December 2008 Updates

IRS Planning Comprehensive Approach To Withholding Tax Compliance, Ng Says
Internal Revenue Service Large and Mid-Size Business Division Commissioner Frank Ng Dec. 9 offered further specifics about the agency's designation of withholding as a Tier I audit issue, saying IRS plans a comprehensive approach that pays attention to a broad range of transactions.

“We will cast a larger, broader net around this issue, but also will look at specifics,” Ng said at the 21st Annual Institute on Current Issues in International Taxation. Commissioner of Internal Revenue Douglas Shulman announced that withholding would be added to the list of Tier I issues at the same conference Dec. 8.

During a question-and-answer panel where Ng also answered more general questions about the tier program, Ng said IRS plans to take a look at withholding issues ranging from nonfilers to more complex, controversial areas such as total return swaps and taxpayers who claim improper treaty tax rates.

Information on Web Site
He noted that IRS would soon post to its Web site comprehensive information on withholding related to its designation in the tier program.

In answer to general questions from the audience, Ng said although it is possible some audits may have been delayed as a result of issues being included in the tier program, cycle time for audits involving a Tier 1 issue is now slightly lower than comparable times.

He acknowledged that “for some of the newer issues, there's a more robust audit going on right now.”

He stressed that for Tier I issues, “the fact that the issue is raised does not suggest that there's going to be an adjustment. It will raise the scrutiny and the discussion of our auditors around that issue.”
 
Gohmert, Republicans Support Tax Holiday, Expansion of State and Local Tax Deductions
Rep. Louie Gohmert (R-Texas) Dec. 10 promoted legislation (H.R. 7309) he introduced that would pay for a tax holiday for the first two months of 2009 with the $350 billion in funds still available in the financial markets bailout law.

The remainder from the $700 billion Emergency Economic Stabilization Act of 2008 (Pub. L. No. 110-343) would be contributed toward a tax holiday from both personal income tax and Social Security payroll taxes during January and February 2009.

Gohmert said he was “blown away” by media reports that Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke are obligating $7.7 trillion dollars when the individual income tax collected for all of 2008 totaled $1.21 trillion.

Flanked by several Republican members of Congress at a news conference, Gohmert said his plan would provide a 162/3 percent tax cut for one year. He noted that revenues total $101 billion per month from individual income taxes and $65.6 billion per month from the Federal Insurance Contributions Act tax.

“If you put the two together for two months, you have $333.2 billion in withholding that can go back to the workers in lieu or instead of Paulson getting the money to spend,” Gohmert said. “We think you can spend your money better than he can. He's already shown what he can do with $350 billion, and it didn't do a whole lot.”

The legislation will not hurt Social Security because Paulson would have to make up the trust fund's losses from funds already allocated, he said.

October 2008 Updates

IRS Releases 2009 Pension Plan Limit Amounts
The limitation on the exclusion for elective deferrals described in Section 402(g)(3)—for 401(k)-type plans—and Section 457 increases from $15,500 to $16,500 for 2009. Many other pension plan limit amounts change for 2009, according to the Internal Revenue Service said in an information release (IR-2008-118).

The limitation for defined contribution plans under section 415(c)(1)(A) increases from $46,000 to $49,000 in 2009; the general definition of a highly-compensated employee increases to $110,000 for 2009, up from $105,000 in 2008; and the definition of a key employee in a "top-heavy plan" increases to $160,000 in 2009 (up from $150,000 in 2008). IRS also said that the limited compensation amount under Treasury Regulations and Internal Revenue Code Section 1.61-21(f)(5)(iii) will increase from $185,000 to $195,000, and the general annual compensation limit will increase from $230,000 to $245,000 in 2009.

The compensation amount under the regulations defining control employees for fringe benefit valuation purposes increases from $90,000 to $95,000 for 2009; the compensation amount regarding simplified employee pensions (SEPs) increases to $550 (from $500 in 2008). In addition, the annual SIMPLE retirement account limitation is $11,500 for 2009 (up from $10,500 in 2008).

The agency also announced that additional "catch-up" contribution allowed for individuals aged 50 and over participating in a qualified plan increases from $5,000 in 2008 to $5,500 in 2009.

The full text of IRS's announcement is in the IRS Newsroom at http://www.irs.gov/newsroom/article/0,,id=187833,00.html.

The aggregate monthly fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass is $120 for 2009; $230 for qualified parking, the Internal Revenue Service announced in Revenue Procedure 2008-66. Among other significant 2009 payroll-related amounts noted in the revenue procedure, the foreign earned income exclusion amount under Section 911 of the Internal Revenue Code will be $91,400, and the adoption credit limit for 2009 is $12,150.

The revenue procedure also includes individual tax rate calculations for 2009. The personal exemption amount rises in 2009 to $3,650.

For Medical Savings Account plan purposes, the term "high deductible health plan" means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,000 and not more than $3,000 in 2009, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits does not exceed $4,000. For family coverage, a "high deductible health plan" has an annual deductible that is not less than $4,000 and not more than $6,050, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits does not exceed $7,350.

IRS's announcement of the revenue procedure is in the IRS Newsroom at http://www.irs.gov/newsroom/article/0,,id=187825,00.html.

The Social Security (OASDI) wage base increases to $106,800 for 2009, the Social Security Administration announced today. Therefore, the maximum 2009 Old Age, Survivors, and Disability Insurance tax payable by each employee is $6,621.60 or 6.2 percent of the wage base. The employer matches that amount with an equal contribution.

SSA also announced that the cost-of-living adjustment for 2009, which mainly affects benefits, will be 5.8 percent for 2009—the largest increase since 1982.

The Medicare (HI) portion of the Federal Insurance Contributions Act (FICA) tax continues to apply to all taxable wages earned, and the rate remains at 1.45 percent.

For the Social Security fact sheet on this and other cost of living changes, go to SSA’s Web site at http://www.socialsecurity.gov/pressoffice/factsheets/colafacts2009.htm.

Social Security Wage Base Increases to $106,800 for 2009

Qualified Transportation Fringes, Other 2009 Tax-Free Limits Announced

September 2008 Updates

GSA Releases Updated Per Diems
For the fiscal year beginning Oct. 1, 2008, the standard per diem rate for business travel within the continental United States will remain $109 ($70 for lodging and $39 for meals and incidental expenses), although approximately 400 destinations qualify for higher per diems, the General Services Administration has announced. The entire listing of per diem rates is available online at http://www.gsa.gov/perdiem.

SSA Posts Specifications for W-2 Filing, Corrections
The Social Security Administration has posted to its Web site specifications for electronically filing and correcting Forms W-2 and W-2c. Publication No. 42-007 on submitting the annual W-2 copy A information to SSA and Publication No. 42-014 on correcting a submission are available at http://www.socialsecurity.gov/employer/pub.htm.

Effective Date Delayed on Transportation Debit Card
The Internal Revenue Service Sept. 3 said in Notice 2008-74 it is delaying until Jan. 1, 2010, the effective date of guidance on the use of smartcards, debit or credit cards, or other electronic media to provide qualified transportation fringe benefits under tax code Section 132.

The original guidance, Revenue Ruling 2006-57, was set to go into effect Jan. 1, 2008. In 2007, however, Treasury and IRS became aware that certain transit systems needed additional time to modify their technology and make it compatible with the requirements for vouchers set forth in the revenue ruling, IRS said Sept. 3.

In Notice 2007-76, IRS put off the effective date until Jan. 1, 2009, but the agency said Sept. 3 it has learned that some taxpayers still need more time.

"Certain transit systems continue to experience technology barriers to achieving compatibility with the requirements for vouchers," IRS said. "Therefore, the ruling's effective date is further delayed until January 1, 2010."

Grandfathering Allowed Under Notice
The agency said in the notice that employers and employees may continue to rely on Rev. Rul. 2006-57 with respect to transactions occurring prior to Jan. 1, 2010, if they wish to do so.

Under the original ruling in 2006, IRS set out four fact patterns to illustrate whether employer-provided transportation benefits provided through smartcards, debit or credit cards, or other electronic media are excluded from gross income under tax code Section 132, and from wages for employment tax purposes.

In three situations, the benefits provided by the employer are excluded from gross income and from wages for employment tax purposes, while in the fourth situation the benefits are not excluded from gross income and are wages for employment tax purposes, IRS said.

The ruling added that terminal-restricted debit cards are not in wide use at present and said the Treasury Department and IRS will issue guidance when the cards are more readily available.

Notice 2008-74 is scheduled for publication in Internal Revenue Bulletin 2008-38 Sept. 22.

July 2008 Updates

The IRS has announced several new tax rates, adjusted for inflation and effective for the 2008 tax year, in Revenue Procedure 2007-66.  The new rates are adjusted by the changes in the consumer price index and include:  the maximum adoption credit ($11,650 for 2008); the foreign earned income exclusion ($87,600 in 2008); the personal exemption amount ($3,500 in 2008); and the qualified parking allowance ($220 per month) and transit pass/commuter fee ($115 per month).

IRS Announced Standard Mileage Rates for 2008

The maximum amount that an employer may reimburse its employees for qualified automobile expenses increases, effective January 1, 2008.  The new rates are as follows:  50.5 cents-per-mile for business miles; 19 cents-per-mile for medical or moving purposes; and 14 cents-per-mile for driving in service of a charitable organization.

Social Security Wage Base Increases to $102,000 in 2008

The Social Security wage base increases from $97,500 to $102,000 in 2008.  Therefore, the maximum OASDI tax that an employee is liable for is $6,324, up from $6,045 in 2007.  Employers must continue to withhold HI (Medicare) taxes on an employee’s full salary.

New Minimum Wage Rate Effective July 24; Many State Rates Rise
The federal minimum wage increases to $6.55 per hour, effective July 24, the second step in its increase to $7.25 on July 24, 2009. Simultaneously, the maximum tip credit an employer is allowed to take against the minimum wage increases to $4.42 per hour, so the minimum cash wage employers can pay tipped employees remains $2.13 per hour.

Change Affects Garnishment Limits
Federal law limits creditor garnishments to the lesser of 25 percent of wages or the amount of wages in excess of 30 times the minimum wage. With the federal minimum wage rate at $6.55 per hour, for a 40-hour workweek, 30 times the minimum wage rate is $196.50. Employees with disposable earnings of $196.50 or less per week cannot have any of their wages garnished; employees with disposable earnings of between $196.50 and $262 per week can have their wages garnished in an amount equal to the difference between their weekly disposable earnings and $196.50; employees with disposable earnings over $262 per week can have 25 percent of their weekly disposable earnings garnished.

Many State Minimum Wages Keyed to Federal Rate
A number of states will increase their minimum wages to match the federal minimum wage increase, including: Idaho, Indiana, Maryland, Montana, Nebraska, New Hampshire, North Carolina, North Dakota, Oklahoma, Puerto Rico, South Dakota, Texas, Utah, and Virginia. The District of Columbia sets its minimum wage at the federal minimum rate plus $1, so the D.C. minimum wage is $7.55, effective July 24.

Employers of tipped employees in many of these states will also see changes in either the tip credit, the minimum cash wage paid to tipped employees, or both.

The state minimum wage increased effective July 1, 2008, inIllinois, Michigan, Nevada, and West Virginia.

IRS Issues New Printing Specs, Tip Reporting Pub
The Internal Revenue Service has updated specifications for the private printing of paper and laser-printed substitutes for 2008 employer tax returns and wage statements in Revenue Procedures 2008-32 and 2008-33. Rev. Proc. 2008-32 provides specifications for the January 2008 revision of Form 941, Employer's QUARTERLY Federal Tax Return, and the related Schedule B, Report of Tax Liability for Semiweekly Schedule Depositors. Rev. Proc. 2008-33 provides specifications for 2008 Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements.

The service also provided advance notice that slogans, advertising, and logos will not be allowed on employee wage statements issued for calendar year 2010 and thereafter, in order to avoid confusion for recipients. The use of such advertising may cause genuine Forms W-2 to be confused with questionable forms, IRS said, and an employee may not recognize the importance of the statement for tax reporting purposes.

IRS has also provided an updated version of its publication on electronic filing of employer tip reporting returns. The new revision of Publication 1239, Specifications for Filing Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips, Electronically, should be used by large food or beverage establishments in making required annual reports to the service on receipts from food or beverage operations and tips reported by employees, IRS said.

IRS Releases Final Regs on Interest-Free Employment Tax Adjustments, Form 941X

The Internal Revenue Service June 30 issued final regulations (TD 9405) that modify the process for making interest-free adjustments for underpayments and overpayments of employment taxes. These regulations affect taxpayers that file employment tax returns, including Forms 941, 943, 944, and 945.

The regulations are part of IRS's effort to reduce taxpayer burden by allowing employers to make adjustments to employment taxes on a separately filed form (the new 94X series) as soon as an error is detected in place of the current process of reporting adjustments on regularly filed employment tax returns, the agency said. As part of the Form 94X Project, IRS is developing new forms corresponding to Forms 941, 943, 944, 945, and CT-1 that will be used in making adjustments of employment taxes.

The final regulations provide that if a return is filed and less than the correct amount of employer or employee FICA is reported, the employer can adjust the underpayment of tax interest-free by reporting the additional amount due on an adjusted return for the return period in which the compensation was paid. The adjustment must be made by the return date for the period in which the error is detected. If the underpayment amount is not paid by the time the adjustment is made, interest will begin to accrue and a penalty for failure to deposit may apply.

If an employer discovers an overpayment error, it is required to reimburse its employees the amount of overcollected employee FICA. Once this reimbursement is made, the employer may report both the employee and employer portions of FICA as an overpayment on an adjusted return. The employer must certify on the adjusted return that it has repaid or reimbursed its employees to the extent required.

For both underpayments and overpayments, interest-free adjustments are made by reporting the error on a separately filed adjusted return (Form 941X), which will not be filed as an attachment to a current return and will not affect the liability reported on the current return.

Adjustments of underpayments and overpayments of withheld federal income tax are made in the same way as adjustments of FICA liabilities but may only be made for errors discovered during the calendar year in which the wages were paid, IRS said.

The final regulations are effective Jan. 1, 2009, and apply to any error discovered on or after that date. IRS intends to issue guidance to give examples of how the final regulations apply in specific situations.

Maryland Reissues Withholding Tables
Maryland has reissued withholding tables to reflect income tax rate changes effective July 1, 2008. Tax rates and brackets have been revised; the exemption amount is increased to $3,200 (from $2,400) for taxpayers with gross incomes less than $100,000 ($150,000 filing jointly) and is limited for taxpayers with higher incomes.

The new tables are available on the Comptroller of Maryland website at http://business.marylandtaxes.com/taxinfo/withholding/2008ptables.asp.

June 2008 Updates

Standard Mileage Rate Increases to 58.5 Cents Per Mile July 1

The standard mileage rates for the use of automobiles beginning July 1, 2008, will be 58.5 cents per mile for business miles driven, and 27 cents per mile driven for medical or moving purposes, the Internal Revenue Service announced June 23 (IR-2008-82; Announcement 2008-63; Revenue Procedure 2007-70 is modified). The new rates compare to 50.5 cents per mile for business travel and 19 cents per mile for moving and medical travel for the first half of 2008. The rate for miles driven in service of charitable organizations has remained the same—at 14 cents-per-mile—because the amount is set by statute, IRS said in its information release.

“Given the increase in prices, the IRS is adjusting the standard mileage rates to better reflect the real cost of operating an automobile,” said IRS Commissioner Doug Shulman.

The Internal Revenue Service in Revenue Ruling 2008-29 provided guidance on income tax withholding in situations involving the payment of supplemental wages.

The ruling outlined nine examples involving employee payments—including various types of commissions, signing bonuses, and severance pay—and explained how special withholding rules for supplemental wages under tax code Section 3402 should be applied. Employers may be required to use an aggregate procedure prescribed in the regulations in determining the amount of income tax withholding on supplemental wage payments, or may be permitted to use optional flat rate withholding in certain circumstances.

The ruling explained withholding requirements and methods available to employers for: commissions paid at fixed intervals with no regular wages paid to the employee; commissions paid at fixed intervals in addition to regular wages paid at different intervals; draws paid in connection with commissions; commissions paid to the employee only when the accumulated commission credit of the employee reaches a specific numerical threshold; a signing bonus paid prior to the commencement of employment; severance pay paid after the termination of employment; lump sum payments of accumulated annual leave; annual payments of vacation and sick leave; and sick pay paid at a different rate than regular pay.

Revenue Ruling 2008-29 is scheduled for publication June 16 in Internal Revenue Bulletin 2008-24, and is available online at http://www.irs.gov/irb/2008-24_IRB/ar08.html.

Monthly Filing Reminder For Virginia
The Virginia Department of Taxation has issued a reminder that the due date for companies with a monthly tax filing status is the 25th of each month, effective Jan. 1, 2008.

March 2008 Updates

Form 941X 'Vision Draft' Released
The Internal Revenue Service is asking for public comment on Form 941X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, and the process associated with it, according to a notice released March 11.

The notice, Headliner 226, said the agency posted a “vision draft” of the new form for public review on the IRS Web site, available at http://www.irs.gov/pub/irs-utl/form_941x_vision_draft.pdf. Proposed regulations, released earlier this year, establishing the new process for making interest-free adjustments for both underpayments and overpayments, and clarifying the process for claiming refunds are in Internal Revenue Bulletin 2008-4, available at http://www.irs.gov/irb/2008-04_IRB/ar16.html.

IRS reports that Form 941X will be used to report corrections to Form 941, replacing Form 941c. Currently, employers use one form – Form 941c, Supporting Statement to Correct Information – to correct the amounts they previously reported on Forms 941, 943, 944, and 945. According to the IRS notice, “Form 941c is complex and does not correspond directly to any employment tax return. Consequently, taxpayers often make mistakes completing and filing it, resulting in processing errors and delays.”

The new form 941X will correspond line-by-line with Form 941, attempting to reduce confusion caused by Form 941c, according to IRS.

Additionally, IRS has proposed changes to the filing process by allowing Form 941X to be filed as a “stand-alone form” when an error is discovered, rather than having to wait to file corrections at the end of the quarter with the next employment tax return.

IRS said comments should address the clarity of the proposed rules and how they can be made easier to understand.

Comments on both the draft form and the proposed regulations are due March 27 and should be sent to CC:PA:LPD:PR (REG–111583–07), Room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044.

IRS Announces Corrections to Tax Forms W-2, W-3, Instructions for 2008
The Internal Revenue Service March 11 in a notice on its Web site announced that it had made a number of corrections to dates in the 2008 Form W-2, Wage and Tax Statement, Form W-3, Transmittal of Wage and Tax Statements, and the instructions for these forms.

The corrections for Forms W-2 and W-3 are:
Under "Due Dates" for Form W-2, shown on page 10, the first two sentences should read: "Furnish Copies B, C, and 2 to the employee generally by February 2, 2009. File Copy A with the SSA by March 2, 2009."   Under "When to File" on Form W-3, the first sentence should read: "Mail any paper Forms W-2 under cover of this Form W-3 Transmittal by March 2, 2009."

The corrections to the instructions are:
Under "Furnishing Copies B, C, and 2 to employees" on page 3, the first sentence should read: "Furnish Copies B, C, and 2 of Form W-2 to your employees, generally, by February 2, 2009."  Under "Failure to file correct information returns by the due date," on page 8, the third, fourth, and fifth sentences should read: "$15 per Form W-2 if you correctly file within 30 days (by March 31 if the due date is March 2); maximum penalty $75,000 per year ($25,000 for small businesses, defined later).", "$30 per Form W-2 if you correctly file more than 30 days after the due date but by August 3; maximum penalty $150,000 per year ($50,000 for small businesses).", and "$50 per Form W-2 if you file after August 3 or you do not file required Forms W-2; maximum penalty $250,000 per year ($100,000 for small businesses)." Under "Exceptions to the penalty," also on page 8, the last bullet should read: "Filed corrections of these forms by August 3." Under "Failure to furnish correct payee statements," also on page 8, the second sentence should read: "The penalty applies if you fail to provide the statement by February 2, if you fail to include all information required to be shown on the statement, or if you include incorrect information on the statement." At the same place, the last sentence of the second paragraph should read: "The penalty is not reduced for furnishing a correct statement by August 3."

The corrected version of the 2008 Form W-2, the 2008 Form W-3, and the 2008 Instructions for Forms W-2 and W-3 are available at http://www.irs.ustreas.gov/pub/irs-pdf/fw2.pdf, http://www.irs.ustreas.gov/pub/irs-pdf/fw3.pdf, and http://www.irs.ustreas.gov/pub/irs-pdf/iw2w3.pdf, respectively.

IRS Announces Interest Rate Drop
Quarterly interest rates decreased to 6 percent for individual overpayments and underpayments, 5 percent for corporate overpayments, and 8 percent for large corporate underpayments for the calendar quarter beginning April 1, the Internal Revenue Service said March 3 in Revenue Ruling 2008-10.  The overpayment rate for the portion of corporate overpayments exceeding $10,000 also will drop to 3.5 percent, IRS said in the revenue ruling and an accompanying information release (IR-2008-30).

Computation of Rates
For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points, IRS noted.  or corporations, the underpayment rate generally is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points.  The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points, and the rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus 0.5 percentage points.  The rates announced in Rev. Rul. 2008-10 are computed from the federal short-term rate based on daily compounding determined during January 2008.

Rev. Rul. 2008-10 will appear in Internal Revenue Bulletin No. 2008-13, dated March 31.

January 2008 Updates

IRS Releases 2008 Inflation – Adjusted Tax Rate Tables

New U.S. Passport Card Is Acceptable I-9 Document
The Department of Homeland Security's Citizenship and Immigration Services announced Aug. 8 that the new U.S. passport card may be accepted as valid documentation for the I-9 employment eligibility verification process. 

The passport card is considered a "List A" document that newly hired employees may present during the employment eligibility verification process to show work authorized status, CIS said. List A documents are those used by employees to prove both identity and work authorization when completing an I-9. 

The card "attests to the U.S. citizenship and identity of the bearer" and may be used for both the I-9 process and by employers participating in E-Verify, the federal government's electronic employment verification system, CIS said. 

Last month DHS and the State Department announced that the passport card was in full production. The card provides a less expensive and more portable alternative to the traditional passport book, CIS said. The card is wallet-sized, and may be used to expedite document processing at United States land and sea ports-of-entry for U.S. citizens traveling to Canada, Mexico, the Caribbean, and Bermuda, CIS said. The card may not be used for international air travel.