News Letter Page 2
• You must have filed all required Forms 1099 for the workers for the previous three years.
• You must currently not be under audit by the IRS, the Department of Labor or a state agency concerning the classification of these workers.
No interest or penalties will be due, and you will not be audited on payroll taxes re lated to these workers for prior years. If you are interested in applying for this program, please contact me.
EMPLOYER-PROVIDED CELL PHONES TAX- FREE UNDER NEW RULES
New IRS rules greatly ease the burden on employers who provide their employees with cell phones by lifting the detailed record keeping requirements. Now, if an employer provides an employee with a cell phone primarily for business reasons, the business and personal use of the cell phone is tax-free to the employee. For this rule to apply, there must be substantial business reasons, other than for compensation, morale or goodwill, for giving the employee a cell phone. This tax treatment is retroactive to the beginning of 2010.
Cell-Phone Reimbursements
A similar rule applies when an employer reimburses an employee for cell phone expenses. If an employer requires employees to use their personal cell phones for business purposes, reimbursements of employees’ expenses are not taxable. However, the employer can only reimburse the employee for reasonable expenses, not for excessive or unnecessary cell phone expenses.
Examples of Business Reasons for Phone
Here are some examples demonstrating acceptable business reasons for reimbursing an employee for a cell phone:
1.The employer’s need to contact the employee at all times for work-related emergencies.
2. The employer’s requirement that the employee be available to speak with clients at times when the employee is away from the office or outside of the employee’s normal work schedule (such as when clients are in different time zones).
3. The employee must communicate with clients outside of business hours and the employee’s basic coverage plan charges a flat-rate per month for a certain number of minutes for domestic calls. The employer can reimburse the employee for the monthly basic plan expense.
Examples of Excess, Taxable Reimbursements
The IRS gives the following examples of reimbursement arrangements that may exceed the employer’s needs and, therefore, should be examined:
1. Reimbursement for international or satellite cell phone coverage to a service technician whose business clients and other business contacts are all in the local geographic area where the technician works.
2. A pattern of reimbursements that deviates significantly from a normal course of cell phone use in the employer’s business. For example, if an employee received reimbursements for cell phone use of $100/ quarter in quarters 1 through 3, but receives a reimbursement of $500 in quarter 4.
PROOF OF DOCUMENT DELIVERY TO IRS
The IRS has changed what it will consider proof of delivery for documents that taxpayers send in under a filing deadline. The new rules allow proof of delivery for not only registered or certified U.S. mail, but also when taxpayers use a private delivery service, such as FedEx or UPS. The problem is that not all services offered by private delivery companies qualify. Therefore, if you have a document that needs to get to the IRS by a certain deadline, you must make sure you use a service that offers adequate proof that your document got there. I will be glad to assist you with any required mailings or answer questions you may have on how to do it yourself. Remember, if you are late filing required documents with the IRS, you will be subject to interest and possibly penalties.
TAX RELIEF FOR DISASTER VICTIMS
The U.S. has had its share of natural disasters this year, including flooding, wildfires, and the ravaging effects of Hurricane Irene. The IRS provides relief to individuals and business taxpayers affected by these disasters in the form of extended filing and payment deadlines. The states eligible for relief and the deadlines that apply are constantly changing. If you believe you may qualify, I will be glad to determine your eligibility and take the necessary steps to ensure you benefit from this program.
IRS EXTENDS 2010 ESTATE FILING DEADLINES
The IRS has extended the filing deadlines for large estates of people who died in 2010. These estates will now have until early next year to file required returns and pay any estate taxes due. In addition, the IRS is providing penalty relief to beneficiaries of these estates on their 2010 federal income tax returns. This relief is designed to give large estates, normally those over $5 million, more time to comply with key tax law changes enacted late last year.
NEW LIMITS FOR HEALTH SAVINGS ACCOUNTS
The IRS has set the inflation-adjusted limits that will apply in 2012 to Health Savings Accounts and to out-of-pocket spending for high deductible health plans.
Annual contribution limitation. For calendar year 2012, the annual limitation on deductions for someone with self-only coverage under a high deductible health plan is $3,100. For a family, the annual limitation is $6,250.
High deductible health plan. For calendar year 2012, a “high deductible health plan” is a health plan with an annual deductible that is not less than $1,200 for self-only coverage or $2,400 for family coverage.
IRS RELENTS AND INCREASES STANDARD MILEAGE RATE FOR LAST HALF OF 2011
After saying for months that it would not, the IRS has increased the standard mileage rate for computing the deduction for business use of a vehicle for the last half of 2011. Beginning July 1, 2011, the business mileage rate will be 55.5 cents, up from the existing 51 cents. The revised rate for medical or moving mileage is 23.5 cents, up from the existing 19 cents. The mileage rate for charitable use of an automobile is fixed by Congress and remains at 14 cents. This modification results from recent increases in the price of fuel. What this means for you is that for tax year 2011, miles driven in the first half of this year will be deducted at a lower rate than miles driven during the last half of the year. This split-year rate also occurred in 2008.
IRS AGAIN EXTENDS WITHHOLDING ON PAYMENTS TO GOVERNMENT CONTRACTORS
The IRS has extended for an additional year the 3% withholding on payments made to government contractors. Now the withholding obligation will not begin until 2013. Proposed regulations issued in 2008 require Federal, State, and local governments to withhold income tax when making payments to contractors for property or services. The rule is controversial and the effective date keeps getting extended. Congress may eventually repeal the provision.
