Client F.Y.I.

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

Form 1-9, Employment Eligibility Verification Form, has been revised as of June 5, 2007. Form I-9 is used by employers to verify the employment eligibility of employees. The revised form must be used for all new hires or reverifications after December 26, 2007.  To access the revised form, follow the link in our Payroll Center.
 

Beginning in 2008, small tax-exempt organizations will have a new filing requirement.  It's short, easy and electronic - it's the new e-Postcard.

 

If you are a tax-exempt organization that normally has annual gross receipts of $25,000 or less and does not have to file Form 990 or 990-EZ, you must file the e-Postcard.  The e-Postcard is due by the 15th day of the fifth month after the close of your tax year.  So if your organization operates on a calendar year, e-Postcard is due by May 15 of the following year.

 

What happens if you don't file?  You risk losing your tax-exempt status!

 

If you think this new filing requirement may apply to your organization, go to www.irs.gov/eo for complete details and while you're there sign up fo Exempt Organization's free email newsletter, EO Update, to receive up-to-date information posted on the charity pages of irs.gov.

 

Compliance Guide for 501(c)(3) Public Charities
Are you a director, trustee or key employee for a charitable organization?  Do you want to avoid problems with the IRS.  The IRS recently released a new publication entitled "Compliance Guide for 501(c)(3) Public Charities".  This publication provides readers with an overview of various compliance issues that are important for public charities.  To access this publication (Publication 4221-PC), go to http://www.irs.gov/pub/irs-pdf/p4221pc.pdf.

All cash gifts, regardless of amount, must be substantiated by a bank record or a written communication stating the charity’s name and the amount and date of the contribution. Previously, recordkeeping was minimal for contributions under $250.00. Also, deductions may not be taken for donations of used clothing and household items that are not in "good used condition or better."

The American Jobs Creation Act of 2004 created a new tax deduction for domestic production activities. The deduction is a percentage of the net income from these activities—6% for 2007-2009 and 9% after 2009—but it is subject to several limitations.

The deduction is allowed for qualified production activities income, which is the domestic production gross receipts of a business net of related expenses. "Domestic production gross receipts" includes receipts from any lease, rental, license, sale, exchange, etc., of qualifying production property (i.e., tangible personal property, any computer software, and certain sound recordings) that was manufactured, produced, grown, or extracted in whole or in significant part by the business within the U.S. Also included are receipts from construction in the U.S., engineering and architectural services performed in the U.S. for construction projects in the U.S., and the domestic production of certain films.

"Domestic production gross receipts" don't include gross receipts from selling food or beverages at a retail establishment.

Complex allocation rules will apply if only part of a business's gross receipts are domestic production gross receipts. The deduction is available to regular (C) corporations, pass-through entities such as S corporations and partnerships, and to sole proprietorships, estates, and trusts.

The Internal Revenue Service mandates that certain employers file taxes electronically. In 2000, the Electronic Federal Tax Payment System (EFTPS) was expanded to require that businesses making aggregate federal tax deposits of more than $200,000 during a calendar year must make all federal tax deposit payments electronically beginning in the second succeeding calendar year. For example, if you had more than $200,000 in total deposits in calendar year 2006, you will be required to use EFTPS beginning January 2008. This includes ALL payments previously made with a check and Form 8109. Deposits made at a local bank with Form 8109 will be considered late, resulting in a 10% penalty. Once a business meets the $200,000 threshold, you are required to continue using the system even if your deposits in future years drop below the threshold amount. For those of you under the threshold, you may still want to consider enrollment in EFTPS. The system is very easy to use and will eliminate numerous trips to the bank.

To comply, businesses must enroll in the EFTPS by completing IRS Form 9779. If you need assistance completing the enrollment form or determining whether you are required to comply, please feel free to contact us.

When you implement electronic filing of tax payments, remember to maintain a record of the following information for each payment: date of transaction, amount of deposit, type of tax remitted, reporting period to which the payment is applied, and acknowledgement number received from the treasury financial agent.

To access EFTPS, follow the link in our Payroll Center.

All employers are required to comply with New Hire Reporting requirements. The New Hire Reporting requirements were enacted to improve the collection of child support payments and detect and prevent erroneous Medicaid, food stamp and unemployment compensation claims.

Each New Hire Report should contain the employer’s name, address, federal employer identification number, and a contact name and telephone number. In addition, the employee’s name, address, social security number, date of birth and date of hire are required.

New Hire Reports may be submitted via first class mail, via fax or filed electronically.

Remember also to continue to maintain W-4 and I-9 forms for all employees. A new W-4 should be completed by every employee each year. These documents will generally be requested in the event of a payroll audit.

To submit New Hire Reports electronically or to obtain W-4 or I-9 forms, follow the links in our Payroll Center.

1099 Information Returns

Businesses are required to file Form 1099 information returns for various payments made throughout the year. These forms are to be used to report payments to individuals and partnerships paid by you as follows:

Kind of Payment	Amounts to Report - Total for the Year
Dividends and Royalties	$ 10.00 or more
Interest paid in the course of a trade or business.	600.00 or more
Rent	600.00 or more
Payments for services performed for a trade or business by people not treated as its employees. For example, commissions, sub-contractors, directors’ fees, accounting fees, etc.	600.00 or more
Distributions from retirement or profit sharing plans, SEPs, or insurance contracts.	10.00 or more
Payments to Attorneys (For legal fees, the exemption from reporting payments to corporations no longer applies).	All Amounts

 

Be aware of the various forms required and provide us with the addresses and social security numbers where necessary. Form W-9 should be completed by all payees prior to making any payments that would require a 1099 form. Failure to file the forms and failure to provide account numbers are each subject to a $50.00 penalty per failure. For businesses located in Pennsylvania, 1099 forms are to be filed with the Internal Revenue Service Center, Austin, TX 73301.

NOTE: On the recipient’s copies, you are required to include the telephone number of a person to contact in case of questions. It is recommended that the contact phone number be included in the section with the filer’s name and address.

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 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.

With the continued scrutiny of travel and entertainment costs by the IRS, it is important that you maintain some basic information for all travel and entertainment costs. The law specifically requires that any deduction claimed for meals and entertainment must be substantiated by records indicating the amount, time, place, and business purpose of the expenditure. Receipts are required on all expense account items over $75.

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. For cell phones, proper substantiation requires documenting the time and duration, the business purpose, and the business relationship to the taxpayer for all calls. This documentation should be maintained even when there is no personal use.

The IRS continues to be strict in requiring proof of business use of vehicles. A taxpayer that claims a deduction for the business use of an automobile without maintaining written records can expect an IRS examination. A taxpayer should not assume that an IRS agent will compromise and allow part of a claimed business deduction based solely on the taxpayer's own statement. In all likelihood, no deduction will be allowed without substantiation of the taxpayer's statement.

Taxpayers should maintain regularly prepared written records of their vehicles' business use.

Please also be aware that personal use of a business owned vehicle creates taxable income. This should be reported as compensation subject to federal and FICA taxes on an employee’s W-2 at year end.

IRS CIRCULAR 230 DISCLOSURE: Any tax advice contained herein is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer by any governmental taxing authority or agency.