFAST2 filing system. 8955-SSA software at the site 1099fire.com makes it easy to file IRS Tax Form 8955-SSA by paper or electronically.  Service bureau and mail house solutions are also available.

Paper Filing, Electronic filing, Service Bureau…

Form 8955-SSA can be filed by paper or electronically to the IRS. “Our 8955-SSA software makes it easy to import participant information from Excel, print and electronically file IRS Form 8955-SSA quickly and easily”, said Erich J. Ruth, Technical Support for 1099FIRE.  A sample Excel template can be found on the website 1099fire.com which will import into the 8955-SSA software or technical support can guide you through the process of importing by phone or email.

If you file by paper, the plan sponsor and plan administrator must sign and date the form.  You then mail the signed form to the IRS.  Electronically filing does not require a signature at this time.

Electronic reporting of information returns eliminates the need to submit paper documents to the IRS.  Electronically filed information may be submitted to the IRS 24 hours a day, 7 days a week.  “Electronic filing of Form 8955-SSA is easy to do”, said  Ruth and  “The system is updated each year to reflect the format changes that are made by the IRS”. 1099FIRE software creates original, replacement, corrected and test files in the format required by the IRS for electronic transmission.

Filing information returns can be stressful. 1099FIRE can eliminate the stress of filing information returns by electronically filing in a timely manner and at an affordable price. 1099FIRE will beat any competitor price; attain a quote for any service from any competitor and 1099FIRE will provide same, if not more complete, service at a lower price.

Visit the 1099FIRE website at www.1099fire.com to stay up-to-date with important news, tax deadlines and the latest in compliance information.

Due Date…

The 2009 and 2010 filing of Form 8955-SSA was originally due August 1, 2011. The new due date for filing both the 2009 and 2010 Form 8955-SSA is the later of:

(i) the due date that would otherwise apply to the 2010 Form 8955-SSA; or

(ii) January 17, 2012.

A form 8955-SSA filing is due the last day of the seventh month following the last day of the plan year.

About 1099FIRE…

1099FIRE is dedicated to providing feature-rich 1042-S, 1097-BTC, 1098, 1099, 3921, 3922, 5498, 8027, 8955-SSA, W-2G and W-2 software.  Import, print and eFile 1099 forms the quick and easy way!

1099FIRE is a market-leading provider of information-reporting solutions and services for 1099, W-2 and 1042-S filers. 1099FIRE develops and markets a comprehensive range of products that enables any size business or institution to effectively comply with all 1099, W-2 and 1042-S filing requirements.

Have 1099FIRE Service Bureau handle all of your printing/mailing and IRS filing needs – it’s secure, affordable and stress free!

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About IRS forms 5498, 5498-ESA and 5498-SA

November 8th, 2013 No comments

IRS Form 5498 reports IRA contributions.  For those who participate in an individual retirement account, the account’s trustee or issuer must report your contributions to the IRS on an annual basis.  You will receive a 5498 for each Traditional IRA or Roth IRA in which you made contributions. Form 5498 is not required by the IRA account holder to be used for his or her tax returns.

Some of the types of contributions that would be shown include: IRA contributions and year end Fair Market Values made to a traditional IRA, Roth IRA, SEP-IRA, or SIMPLE IRA account, any type of conversions made to these accounts, contributions that have been recharacterized from one IRA type to another, and more.

IRA account holders who made contributions to an IRA, performed a 60-day rollover of funds from one plan to another, converted to a Roth IRA, or did a recharacterization should receive a 5498 form.

IRS Form 5498-ESA reports Coverdell Education Savings Account (ESA) Contributions.

IRS Form 5498-SA reports contributions made to an Archer Medical Savings Account(s).

Unlike the 1099’s which are due in the beginning of the year, 5498 Forms are due in the summer.  Copy B of Form 5498 and Form 5498-SA should be mailed by the end of May.  Form 5498-ESA needs to be distributed to the beneficiary by late April.  All of the 5498 forms need to be paper or electronically filed with the IRS by the end May.

You can request an automatic 30-day time extension online through the IRS FIRE System.

5498 software at the site 1099fire.com software creates files in the format required by the IRS for electronic transmission. The system is updated each year to reflect the format changes that are made by the IRS.

Filing Information Returns electronically is very cost-effective, is easier than filing on paper, and is more accurate. Filing status is available within 2 business days for Forms 1098, 1099, 5498 and W2-G and electronic filers receive a later due date for most returns.

When you file electronically, you are exempt from using pre-printed forms.  You can just print the return in regular paper or email a PDF file to all recipients.

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1099 Tax Forms

November 8th, 2013 No comments

The 1099 IRS forms or information returns are used to report a wide variety of income to the IRS.  Each 1099 IRS form is followed by a few letters to describe the type of information that is being handled:

  • Form 1099-A reports acquistion or abandonment of secured property.
  • Form 1099-B reports the sale of stocks, bonds, mutual funds and other securities.
  • Form 1099-C reports the cancellation of debt.
  • Form 1099-CAP reports change in corporate control and capital structure.
  • Form 1099-DIV reports dividends, qualified dividends, and capital gains distributions.
  • Form 1099-G reports payments from state governments such as unemployment compensation and state tax refunds.
  • Form 1099-INT reports interest income earned.
  • Form 1099-K reports merchant card and third-party payments.
  • Form 1099-LTC reports long term care and accelerated death benefits.
  • Form 1099-MISC reports various types of miscellaneous income including rents, royalties, and non-employee compensation.
  • Form 1099-OID reports original issue discount income.
  • Form 1099-PATR reports patronage dividends paid by a cooperative.
  • Form 1099-Q reports payment from qualified education programs (under sections 529 and 530).
  • Form 1099-R reports distributions from a retirement plan such as an IRA, 401(k) or pension.
  • Form 1099-S reports proceeds from the sale of real estate.
  • Form 1099-SA reports distributions from an hsa, archer msa or medicare advantage msa.

The 1098 series consists of:

  • Form 1098 reports mortgage interest.
  • Form 1098-C reports contributions of motor vehicles, boats and airplanes.
  • Form 1098-E reports student loan interest.
  • Form 1098-T reports tuition.

The 5498 series consists of:

  • Form 5498 reports IRA contributions.
  • Form 5498-ESA reports Coverdell ESA contribution information.
  • Form 5498-SA reports HSA, Archer MSA or Medicare Advantage MSA information.

Other information returns are:

  • Form 1042-S reports foreign person’s us source income subject to withholding.
  • Form 1097-BTC reports bond tax credit.
  • Form 8027 reports employer’s annual information return of tip income and allocated tips.
  • Form 8955-SSA is an annual registration statement identifying separated participants with deferred vested benefits.
  • Form W-2G reports certain gambling winnings.
  • Form W-2 and W-3 reports wages to Social Security.

The list keeps growing.  IRS Form 1099-K is a new form that started in 2012. In 2011, the IRS created IRS Form 3921 and 3922 which reports which employees receive stock upon exercise options.

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Form W-2: Box 12 code

November 8th, 2013 No comments

Box 12 of Form W-2 shows a code followed by a value.  The code indicates the type of payment. This is a listing of the codes for that box.

A: Uncollected social security or RRTA tax on tips. Include this tax on Form 1040.

B: Uncollected Medicare tax on tips.  Include this tax on Form 1040.

C: Taxable cost of group-term life insurance over $50,000 (included in boxes 1, 3 (up to social security wage base) and 5)

D: Elective deferrals to a section 401(k) cash or deferred arrangement .

E: Elective deferrals under a section 403(b) salary reduction arrangement

F: Elective deferrals and employer contributions (including nonelective deferrals) to a section 408(k)(6) salary reduction SEP

G: Elective deferrals and employer contributions to a section 457(b) deferred compensation plan

H: Elective deferrals under a section 501(c)(18)(D) tax exempt organization plan

J: Nontaxable sick pay

K: 20% excise tax on excess golden parachute payments

L: Substantiated employee business expense reimbursements

M: Uncollected social security or RRTA tax on taxable cost of group-term life insurance over $50,000

N: Uncollected Medicare tax on taxable cost of group-term life insurance over $50,000

P: Excludable moving expense reimbursements paid directly to employee

Q: Nontaxable combat pay

R: Employer contributions to an Archer MSA

S: Employee salary reduction contributions under a section 408(p) SIMPLE

T: Adoption benefits

V: Income from the exercise of nonstatutory stock options

W: Employer contributions to an employee’s Health Savings Account

Y: Deferrals under a section 409A nonqualified deferred compensation plan

Z: Income under a section 409A on a nonqualified deferred compensation plan

AA: Designated Roth contributions to a section 401(k) plan

BB: Designated Roth contributions to a section 403(b) salary reduction agreement

DD: Cost of employer-sponsored health coverage

EE: Designated Roth contributions under a governmental section 457(b) plan.

Forms W-2 provide information to your employees, social security, the IRS, and state and local governments.

Employers must file Form W-2 for wages paid to each employee from whom:

  • Income, social security, or Medicare tax was withheld or
  • Income tax would have been withheld if the employee had claimed no more than one withholding allowance or had not claimed exemption from withholding on Form W-4, Employee’s Withholding Allowance Certificate.

Also, every employer engaged in a trade or business who pays remuneration for services performed by an employee, including non-cash payments, must file a Form W-2 for each employee even if the employee is related to the employer.

Form W-2C is filed to correct a previous Form W-2 submission. File a Form W-3C whenever you file a Form W-2C with Social Security, even if you are only filing Form W-2C to correct an employee’s name or Social Security number (SSN).

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