0.9 PERCENT ADDITIONAL MEDICARE TAX

•    For tax years beginning after December 31, 2012, the 0.9 percent Additional Medicare Tax applies to employee compensation and self-employment income above certain threshold amounts. The IRS issued proposed reliance regulations in 2012. In the just-released final regulations, the IRS acknowledged that the Additional Medicare Tax imposes new recordkeeping and withholding procedures for employers but rejected suggestions to give employers more time to allow corrections. The IRS explained that existing regs provide flexibility when an employer discovers errors and penalties generally do not apply where failure is due to reasonable cause and not willful neglect.

•    Employee Compensation

The Patient Protection and Affordable Care Act (Affordable Care Act) increased the employee- share of Hospital Insurance (Medicare)by 0.9 percent of FICA wages in excess of certain threshold amounts: $200,000 for single individuals, $250,000 for married couples filing a joint return, and $125,000 for married couples filing separate returns (the amounts are not indexed for inflation).

•    Self-Employed Individuals

For tax years beginning after December 31, 2012, the Additional Medicare Tax increases the Medicare tax on self-employment income by an additional 0.9 percent of self-employment income in excess of the applicable threshold amounts ($200,000/$250,000/$125,000). These amounts are reduced, but not below zero, by the amount of FICA wages taken into account in determining Additional Medicare Tax liability.

•    Employer Withholding

An employer’s withholding obligation for Additional Medicare Tax applies only to the extent the employee’s wages are in excess of $200,000 in a calendar year. The employer may disregard the amount of wages received by the employee’s spouse or from self- employment income or wages received from another employer. Common paymaster rules that determine liability for FICA tax apply.

•    Reporting

Individuals report Additional Medicare Tax on Form 1040, U.S. Individual Income Tax Return. Taxpayers may claim credit for any withheld Additional Medicare Tax on Form 1040 and must pay any tax due not paid through withholding or estimated tax payments.  (Individual income tax returns for 2013 filed in 2014 are the first individual returns to reflect the Additional Medicare Tax.)

•    Employer Liability

If an employer deducts less than the correct amount of Additional Medicare Tax, the employer is liable for the correct amount of tax, unless and until the employee pays the tax. The proposed regulations explained that the tax will not be collected from the employer if the employee pays the tax that the employer failed to deduct. The final regulations clarify that the employer is not relieved of its liability for payment of any Additional Medicare Tax required to be withheld unless the employer can show the employee paid the tax.

•    Employer Over/Underpayments

To correct an overpayment of Additional Medicare Tax, an employer may make an adjustment only if it repays or reimburses the employee prior to the end of the calendar year in which the wages/compensation was paid, the IRS explained. To correct an underpayment of Additional Medicare Tax, an employer may make an interest-free adjustment only if the error is ascertained within the calendar year in which the compensation was paid.

All Legal Same-Sex Marriages Will Be Recognized For Federal Tax Purposes effective September 16, 2013 under Revenue Ruling 2013-17 : 

The U.S. Department of the Treasury and the Internal Revenue Service recently ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.

Any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, a U.S. territory or a foreign country will be covered by the ruling. However, the ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law.

Under the ruling, same-sex couples will be treated as married for all federal tax purposes, including income, gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit.

For tax year 2013 and going forward, same-sex spouses generally must file using a married filing separately or jointly filing status.  For tax year 2012 and all prior years, same-sex spouses who file an original tax return on or after Sept. 16, 2013 (the effective date of Rev. Rul. 2013-17), generally must file using a married filing separately or jointly filing status.

For tax year 2012,  same-sex spouses who filed their tax returns before September 16, 2013 may choose (but are not required) to amend their federal tax returns to file as married filing jointly or married filing separately.  Similarly, for tax years 2011 and earlier, same-sex spouses who filed their tax return timely may (but are not required to) amend their federal tax returns to file as married filing jointly or married filing separately if the statute of limitations for amending the return has not expired.   Generally, the statute of limitations for filing a refund claim is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. As a result, refund claims can still be filed for tax years 2010, 2011 and 2012.

There are additional benefits to employees and employers regarding same-sex spouse health benefits.

Furthermore, qualified retirement plans are required to comply with the following rules pursuant to Rev. Rul. 2013-17.  You should check with your Retirement Plan Administrator as to the possible benefits of this ruling.

As this can be a really good opportunity for tax savings, we encourage our clients to take advantage of this new ruling.  Please contact Maria at our office for more information.

As part of the PPC Healthcare Reform Guide, we are providing guidance for the upcoming Notice of Availability of State Insurance Marketplaces. The required written notices must be provided to the employees by October 1, 2013.

Employers must notify all employees (a) of the existence of an insurance marketplace, (b) that the employee may be eligible for premium assistance and a subsidy under the marketplace, and (c) that if the employee purchases a policy through the insurance marketplace, he or she may lose the employer contribution to any health benefits offered by the employer.

• October 1, 2013 (for employees employed before October 1, 2013).

• On date of hiring, for employees hired on or after October 1, 2013. However, for 2014, a notice provided within 14 days of an employee’s start date will be considered provided at the time of hiring

Employers (including those who do not offer health coverage to their employees) must distribute the appropriate notice to all employees (regardless of plan enrollment status or part-time or full-time status). For all employees who are employed before October 1, 2013, the notice must be provided by October 1, 2013. For employees hired after September 30, 2013, the notice must be provided at the time of hiring; however, for 2014, a notice provided within 14 days of an employee’s start date will be considered provided at the time of hiring (EBSA Technical Release 2013-02). Informally, the Department of Labor (DOL) has indicated that for October-December 2013, new employees should receive the notice as soon as possible but no longer than 14 days after their start date. A separate notice does not need to be provided to employees’ dependents or other individuals who are or may become eligible for coverage under the plan but who are not employees. The DOL issued two model notices in May 2013 that may be used for current and new employees. One model is for employers who offer employer-provided health insurance coverage to some or all of their employees and the other model is for employers who do not offer employer-provided health insurance coverage.

The model notices must be revised by employers to include identifying and contact information. In addition, employers who offer health insurance coverage must provide information on which employees are offered coverage, eligibility requirements, and a statement as to whether the coverage meets the minimum value standard and whether the cost of the coverage to the employee is intended to be affordable based on the employee’s wages.

Most employers will be required to provide the notice because it applies to employers covered by the FLSA. In general, the FLSA applies to employers that have (a) one or more employees who are engaged in commerce and (b) gross annual sales of $500,000 or more. The FLSA is enforced by the Department of Labor (DOL), which has guidance relating to the applicability of the FLSA in general including a compliance assistance tool to determine applicability of the FLSA at www.dol.gov/elaws/esa/flsa/scope/screen24.asp

The Census Bureau would like to remind businesses to fill out their 2012 census forms because they are overdue.

Last fall, the U.S. Census Bureau mailed 2012 Economic Census forms to more than 4 million businesses. The Census Bureau pointed out that reliable statistics are needed for economic development, decision making and strategic planning.

The Economic Census is the U.S. government’s official five-year measure of American business and the economy. For those businesses that have responded to the Economic Census, the Census Bureau thanks them. But for those businesses that were mailed a form but have not yet responded to the survey, the Census Bureau is urging them to do so as soon as possible.

The census law (Title 13, United States Code, Section 224), coupled with the Sentencing Reform Act of 1984 (Title 18, Sections 3551, 3559, and 3571), provides for penalties of up to $5,000 for failure to report, and $10,000 for intentionally providing false information.

May 9, 2013 Tax Blog

In 2013, Various Tax Benefits Increase Due to Inflation Adjustments:

For tax year 2013, the Internal Revenue Service announced the annual inflation adjustments for more than two dozen tax provisions.

• The annual exclusion for gifts rises to $14,000 for 2013, up from $13,000 for 2012.
• The amount used to reduce the net unearned income reported on a child’s tax return subject to the “kiddie tax,” is $1,000, up from $950 for 2012.
• The foreign earned income exclusion rises to $97,600, up from $95,100 in 2012.

Details on these inflation adjustments and others such as the low-income housing credit, the dollar limits for high-deductible health plans and other amounts can be found in Revenue Procedure 2012-41.

IRS Announces 2013 Pension Plan Limitations; Taxpayers May Contribute Up to $17,500 to Their 401(k) Plans in 2013:

The Internal Revenue Service announced cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2013. In general, many of the pension plan limitations will change for 2013 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged because the increase in the index did not meet the statutory thresholds that trigger their adjustment.

Highlights include:

• The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is increased from $17,000 to $17,500.
• The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan remains unchanged at $5,500.
• The limit on annual contributions to an Individual Retirement Arrangement (IRA) rises to $5,500, up from $5,000 in prior years.
• The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $59,000 and $69,000, up from $58,000 and $68,000 in 2012. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $95,000 to $115,000, up from $92,000 to $112,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $178,000 and $188,000, up from $173,000 and $183,000.
• The AGI phase-out range for taxpayers making contributions to a Roth IRA is $178,000 to $188,000 for married couples filing jointly, up from $173,000 to $183,000 in 2012. For singles and heads of household, the income phase-out range is $112,000 to $127,000, up from $110,000 to $125,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.
• The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $59,000 for married couples filing jointly, up from $57,500 in 2012; $44,250 for heads of household, up from $43,125; and $29,500 for married individuals filing separately and for singles, up from $28,750.

For more information visit our website at www.dncpas.com or give one of our accountants a call at 239-261-8337. Davidson and Nick CPAs has been serving Southwest Florida in helping individuals and businesses as CPAs and most trusted advisor since 1989.