Client F.Y.I.

  
 
KEY 2009 FIGURES

 

Minimum wage requirement for 2007 through 2009 are as follows:

	Effective Date	Minimum Wage	Tip Minimum Cash Wage	Tip Credit
Employers with more than 10 full-time employees	01/01/07	6.25	2.83	3.42
	07/01/07	7.15	2.83	4.32
	07/24/09	7.25	2.83	4.42
Employers with 10 or fewer full-time employees	01/01/07	5.65	2.83	2.82
	07/01/07	6.65	2.83	3.82
	07/01/08	7.15	2.83	4.32
	07/24/09	7.25	2.83	4.42

Effective July 1, 2009, all contractors who perform at least $5,000 worth of home improvements per year are required to register with the state Attorney General's Office.  The application can be completed online at www.attorneygeneral.gov.  There is a $50.00 registration fee and contractors will be required to renew their registration on a biennial basis.  Contractors will be issued a license number, which they will be required to include on all advertisements.

 

The registration website listed above also contains a "Frequently Asked Questions" section that provides extensive information regarding this act and the registration process.

After receiving several inquires regarding the Red Flag Rules, we feel it is important to relay this important information to you:

 

The Federal Trade Commission (FTC) has issued regulations regarding fraud and identity theft prevention.  Known as the "Red Flag Rules," the Fair and Accurate Credit Transactions (FACT) Act of 2003 requires all entities that extend credit to consumers to develop and officially adopt an "Identity Theft Prevention Program" by November 1, 2008.  However, due to confusion over the regulation's definition of "creditor," this deadline has been postponed by the FTC until May 1, 2009.  According to the FTC, the term "creditor" refers to "any entity that regularly extends, renews, or continues credit."  A "covered account" is "an account used mostly for personal, family, or household purposes, and that involves multiple payments or transactions." If you receive payment after providing goods and/or services to consumers by maintaining Accounts Receivable, you may be required to comply with the FACT Act.  Please note, accepting credit cards as a form of payment does NOT meet the definition of "credit" as established by the FTC.

 

Please note, your Identity Theft Prevention Program must be written and formally adopted by your board of directors, shareholders, or partners by the May 1, 2009 compliance deadline.  If you have not developed a plan already, please do so immediately.

 

For more information about the Red Flag Rules and compliance guidelines, please download this informational pamphlet from the FTC.  You may also want to review this compliance model distributed by the National Rural Water Association.  This model was specifically designed for water utility providers, but can be adapted for almost any business model and industry.

 

If you have any questions regarding the Red Flag Rules or what they mean to you, please contact our office at (717) 336-3801.

 

Congress passed the Emergency Economic Stabilization Act of 2008 on October 3, 2008.  The Act has several key provisions that may affect your company.  Most notably, the research and development credit, the credit for hiring people from disadvantaged groups, and the new markets tax credit have all been extended through 2009.

 

In addition, 15-year straight-line depreciation for qualified leasehold improvements and restaurant renovations has been restored retroactively for assets placed into service in 2008 and extended for assets placed into service in 2009.  The 15-year depreciation may be used for improvements added to restaurants “if more than 50% of the building’s square footage is devoted to the preparation of, and seating for on-premises consumption of, prepared meals” (IRC Sec. 168(e)(7)(A)(ii)), as well as qualified restaurant buildings themselves, if placed into service in 2009.  Similar improvements are usually depreciated over a 39-year period.  The Act also added a provision for qualified retail store improvements to be depreciated straight-line over a 15-year period if they are placed into service in 2009.  Qualified retail store improvements are those real property improvements to the interior portion of nonresidential buildings that are (1) open to the public and used to sell tangible goods, and (2) placed into service more than three years after the building itself was originally placed into service.

 

The Act also provided for several key changes for individuals.  Some of the most notable changes include:  AMT exemption amounts for 2008 have been increased to $65,950 for married couples filing jointly, $46,200 for singles, and $34,975 for married couples filing separately; IRA holders over the age of 70½ may once again transfer up to $100,000 to an eligible charity tax-free in 2008 and 2009; the $4,000 deduction for higher education expenses has been extended through 2009; expenses incurred by teachers for classroom supplies up to $250 is extended through 2009; and the option to deduct state and local sales tax or state and local income tax, whichever is higher, has been re-instated through 2009 (if deducting sales tax, you may use actual receipts or the IRS-provided table plus receipts for big-ticket items).  Additionally, taxpayers that do not itemize deductions will be allowed to deduct property taxes in addition to the standard deduction in 2008 and 2009, with a maximum deduction of $1,000 for married couples and $500 for singles.  Also, the energy credits for solar equipment, fuel cells, and energy-efficient improvements to an existing home were extended through 2016.

 

Be sure to contact us if you have any additional questions concerning the Emergency Economic Stabilization Act and what it means to you.

New Section 125 Cafeteria Plan Regulations
In August 2007, the IRS proposed new regulations regarding Section 125 Cafeteria Plans, effectively updating the previous regulations.  The proposed regulations become effective on January 1, 2009 and, while not yet finalized, may be relied upon to comply with the requirements of Section 125. Some of the key provisions of the proposed regulations include a written plan document and nondiscrimination requirements. The written plan must include descriptions of the benefits available and eligibility provisions; procedures for participants’ elections and for making contributions through salary reductions or nonelective contributions; an explicit prohibition against employees’ participation if they are not common law employees; a stated maximum contribution for each employee; and the plan year.  Several types of plans fall under Section 125, including “flex” plans and premium-only plans.  Be sure that your cafeteria plan complies with these new regulations; otherwise, all plan expenses may be included in your employees’ taxable income, which means less take home pay for them and higher payroll taxes for you!

Bonus Depreciation
The Economic Stimulus Act of 2008 has provided for a bonus first-year depreciation of 50% of the adjusted basis of qualified property.  Qualified property is most new (not used) property that is purchased after December 31, 2007 and before January 1, 2009 and is depreciated using the MACRS method with a life of 20 years or less. Section 179 depreciation may still be taken along with the bonus depreciation.  Please contact us so that we may help you take advantage of this bonus depreciation and the benefits it provides for your business.

Revised Form 990
The IRS has redesigned the Federal Form 990 – Return of Organization Exempt From Income Tax for the 2008 tax year.  The new form is far more detailed than ever before and will require considerable planning and completion time, especially for the first year.  Some parts of the prior Form 990 have been eliminated while many new sections and schedules have been added.  Some major changes in reporting requirements included governance; compensation of officers, directors, trustees, key employees, and highest compensated employees; determination of public charity status and public support; supplemental financial statement reporting; and fundraising, special events, and gaming.

 

To ease the burden this new form creates for mid-sized entities, the IRS has opted to phase in the use of the new 990 by allowing the 990-EZ form to be used instead. As instated last year, the 990-N postcard will still be used for small organizations.  The following table illustrates what form your organization will be expected to file in the next few tax years:

Also, please be aware of the public relations value of the Form 990.  When asked to describe your program services and expenditures, be specific.  The Form 990 is quickly becoming the most used document by potential donators, as well as those distributing grants.  Don’t let mundane or nonchalant answers keep your organization from receiving critical financial support!

 

Looking for more answers?  The IRS has a portion of its site dedicated to charities and other non-profits.  Click here to visit this page to learn more about the new Form 990, as well as other important topics.

New Single Member LLC Tax Requirement
Presently, single member LLCs are permitted to file and pay their employment taxes using either the name and EIN of the LLC or the name and EIN of the single member.  For all wages paid on or after January 1, 2009, all single member LLCs will be required to file and pay taxes in the name and EIN of the LLC.  Taxes may no longer be filed under the name and EIN of the single member.  An LLC may secure an EIN online at www.irs.gov or by filing a Form SS-4, Application for Employer Identification Number. 

Pennsylvania Smoking Ban
On September 11, 2008, Pennsylvania law makers passed the Clean Indoor Air Act, which effectively bans smoking in public and workplace spaces, with only a very few minor exceptions.  Employers and employees alike will want to ensure they are in compliance with the new law, which not only bans smoking, but also requires “No Smoking” signs to be posted in all spaces included in the law.  For more information, please visit PA’s health website at www.health.state.pa.us.  Here you will find frequently asked questions, free downloadable “No Smoking” signs, and a Business Owner’s Clean Indoor Air Compliance Toolkit.

 

In 2003, Pennsylvania law makers established the Educational Improvement Tax Credit (EITC), which was awarded to businesses making contributions to qualifying Scholarship Organizations and/or Educational Improvement Organizations.  At the time of its establishment, the credit could only be applied against the following corporate taxes:  Corporate Net Income Tax, Capital Stock Franchise Tax, Bank and Trust Company Shares Tax, Title Insurance Companies Shares Tax, Insurance Premiums Tax, and Mutual Thrift Institutions Tax.

 

In June of 2008, Pennsylvania added an additional way for businesses to take advantage of the EITC.  Effective July 1, 2008, personal income taxes generated by pass-through business income, as reported on PA Schedules RK-1, PA-65, or PA 20-S, are now eligible to be offset by the EITC.  In order to receive this tax credit, you must first apply to the state.  There is a finite amount of funds set aside each fiscal year (July 1 – June 30) for this credit, and it is given away on a first-come, first-served basis.  If you are approved, you will receive a credit equal to 75% of your contribution.  If you agree to contribute equal amounts in two consecutive years, the credit is increased to 90% of your contribution, but you must still apply each year.  Applications are accepted all year, but credits are only awarded until the total amount set aside for the current year has been used.  Renewal applications for the 2009-2010 fiscal year may be submitted beginning May 1, 2009.  Initial applications will be accepted starting on July 1, 2009.

 

Note:  The new pass-through tax credit qualification does not apply to sole proprietorships, Schedule C businesses, and single-member LLCs.  For more information on this tax credit or for help with the application process, please call our office.

NOTE: NEW HIRE INFORMATION MUST BE SUBMITTED WITHIN 20 DAYS OF HIRING THE EMPLOYEE.

Employee vs. Independent Contractor
The Internal Revenue Service is continually looking at whether a particular worker is an employee or an independent contractor. Improperly classifying a worker as an independent contractor can have significant adverse consequences. It is important that all workers be properly classified and appropriately treated. There are numerous factors that should be considered in determining whether a worker should be included in the payroll. These factors fall into three major categories: behavioral control, financial control, and the type of relationship between the parties. To assist you in your consideration of this issue, we have provided you with several links that outline IRS guidelines.  Please click here for further information. Failure to properly classify a worker could result in significant tax penalties.

 

Tuition Reimbursement
Tuition reimbursements provided to an employee for job-related educational expenses are excludible from the employee's income as a working condition fringe benefit. An expense is considered job-related if the education maintains or improves skills required by the individual's employment and/or is a condition of employment. However, if the education is required to meet the minimum educational requirements for the job, or will qualify the individual for a new trade or business, then the educational payments are includible in income and subject to taxation.

 

Legislation allows employers to exclude from income up to $5,250 annually in payments for educational assistance. To be excluded, the payments must be made as part of an accountable plan. This includes educational assistance benefits that are not job-related and the exclusion applies to graduate as well as undergraduate courses.

 

Cellular Telephones
The IRS has included cell phones in its definition of "listed property". Listed property includes assets, such as vehicles and computers, that have the potential to be used more than a minimal amount for personal purposes. As such, taxpayers must meet some strict substantiation requirements in order to deduct expenses for listed property. If the employer requires the employee to keep accurate and detailed records of business versus personal use, and the employee uses the phone exclusively for business purposes, all of the cell phone usage is excludable from the employee’s income. However, if personal use of the cell phone exists (except in a minimal capacity) the value of any personal cell phone use and a portion of the monthly maintenance charges for the phone are includable in the employee’s gross wages.

 

Employer-Owned Life Insurance Policies
The Pension and Protection Act of 2006 included changes to tax law regarding employer-owned life insurance policies issued after August 17, 2006. The proceeds of a life insurance policy may potentially be taxable if certain requirements are not met. The Act requires the employer to notify the employee in writing that they intend to insure the individual’s life and disclose the face amount of the policy. In addition, the employee must consent in writing to being insured and that the coverage may possibly continue after employment terminates. The Act also imposes an annual reporting requirement with respect to policies held. Please contact us if you have any life insurance policies to which these provisions may apply.