Archive for February 11, 2013

Form W-2 Reporting Of Employer-Sponsored Health Coverage

Edited and posted by Harold Goedde CPA, CMA, Ph.D.

The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan. Reporting the cost of health care coverage on the Form W-2 does not mean that the coverage is taxable. The value of the employer’s excludable contribution to health coverage continues to be excludable from an employee’s income, and it is not taxable. This reporting is for informational purposes only and will provide employees useful and comparable consumer information on the cost of their health care coverage.

Employers that provide “applicable employer-sponsored coverage” under a group health plan are subject to the reporting requirement. This includes businesses, tax-exempt organizations, and federal, state and local government entities (except with respect to plans maintained primarily for members of the military and their families). However, federally recognized Indian tribal governments are not subject to this requirement.

Transition Relief

For certain employers, types of coverage, and situations, there is transition relief from the requirement to report the value of coverage on the 2012 Forms W-2 (the forms for calendar year 2012 that employers generally are required to provide employees in January 2013). This relief will apply to future calendar years until the IRS publishes additional guidance. However, any guidance that expands the reporting requirements will apply only to calendar years that start at least six months after the guidance is issued. See the “Optional Reporting” column in the below chart for the employers, types of coverage, and situations eligible for the transition relief.

Reporting on the Form W-2

The value of the health care coverage will be reported in Box 12 of the Form W -2, with Code DD to identify the amount. There is no reporting on the Form W-3 of the total of these amounts for all the employer’s employees.

In general, the amount reported should include both the portion paid by the employer and the portion paid by the employee. See the chart, below, and the questions and answers for more information.

An employer is not required to issue a Form W-2 solely to report the value of the health care coverage for retirees or other employees or former employees to whom the employer would not otherwise provide a Form W-2.

The chart below illustrates the types of coverage that employers must report on the Form W-2. Certain items are listed as “optional” based on transition relief provided by Notice 2012-9(restating and clarifying Notice 2011-28). Future guidance may revise reporting requirements but will not be applicable until the tax year beginning at least six months after the date of issuance of such guidance.

The chart reviews the reporting requirements for Box 12, Code DD, and has no impact on requirements to report these items elsewhere. For example, while contributions to Health Savings Arrangements (HSA) are not to be reported in Box 12, Code DD, certain HSA contributions are reported in Box 12, Code W (see General Instructions for Forms W -2 and W -3).

Form W-2 Reporting of Employer-Sponsored Health Coverage

  Coverage Type

 Form W-2, Box 12, Code DD

Report

Do  Not Report

Optional
Major medical

X
Dental or vision plan not integrated into another medical or health plan

X
Dental or vision plan which gives the choice of declining or electing and paying an additional premium

X
Health Flexible Spending Arrangement (FSA) funded solely by salary-reduction amounts

X
Health FSA value for the plan year in excess of employee’s cafeteria plan salary reductions for all qualified benefits

X
Health Reimbursement Arrangement (HRA) contributions

X
Health Savings Arrangement (HSA) contributions (employer or employee)

X
Archer Medical Savings Account (Archer MSA) contributions (employer or employee)

X
Hospital indemnity or specified illness (insured or self- funded), paid on after-tax basis

X
Hospital indemnity or specified illness (insured or self- funded), paid through salary reduction (pre-tax) or by employer

X
Employee Assistance Plan (EAP) providing applicable employer-sponsored healthcare coverage Required if employer charges a COBRA premium Optional if employer does not charge a COBRA premium
On-site medical clinics providing applicable employer- sponsored healthcare coverage Required if employer charges a COBRA premium Optional if employer does not charge a COBRA premium
Wellness programs providing applicable employer- sponsored healthcare coverage Required if employer charges a COBRA premium Optional if employer does not charge a COBRA premium
Multi-employer plans

X
Domestic partner coverage included in gross income

X
Governmental plans providing coverage primarily for members of the military and their families

X
Federally recognized Indian tribal government plans and plans of tribally charted corporations wholly owned by a federally recognized Indian tribal government

X
Self-funded plans not subject to Federal COBRA

X
Accident or disability income

X
Long-term care

X
Liability insurance

X
Supplemental liability insurance

X
Workers’ compensation

X
Automobile medical payment insurance

X
Credit-only insurance

X
Excess reimbursement to highly compensated individual, included in gross income

X
Payment/reimbursement of health insurance premiums for 2% shareholder-employee, included in gross income

X

Other Situations

Report

Do Not Report

Optional
Employers required to file fewer than 250 Forms W-2 for the preceding calendar year (determined without application of any entity aggregation rules for related employers)

X
Forms W-2 furnished to employees who terminate before the end of a calendar year and request, in writing, a Form W-2 before the end of that year

X
Forms W-2 provided by third-party sick-pay provider to employees of other employers

X

The chart was created at the suggestion of and in collaboration with the IRS’ Information Reporting Program Advisory Committee (IRPAC). IRPAC’s members are representatives of industries responsible for providing information returns, such as Form W-2, to the IRS. IRPAC works with IRS to improve the information reporting process.

Related Information:

IR-2011-31, IRS Issues Interim Guidance on Informational Reporting of Employer-Sponsored Health Coverage

Notice 2010-69, Interim Relief with Respect to Form W-2 Reporting of the Cost of Coverage of Group Health Insurance Under § 6051(a)(14)

CIRCULAR 230 DISCLOSURE:  Pursuant to regulations governing practice before the  IRS, any tax  advice contained herein is not intended or written to be used and cannot be used by the taxpayer for the purpose of avoiding tax penalties that may be imposed on  the taxpayer.

Written by | Posted in Federal • Individual

Oracle eBTax and Operating units

With the introduction of Oracle R12 and the greater emphasis on shared service centres, can you afford not to use multiple Operating units especially when considering your indirect tax solution using Oracle Financials?

The challenged faced by any company implementing a new ERP solution, whether a single entity or a global conglomerate, is to capture the complex business requirements and yet keep the structure as simple as possible. Creating a highly complex organisation structure is likely to lead to greater data processing needs as well as a more labour intensive maintenance requirements. There is also a risk that the solution initially designed to help the company, ultimately leads to issues that end up consuming more resource.

Any solution architect will be considering this when they design the organisation structure deciding the best approach for the number of ledgers, what legal entities will use these ledgers and how many operating units will be needed to capture the data from the sub ledgers such as the Payables or Receivable modules.

The 11i approach was often to keep things as simple as possible, with one ledger where possible and only one operating unit linked to this ledger. The primary driving factor was the time it would take to run reports, opening and closing the month and entering data across the different legal entities. Each additional Operating unit meant that a new responsibility was required and this meant that a user would have to switch between these responsibilities each time they wanted to enter any data or do any month end processes for example. If you had 10 legal entities, this meant that the same task, if 10 operating units were used, one for each Legal entity, would have to be repeated each time. This of course would take a huge amount of time compared to one operating unit that all 10 legal entities were assigned to!

Oracles’ ‘Release 12’ solution change the playing field and ultimately the way the organisations could be established. First, ledger sets allowed multiple ledgers to be linked together as a ledger set providing that the same calendar and chart of accounts was used. A ledger set could then be assigned to a responsibility effectively giving access to the data in all of those ledger contained in the ledger set! Second, and more importantly, the ability to create security profiles meant that access to operating units and inventory orgs could now be combined together. This means that those 10 legal entities could now have 10 operating units per legal entity and added to one or multiple security profiles. A security profile and not an individual operating unit could now be assigned to a responsibility, giving it access across all 10 operating units! So now the ability to maintain simplicity with one responsibility to enter data and process month end is achieved but with the added benefits of the diversification that multiple operating units can bring.

Andrew Bohnet

Written by | Posted in Africa • Asia • Australia/Oceania • Corporate • Europe, Middle East • Indirect Tax • International • North America • Sales/Use Tax • South America • VAT

MN Refuses to Follow the Leader

The MN Department of Revenue is not really good at following the leader when it comes to taxes.  The Congress and IRS have changed some tax laws recently, but MN is increasingly not following suit.  Whether that’s a good idea for MN I’m not sure, but what I do know is that not following along with the federal return is making your MN returns more and more complicated. 

In recent years, your federal returns have allowed large amounts of Section 179 expensing and bonus depreciation.  MN decided that wasn’t going to fly, so they still allow only $25k of Sec 179 and no bonus depreciation.  80% of those depreciation deductions are adding back on the MN return and then subtracted over the next 5 years. 

Another area where MN is not playing nicely with the federal return, is itemized deductions and personal exemptions for individual taxpayers.  The federal return has removed the limitations on itemized deductions for taxpayers that exceed the thresholds (roughly $85k for married filing separate and $170k for everyone else).  MN didn’t accept that change so even though the federal return allows your itemized deductions, the MN return is going to addback a big chunk of them for taxpayers with income over those thresholds.  The same thing happened with personal exemptions.  The federal return is fully allowing them for 2012, but MN is adding them back for taxpayers who have income over various thresholds. 

It turns out the federal phase-outs of itemized deductions and personal exemptions are returning for 2013.  It remains to be seen if the MN adjustments will equal the Federal adjustments so there might still be an additional MN addback. 

This is an unfortunate trend, but I expect it to continue.  When the federal is allowing tax breaks for businesses or individuals, MN and many other states are not following suit so they can keep collecting the same amount of revenue.

Written by | Posted in TaxConnections

IRS changes instructions for Forms 5471 and 8621

Form 5471:

  1. IRS now requires a creation of Refrence ID of the foreign corporation and this must be completed for all years ending on or after December 31, 2012.
  2. According to AICPA – “ The most notable change and one that the AICPA has recently addressed in a comment letter to the IRS, is the constructive ownership exception which was previously available to Category 3 and 4 filers only. The exception has now been extended to all Category 5 filers where ownership in the foreign corporation is solely through application of constructive ownership principles and the U.S. person through whom the U.S. shareholder constructively owns an interest in the foreign corporation files Form 5471 reporting all required information. “
  3. Other changes can be found in “What’s new” section of Form 5471.

Form 8621:

  1. In the filer identification section, a line has been added to request the reference ID number of the PFIC or QEF.
  2. New Part I, Summary of Annual Information was added to reflect the new annual filing requirement of section 1298(f) which was added by section 521 of the Hiring Incentives to Restore Employment Act of 2010. However, this new Part I is not required until the underlying regulations are published. For now, they have been marked as Reserved For Future Use. Form 8621 will be revised when Part I becomes effective.
  3. The elections in Part II of the form have been reordered and the filing requirements for new elections F, G, and H have been modified. Please complete Part II carefully with these changes in mind.
  4. See instructions for all changes very carefully.
Written by | Posted in Africa • Asia • Australia/Oceania • Corporate • Estate Planning Tax • Europe, Middle East • Expatriate • Federal • Individual • International • North America

Tax Savings for Snowbirds?

If you feel the need to live in a warmer climate during the winter I guess I can understand.  Just remember to invite me to visit and greet me with a tee time and we can still be friends.  Now that you have abandoned the wintery north, you might as well understand the tax consequences and rewards.

Your resident state is going to tax all of your income for the year, so for people with more than one residence it’s important which state qualifies as your resident state.  MN tax rates are about 8%, AZ is closer to 4.5%, CA is about 10-11%, and FL is 0%.  That’s a wide range and it can make a big difference to your final tax bill each year.  Retiring to FL or AZ can reduce your taxes, but if you end up retiring in CA you will want to read all of this in reverse so you don’t end up increasing your tax bill.

MN defines anyone that lives in the state for more than 183 days a resident.  Yes, they literally count the days you are present in the state and if you get more than 183, then you are a MN resident.  If you would like to avoid being a MN resident you first need to get below that 183 day threshold, then you can look at the other factors.

If you are moving to your AZ/FL place for 7 months a year, you must change the homestead status on your MN property.  You are required to change the status of your MN residence to non-homestead within 6 months of leaving or the state can call you a resident forever.  Then you should take care of a few other items.  Register to vote in your new resident state.  Get a driver’s license in your new resident state with your new address.  You should transfer your professional memberships to your new state; for example having an in-active or non-resident designation in MN and then keeping an active or resident certification in your new state. 

I don’t suggest that people pick up and move to a state with lower income taxes, but if you are planning on doing it anyway, you might as well be careful how you do it so you can reduce your income tax liability.

Written by | Posted in TaxConnections

How CPAs Can Thrive Because of ObamaCare

By Andrew Johnson

Gun shops have reported that sales of guns are skyrocketing. They call President Obama the greatest gun salesman who ever lived. To people who fashion themselves “defenders” of the Second Amendment, President Obama’s calls for a “thoughtful” discussion on a reduction in “gun violence,” is really the sounding of an alarm. (Full disclosure: friends have labeled me “Second Amendment Man” — maybe a not-so-subtle hint that it’s ok if I talk about something else once in a while?). But anyway, for those people, the (knee-jerk?) response has been to head to the gun shop and get more guns before it’s illegal. In fact, for good or bad, depending on your point of view, the President has made a huge difference (if not a reduction) in the supply of guns. At least in the short term, business has been great for gun shops. They can thank President Obama for the boost.

Ask Not What You Can Do For ObamaCare, Ask …

For purposes of this article, let’s not get bogged down in a debate over whether the Patient Protection and Affordable Care Act is good or bad policy. Full disclosure: I don’t believe ObamaCare is good for our country or for businesses that create jobs that allow folks to provide for themselves and their families. But for now, it is the law in our great nation and we have to deal with it ourselves and help our clients deal with it too. Well, here’s one way we can help our clients.

The Wall Street Journal had a fascinating opinion piece about “Going Protean” recently. Paul Christiansen writes: “How big can a company get with just 50 employees? We’re about to find out. Thousands of small businesses across the U.S. are desperately looking for a way to escape their own fiscal cliff. That’s because ObamaCare is forcing them to cover their employees’ health care or pay a fine—either of which will cut into profits and stymie future investment and growth.”

The 50-employee limit before the federal health care law kicks in is bound to have an effect on how companies structure themselves. It will likely force companies near that threshold to examine exactly what is their core competency and then to outsource all other functions. I think of it like a roster for a football team. If you are limited to 50 by league rules, then you have to decide how many running backs you can keep, how many kickers, who can contribute on special teams and play other positions, who you want to keep because they are developing stars, etc. You really have to be strategic.

Paul continues: “‘Going protean’ offers a better strategy for many businesses. Owners of protean companies create a core of strategic employees who manage the big-picture elements of the enterprise—the culture, business model, product mix, vision, strategy, etc. This core then outsources the business tasks to other corporations.

“Non-core tasks could include things like accounting, marketing, product development, manufacturing, IT, PR, legal, finance, etc.”

So there you have it. We, as CPAs, can help companies survive and thrive, even in this environment as businesses face potentially devastating, government-imposed costs. We can help them stay focused on strategy, vision, product mix, and profits by outsourcing their non-core functions.

As companies look to work with the rules they’ve been given, “going protean” may be the only solution they have. CPAs are in a perfect position to help here. Most CPA firms can handle any of the accounting functions for their clients. Most CPA firms can handle all of their client’s federal or state income tax compliance. As ObamaCare is fully phased-in, the 50-man roster will become a huge issue. Each of the 50 slots at a company will be extremely valuable. CPA’s can help clients free up one or more of those valuable 50 slots.

Gun shops can thank the President for the temporary shot in the arm boosting their business. Perhaps, before all is said and done, CPAs will look back on ObamaCare as the “CPA Full Employment Act.”

Most CPA firms do not perform sales tax compliance. This is where we shine. This is how we mesh so well with other CPA firms. PJCo is a registered CPA firm but we do not perform any of the traditional CPA firm functions. We limit our practice to state and local tax consulting and sales tax compliance. We can work with CPAs and help their clients outsource the sales tax compliance function. Working together we can help our client free up one or more of those valuable 50 slots.

Written by | Posted in TaxConnections

The Disagreements About Nexus

 

Nexus is another topic where the states should just get together and adopt the same rules and then apply them equally to all types of businesses in every state.  Fat chance of that ever happening, so the way each state defines Nexus will remain important. 

In addition to the rules being different between MN and ND and WI, the rules can be different for different types of taxes within one single state.  The MN rules for income tax Nexus are not the same as the MN rules for sales tax Nexus.  It’s quite a pain in the butt to keep track of it all.

Generally income tax Nexus means you have a physical presence in that state.  If you have a warehouse or employees or an office building you are going to have Nexus.  With your Nexus comes the need to file an income tax return.  Once you start filing an income tax return in a state, it often means filing with the Secretary of State as well and it can sometimes be cumbersome to later leave that state.  CA is notorious for being the worst when it comes to leaving the state and escaping their minimum fees. Lately some states have gone to looking at sales in the state to determine Nexus even if no physical presence exists.

It’s always better to plan ahead than to react after the fact, but it’s doubly important to look at these Nexus issues before they arise.  Often times there isn’t any remedy if you have already triggered the Nexus, and filing late returns can be an expensive activity, so you need to find out what the state law is beforehand and then you can maybe plan around it.

Written by | Posted in TaxConnections

100th Anniversary 16th Amendment!

On February 3, 1913, the 16th Amendment, which allowed for a federal income tax, was ratified. While some might not think this is a cause for celebration, it is an important historical event to have reached the 100th anniversary.  The income tax has allowed for a progressive tax system. It has also led to many special rules that are a backdoor, less transparent ways to provide for government spending.  Perhaps we’ll see some of that reduced this year since both political parties have been talking about base broadening and lowering the personal and corporate tax rates.  We’ll see.

For more on the 16th Amendment and some tax history, please see my 21st Century Taxation post here

Written by | Posted in Tax Policy

Make Your CPA Firm’s Website Helpful To Your 1040 Clients – Kiss Them

Just thinking of some KISS things this morning.  (You know, Keep It Simple & Straightforward.)

Many accounting firms send their individual tax clients something called a tax organizer. The organizer is a reminder of what they reported last year and what they need to furnish their accountant this year.  Firms also often enclose a client “checklist” of items to gather and furnish their accountant. This has traditionally been done via U.S. mail.

I hope your firm has put this helpful information on your website. It could be very beneficial to clients (since they often misplace their organizer). CPAs report that a lot of clients never even open the envelope containing the annual income tax mailing.

Now consider the fact that more and more people immediately go to the internet when they need specific information or if even a general question comes to mind. Do your clients immediately think of your website or do they browse and find your competition?

While I was browsing accounting firm websites I came across David Wayne, a tax accountant in Colorado. Wayne offers a List of Things to Bring to your tax appointment.  Simple – Easy – Helpful.

Short, informational tutorials on your website are also very helpful. Lynn & Associates in Springfield, Illinois provides Simple – Easy – Helpful informational about their tax organizer, titled: Using Your Client Organizer.

Be sure you are using your website to help your clients. Dealing with taxes and financial matters is something they often dread and rely on you for your experience and expertise. It is important for you to KISS.

Written by | Posted in TaxConnections
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