The IRS has issued guidance explaining how a new research credit option can help minimize the tax liability for eligible small businesses that incur qualifying research expenses throughout the year. According to Notice 2017-23, eligible businesses can take advantage of a new option which enables them to apply part or all of their research credit against their payroll tax liability. This is big news for taxpayers who previously could only take the research credit against their income tax liability.
This new option was available for the first time to any eligible small business filing its 2016 federal income tax return this last tax season. The new payroll tax credit is especially attractive to eligible startups that have little or no income tax liability. To qualify, a business must:
- have gross receipts of less than $5 million and
- could not have had gross receipts prior to 2012
An eligible small business with qualifying research expenses has the option to apply up to $250,000 of its research credit against its payroll tax liability. This option can be selected by completing Form 6765, Credit for Increasing Research Activities, and attaching it to a timely-filed business income tax return. Don’t worry if you failed to choose this option and still wish to do so. Under a special rule for the 2016 tax year, eligible small businesses can still make the election by filing an amended return by Dec. 31, 2017.
For more information, please contact one of our tax professionals today.
The Internal Revenue Service (IRS) has released the annual contribution limitations for health savings accounts (HSAs) and the minimum deductible amounts and maximum out-of-pocket expense amounts for high-deductible health plans. These limitations are updated annually to reflect cost-of-living adjustments. Business owners should inform employees of the HSA contribution limits increase for 2017.
Employers commonly offer employees HSA contributions as part of their healthcare benefit packages. HSAs are a popular option because of its dual purpose. Employees can utilize HSAs to save for the future or pay for qualified medical expenses tax free.
Under Sec. 223 of Rev. Proc. 2016-28, individuals who participate in a health plan with a high deductible are permitted a deduction for contributions to HSAs set up to help pay their medical expenses. To be eligible to contribute to an HSA you must participate in a high deductible health plan.
The following chart summarizes the contribution and out-of-pocket limits for HSAs and high-deductible health plans for 2017. There was only one minor change between 2016 and 2017.
|HSA contribution limit
Family: No Change
|HSA catch up contribution (age 55+)
|HDHP minimum deductible
|HDHP maximum out of pocket
Employers should remind employees who are contributing to or using their HSA:
- They have until April 15, 2018 to make contributions for the 2017 tax year.
- Withdrawing from their HSA for nonqualified purposes is subject to income tax.
- Nonqualified withdrawals are also subject to a 20% tax penalty unless an exception applies.
The professionals in our office can clarify any questions you may have on HSAs. Call on us today.
Congress passed the IRCA (Immigration Reform and Control Act) in 1986, which required the use of the Form I-9 to verify identity and employment authorization for all new employees, including U.S. citizens hired after November 6, 1986. New hires are required to complete this form within three (3) business days of the date of hire. Employers are required to retain the completed Forms I-9 for all employees, as long as the individuals work for the employer and until one year after the date the employment is terminated or three years after date of hire, whichever is later.
On November 14, 2016, USCIS (U.S. Citizenship and Immigration Services), published a revised version of the Form I-9. Employers must begin using the new version by January 22, 2017. The form has been modified to make it easier to complete on a computer, including prompts to ensure information is entered correctly and drop down lists and other enhancements.
You may obtain a copy of the new form (paper version and fillable PDF version) and a copy of the Handbook for Employers—Guidance for Completing Form I-9 (publication M-274) at the official website www.uscis.gov/i-9. There is no fee to obtain these forms via this website.
Penalty Eliminated for Employer Health Insurance Reimbursements
Last year, the IRS began enforcing a penalty on employers who reimburse employees for the cost of health insurance premiums. The fine was up to $100 per day ($36,500 per year), per employee. On Wednesday, December 7th, legislation was passed eliminating that penalty. Employers can now reimburse employees for the cost of health insurance premiums without being penalized.
In order to qualify, small employers must set up a stand-alone health reimbursement arrangement.
Small Employers Able to Use Stand-Alone Health Reimbursement Arrangements
The legislation passed on December 7th allows employers to fund employee HRAs to pay for qualifying out-of-packet medical expenses and health insurance premiums (including plans purchased from the exchange). Reimbursements to the employee for medical expenses are tax-free only if the employee is enrolled in other health coverage that is minimum essential coverage. Employees that are covered by an HRA will not be eligible for subsidies for health insurance purchased on the exchange. The act takes effect for plan years beginning after December 31, 2016. To qualify for the funding of HRAs, the employer must have fewer than 50 full-time employees (or equivalents) and they must not sponsor a group health plan. The following are a list of additional requirements for the HRA’s:
- The HRA’s must be funded solely by employer contributions
- Must provide payment or reimbursement for medical care expenses or health insurance premiums. Employees must provide documentation/receipts for medical expenses or health insurance premiums paid.
- The maximum reimbursement for health expenses through HRAs is $4,950 for single coverage and $10,000 for family coverage
- If an employer chooses to offer HRA’s, they must be offered to all full-time employees, unless one of the following applies:
- The employee has not yet completed 90 days of service
- The employee is under 25 years old
- The employee is covered by a collective bargaining agreement for accident/health benefits
- The employee is a part-time or seasonal worker
- An employer must make the same HRA contributions for all eligible employees, however the following items may cause the amount to vary:
- Price of the insurance policy
- Age of the employee/eligible family members
- Number of family members covered
The professionals in our office can answer any questions you may have about the new legislation. Call us today.
This is a reminder to employers and small businesses of the new January 31 filing deadline for Form W-2. A new federal law, aimed at making it easier for the IRS to detect and prevent refund fraud, will accelerate by a month the W-2 filing deadline for employers from February 28 to January 31.
The Protecting Americans from Tax Hikes (PATH) Act, enacted last December, includes a new requirement for employers. They are now required to file their copies of Form W-2, submitted to the Social Security Administration, by January 31. The new January 31 filing deadline also applies to certain Forms 1099-MISC reporting non-employee compensation such as payments to independent contractors. As it relates to Form 1099-MISC, the new filing deadline will only impact filers that report nonemployee compensation payments in box 7.
In the past, employers typically had until the end of February, if filing on paper, or the end of March, if filing electronically, to submit their copies of these forms. Also, there are changes in requesting an extension to file the Form W-2. Only one 30-day extension to file Form W-2 is available, and this extension is not automatic. If an extension is needed, a Form 8809 Application for Extension of Time to File Information Returns must be completed as soon as you know an extension is necessary, but by no later than January 31.
The new accelerated deadline is intended to help the IRS improve its efforts to spot errors on taxpayer filed returns. Receiving W-2s and 1099s earlier will make it easier for the IRS to verify the legitimacy of tax returns and properly issue refunds to taxpayers eligible to receive them. According to, the IRS it will make it easier to release tax refunds more quickly. The January 31 deadline remains unchanged and has long applied to employers furnishing copies of these forms to their employees.
We anticipate the new deadline will increase your businesses workload. To minimize stress, we recommend the following steps:
- Verify your employee filing status and confirm their mailing addresses before December 31, 2016.
- Verify form W-9 information (for your 1099-Misc contractors) is completely up-to-date and accurate.
- Collect all the necessary information to ensure your forms are “good-to-go” on or about Monday, January 2, 2017.
The professionals in our office can answer any questions you may have about the new filing deadlines and how they will impact your business, call us today.
Just before Thanksgiving, Texas U.S. District Judge Amos Mazzant granted a nationwide injunction against the overtime extension rules that were set to go into effect on December 1. The blocked rules would have increased the maximum salary from $23,660 to $47,500 for a worker to be eligible for overtime pay, impacting an estimated 4.2 million working Americans. Mazzant issued the injunction following arguments against the rule from 21 states and the U.S. Chamber of Commerce, who argued that the extended overtime ruling was unlawful. While the injunction has put a halt to things for now, we expect the discussion is far from over. Let us know if you have any questions on how this could affect you. If you’d like to learn a bit more, check out these articles:
Do you know what will happen to your business when you retire? By necessity, many busy small business owners spend all of their time thinking about the here and now, with little opportunity to focus on the future. But your company’s long-term survival -— and your own retirement security -— may depend on establishing a realistic and workable exit strategy.
Set a retirement date
Here is your first question: When do you plan to quit working? You may have a general idea of the age range when you would like to retire, but now is the time to set a precise date. That gives you a timeline to work with, which will make all your other planning easier.
Consider your options
The next essential question: Who do you expect will take over your business? Many companies make one of two choices: either someone buys the company from you or a family member or employee takes over as chief executive when you retire. It is important to consider which one is the most realistic option so that you can ensure a smooth transition down the road. Depending on your plans, there are different steps you should take now to ensure a smooth transition.
If you plan to sell
If you are going to sell your company to another business or individual, you will need an accurate idea of what it is worth. You should get a business appraisal when you are ready to sell; but it may be a good idea to get one now, even if there are many years until your planned retirement. An appraisal can help to spot your company’s strengths and weaknesses so you can analyze how those attributes impact its overall worth.
The information in the appraisal can be used to make changes that improve operations, sales and revenues and make you a more competitive player in the marketplace. Those steps will help increase your company’s value and its appeal to potential buyers at the time you decide to sell.
If you plan to promote from within
It is always a good idea to have a current idea of your company’s worth, but there are also other necessary factors to consider if you are hoping that someone within your company will one day take over the reins of leadership. The first question, of course, is who will that person be? Is there a very talented younger employee who you believe could one day take over? If so, begin grooming him or her now. This includes introducing the employee to key clients, increasing his or her level of responsibility and including the person in decision making whenever possible.
Even if you expect to sell your business, it is a good idea to have a promising future leader ready to take over the reins. In most cases, a potential buyer will be happy to see that there is someone in place to carry on.
There are many possible exit strategies available to small business owners. No matter which you choose, it will be a good idea to have an accurate sense of the company’s worth and to have a strong management team in place. Our firm’s professionals can help you develop a strategy to suit your business. Call us today.
After much anticipation, the Department of Labor (DOL) recently released a new rule which will change how employers compensate employees. Effective December 1, 2016, workers who earn above the previous threshold but below the new one will qualify to receive time-and-a-half for each hour they work surpassing 40 hours a week. An estimated 4.2 million salaried workers will become eligible for overtime pay under the new rule.
According to the DOL, the new rule will:
- raise the salary threshold at which white-collar workers are exempt from overtime pay from $23,660 to $47,476 per year;
- automatically update the salary threshold every three years, based on wage growth over time;
- strengthen overtime protection for salaried workers already entitled to overtime; and
- provide greater clarity for workers and employers.
It should also be noted that, under the new rule, an employee’s nondiscretionary bonus/incentive payments can count toward up to 10% of the salary threshold, provided that the incentives are paid on a quarterly or more frequent basis.
Job titles do not determine exempt status. In order for an exemption for overtime to apply, an employee’s specific job duties and salary must meet all the requirements set by Department of Labor regulations. If you are unfamiliar with the criteria, more details are available on the Department of Labor website (www.dol.gov).
Many businesses will be affected and must comply with the new rule. According to the DOL, “employers may:
- increase the salary of an employee who meets the duties test to at least the new salary level to retain his or her exempt status;
- pay an overtime premium of one and a half times the employee’s regular rate of pay for any overtime hours worked;
- reduce or eliminate overtime hours;
- reduce the amount of pay allocated to base salary (provided that the employee still earns at least the applicable hourly minimum wage) and add pay to account for overtime hours worked over 40 in the workweek, to hold total weekly pay constant; or
- use some combination of these responses.”
Below are four steps you can implement which will help integrate the changes successfully into your workflow.
- Review payroll and identify employees who are exempt. The first step is to review your payroll and identify who are currently classified as exempt employees whose salaries are below the new proposed thresholds for executive, professional and administrative white collar exemptions. You should also review the job duties of all employees who are currently classified as exempt to ensure that they meet the duties test under the Fair Labor Standards Act for their overtime exemption to be recognized.
- Consider which positions to transition to non-exempt status. Once you have reviewed your payroll and identified the employees who are exempt it will be essential to carefully consider which positions to transition to nonexempt status. Employers have two options: they can either increase the salary level to maintain an employee’s exempt status or transition the position to nonexempt status. When transitioning positions to a nonexempt status, ask yourself the following questions:
- What will be the basis for pay: hourly or salaried?
- Does this meet the minimum wage requirements?
- Will overtime be permitted? Is it necessary?
3. Evaluate timekeeping practices.
Anticipate more time to track for employees transitioning from exempt to nonexempt status. Establish a formal policy to help track and record time. The policy should define:
- What is considered time worked?
- How is overtime approved?
- Who approves overtime?
- What are the consequences for failing to follow the policy?
4. Communicate changes internally.
The final step is to communicate and educate staff of any policy changes. Don’t forget to include employees who are already nonexempt; they will also need a refresher. Communications and training programs must be timely. Consider having supervisors regularly review employee time-keeping practices to ensure employees are properly reporting their time worked.
Employers have a few months to prepare for the new rule. Our firm’s professionals can help you develop a strategy to ensure your business is in compliance. Call us today.
Hudson, WI – November 23, 2015: Bauman Associates plans to expand its Hudson office by combining employees from its neighboring River Falls office. According to Managing Principal John Satre, this move will help the firm better serve clients in both the River Falls and Hudson markets.
By combining the River Falls and Hudson teams in one location, clients of both offices will benefit from larger client service teams and broader industry expertise. Additionally, consolidating the two offices into one will also help the firm to reduce overhead costs and allow the firm to maintain its competitive billing rates.
By December 1st, the firm plans to close its River Falls office and relocate all of these employees to its Hudson office. The address for the Bauman Associates expanded Hudson office will remain the same: 816 Dominion Drive, Suite 201, Hudson, WI 54016. The office main phone line is 715.386.8181.
About Bauman Associates, Ltd
Bauman Associates was founded in 1947 as a certified public accounting firm and has offices in Eau Claire and Hudson, Wisconsin. The firm provides multi-discipline professional services to businesses and individuals including business consulting; technology training; human resource consulting; tax strategy, planning and preparation; accounting and auditing services; and estate, trust and retirement planning. For more information, visit www.baumancpa.com or call 888-952-2866.