The vast majority of Americans get a tax refund each spring. However, what if you are not one of them? What if you owe money to the IRS or your state?
Here are nine tips for individuals who need to pay taxes. The tips are similar for corporations, but more involved.
1. If you get a bill for late taxes, you are expected to promptly pay the tax owed including any additional penalties and interest. If you are unable to pay the amount due, it is often in your best interest to get a loan to pay the bill in full rather than to make installment payments.
2. You can also pay the bill with your credit card. To pay by credit card contact either Official Payments Corporation at 800-2PAYTAX (also www.officialpayments.com) or Link2Gov at 888-PAY-1040 (also www.pay1040.com).
3. The interest rate on a credit card or bank loan may be lower than the combination of interest and penalties imposed by the IRS or your state.
4. You can pay the balance owed by electronic funds transfer, check, money order, cashier's check, or cash. To pay using electronic funds transfer you can take advantage of the Electronic Federal Tax Payment System by calling 800-555-4477 or 800-945-8400 or online at www.eftps.gov.
5. You may request an installment agreement if you cannot pay the liability in full. This is an agreement between you and the Taxing Authority for the collection of the amount due in monthly installment payments. To be eligible for an installment agreement, you must first file all returns that are required and be current with estimated tax payments.
6. For the IRS, if you owe $25,000 or less in combined tax, penalties, and interest, you can request an installment agreement using the web-based application called Online Payment Agreement found at IRS.gov.
7. If you owe your state, you might b required to submit a financial statement and documents proving your inability to pay in full.
8. You can also complete and mail an Installment Agreement Request [for the IRS Form 9465]. The Taxing Authorities will inform you usually within 30 days whether your request is approved or denied or if additional information is needed. If the amount you owe is $25,000 or less, provide the monthly amount you wish to pay with your request. For the IRS, at a minimum, the monthly amount you will be allowed to pay without completing a Collection Information Statement, Form 433, is an amount that will fully pay the total balance owed within 60 months.
You may still qualify for an installment agreement if you owe more than $25,000, but a Form 433F, Collection Information Statement, is required to be completed before an installment agreement can be considered. If your balance is over $25,000, consider your financial situation and propose the highest amount possible, as that is how the IRS will arrive at your payment amount based on your financial information.
9. If an installment agreement is approved, a one-time user fee will be charged. For the IRS the user fee for a new agreement is $105 or $52 for agreements where payments are deducted directly from your bank account. For eligible individuals with incomes at or below certain levels, a reduced fee of $43 will be charged. This is automatically figured and is based on your income.
For more information about installment agreements and other payment options, give our office a call at 562-912-4334.
Showing posts with label Employment Taxes. Show all posts
Showing posts with label Employment Taxes. Show all posts
Monday, September 6, 2010
Thursday, June 10, 2010
COURT SUPPORTS IRS AGAINST “S” CORPORATION FOR UNDERPAYING EMPLOYEE-OWNER
Background
A “S” Corporation if a regular corporation that is treated like a sole proprietorship or partnership for tax purposes resulting in the net income of the corporation flowing through the individual tax returns and taxed at the lower individual tax rate in lieu of the corporate rate. Unlike an unincorporated self-employed person, that income is not subject to self-employment taxes. Consequently, the tax code requires employee – owners of “S” Corporations to be paid a “reasonable” salary thus requiring the withholding and payment of Social Security, Disability and Unemployment taxes. The salary is treated as a corporation expense, reducing the amount of income that flows through the sole proprietor or partner.
In times past, a common practice was to pay a minimal salary to the employee-owner and take out cash as a dividend. This will reduce total taxes by reducing the amount paid in Social Security, Disability and Unemployment taxes. For example, the employee-owner would take a $24,000 salary per year and withdraw cash from the corporation of $100,000 as a dividend. The Social Security, Disability and Unemployment tax would be paid on the $24,000 but not on the $100,000.
Court Ruling
In Watson v. U.S the district court ruled that a portion of the dividend distributions by an “S” corporation to its sole owner should be recharacterized as wages subject to employment taxes, the court rejected the corporation's assertion that IRS could not compel the corporation to pay a higher salary to the owner. This resulted in underreporting and underpayment penalties and interest on the corporation’s payroll tax returns over a two-year period.
Conclusion
Employee-owners of “S” corporations should pay a “reasonable” salary. What is a “reasonable” salary? That is a good question; there is no guidance in tax law or by the IRS. It is a case-by-case determination. To determine a reasonable salary, one needs to look at the prevailing wages paid for the same job description of the employee-owner and the income of the corporation.
Please call me for guidance on how this affects you personally.
A “S” Corporation if a regular corporation that is treated like a sole proprietorship or partnership for tax purposes resulting in the net income of the corporation flowing through the individual tax returns and taxed at the lower individual tax rate in lieu of the corporate rate. Unlike an unincorporated self-employed person, that income is not subject to self-employment taxes. Consequently, the tax code requires employee – owners of “S” Corporations to be paid a “reasonable” salary thus requiring the withholding and payment of Social Security, Disability and Unemployment taxes. The salary is treated as a corporation expense, reducing the amount of income that flows through the sole proprietor or partner.
In times past, a common practice was to pay a minimal salary to the employee-owner and take out cash as a dividend. This will reduce total taxes by reducing the amount paid in Social Security, Disability and Unemployment taxes. For example, the employee-owner would take a $24,000 salary per year and withdraw cash from the corporation of $100,000 as a dividend. The Social Security, Disability and Unemployment tax would be paid on the $24,000 but not on the $100,000.
Court Ruling
In Watson v. U.S the district court ruled that a portion of the dividend distributions by an “S” corporation to its sole owner should be recharacterized as wages subject to employment taxes, the court rejected the corporation's assertion that IRS could not compel the corporation to pay a higher salary to the owner. This resulted in underreporting and underpayment penalties and interest on the corporation’s payroll tax returns over a two-year period.
Conclusion
Employee-owners of “S” corporations should pay a “reasonable” salary. What is a “reasonable” salary? That is a good question; there is no guidance in tax law or by the IRS. It is a case-by-case determination. To determine a reasonable salary, one needs to look at the prevailing wages paid for the same job description of the employee-owner and the income of the corporation.
Please call me for guidance on how this affects you personally.
Friday, April 2, 2010
Business Changes in HIRE Act
This is an overview of two key tax changes affecting business in the recently enacted “Hiring Incentives to Restore Employment Act of 2010” (the HIRE Act, P.L. 111-147 ). The centerpiece of this Act is a payroll tax holiday and up-to-$1,000 tax credit for businesses that hire unemployed workers which gives business a maximum tax benefit of $7,621 in paying an unemployed worker $106,800 per year. The act also creates a similar new set of rules allowing a payroll tax holiday for railroad retirement tax purposes. In addition the HIRE Act includes a one-year extension of the enhanced small business expensing option under Code Sec. 179.
Payroll tax holiday for employers who hire unemployed workers.
The new law exempts private-sector employers from the 6.2% OASDI tax per new hire for the remainder of 2010. A company could save a maximum of $6,621 if it hired an unemployed worker and paid that worker at least $106,800—the maximum amount of wages subject to the OASDI. The qualifications are:
(1) The new hire must have been unemployed for at least 60 days before employment
(2) Applies to workers hired after February 3, 2010 [Date of introduction of the legislation]
(3) A worker who replaces another employee who performed the same job for the employer isn't eligible for the benefit, unless the prior employee left the job voluntarily or for cause.
(4) Applies to wages paid from March 19, 2010 to on December 31, 2010
(5) Applies only to private-sector employment, including nonprofit organizations—public sector jobs are generally not eligible for either benefit. However, employment by a public higher education institution qualifies.
(6) Hiring family members do not quality.
(7) An employer cannot claim both the HIRE act provisions and the Work Opportunity Tax Credit or another type of employment tax credit. The employer must select one benefit or the other for 2010. There is no double dipping.
(8) There is no minimum weekly number of hours that the new employee must work for the employer to be eligible.
Credit for employers who retain new workers
An employer is eligible for an additional non-refundable tax credit of the lesser of $1,000 or 6.2% of the wages paid after a 52-week threshold is reached. This is taken on the employer’s 2011 tax return. In order to be eligible:
(1) All of the qualifications listed above must be meet, AND
(2) The employee's pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.
Changes to tax forms
Per Thomson Reuters/RIA, the IRS explained changes to tax forms in an April 1 payroll industry teleconference call as follows:
(1) Form 941. IRS will be revising the second quarter Form 941, Employer's Quarterly Federal Tax Return, due on Aug. 2, 2010. It expects to finalize the new version on April 6. The electronic specifications for the form will be revised at a later date. A draft version of the form included a new line to report tip adjustments. That line will not be included in the final version of the form. IRS expects to include the tip adjustment line on the 2011 Form 941.
(2) New Form W-11. An employer may not claim the payroll tax exemption unless the new hire certifies by signed affidavit (under penalties of perjury) that he was employed for a total of 40 hours or less during the 60-day period ending on the date the employment begins. IRS has drafted Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, to help employers meet this requirement. It expects to finalize this form the week of Apr. 5. The form does not need to be notarized. IRS expects employees to be able to sign the form electronically at some point.
(3) Form W-2/W-3. There will be a new code on box 12 of the 2010 Form W-2 (Code CC) to indicate that a new hire had wages that qualified for the payroll tax exemption. Form W-3, Transmittal of Wage and Tax Statements, will be revised to include a line for total aggregate exempt wages.
Extension of enhanced small business expensing.
The new law also gives a one-year lease on life to enhanced expensing rules. For tax years beginning in 2010, the maximum amount that a business may expense is $250,000, and the expensing election begins to phase out when a business buys more than $800,000 of expensing-eligible assets. These dollar limits are the same as those that were in effect for 2008 and 2009. Had the HIRE Recovery Act not been passed and signed into law, these dollar limits would have dropped this year to $134,000 and $530,000 respectively.
If you have any questions on how this applies to your business, please call the office of The John Ellis Company.
Payroll tax holiday for employers who hire unemployed workers.
The new law exempts private-sector employers from the 6.2% OASDI tax per new hire for the remainder of 2010. A company could save a maximum of $6,621 if it hired an unemployed worker and paid that worker at least $106,800—the maximum amount of wages subject to the OASDI. The qualifications are:
(1) The new hire must have been unemployed for at least 60 days before employment
(2) Applies to workers hired after February 3, 2010 [Date of introduction of the legislation]
(3) A worker who replaces another employee who performed the same job for the employer isn't eligible for the benefit, unless the prior employee left the job voluntarily or for cause.
(4) Applies to wages paid from March 19, 2010 to on December 31, 2010
(5) Applies only to private-sector employment, including nonprofit organizations—public sector jobs are generally not eligible for either benefit. However, employment by a public higher education institution qualifies.
(6) Hiring family members do not quality.
(7) An employer cannot claim both the HIRE act provisions and the Work Opportunity Tax Credit or another type of employment tax credit. The employer must select one benefit or the other for 2010. There is no double dipping.
(8) There is no minimum weekly number of hours that the new employee must work for the employer to be eligible.
Credit for employers who retain new workers
An employer is eligible for an additional non-refundable tax credit of the lesser of $1,000 or 6.2% of the wages paid after a 52-week threshold is reached. This is taken on the employer’s 2011 tax return. In order to be eligible:
(1) All of the qualifications listed above must be meet, AND
(2) The employee's pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.
Changes to tax forms
Per Thomson Reuters/RIA, the IRS explained changes to tax forms in an April 1 payroll industry teleconference call as follows:
(1) Form 941. IRS will be revising the second quarter Form 941, Employer's Quarterly Federal Tax Return, due on Aug. 2, 2010. It expects to finalize the new version on April 6. The electronic specifications for the form will be revised at a later date. A draft version of the form included a new line to report tip adjustments. That line will not be included in the final version of the form. IRS expects to include the tip adjustment line on the 2011 Form 941.
(2) New Form W-11. An employer may not claim the payroll tax exemption unless the new hire certifies by signed affidavit (under penalties of perjury) that he was employed for a total of 40 hours or less during the 60-day period ending on the date the employment begins. IRS has drafted Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, to help employers meet this requirement. It expects to finalize this form the week of Apr. 5. The form does not need to be notarized. IRS expects employees to be able to sign the form electronically at some point.
(3) Form W-2/W-3. There will be a new code on box 12 of the 2010 Form W-2 (Code CC) to indicate that a new hire had wages that qualified for the payroll tax exemption. Form W-3, Transmittal of Wage and Tax Statements, will be revised to include a line for total aggregate exempt wages.
Extension of enhanced small business expensing.
The new law also gives a one-year lease on life to enhanced expensing rules. For tax years beginning in 2010, the maximum amount that a business may expense is $250,000, and the expensing election begins to phase out when a business buys more than $800,000 of expensing-eligible assets. These dollar limits are the same as those that were in effect for 2008 and 2009. Had the HIRE Recovery Act not been passed and signed into law, these dollar limits would have dropped this year to $134,000 and $530,000 respectively.
If you have any questions on how this applies to your business, please call the office of The John Ellis Company.
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